                                                                            ACCEPTED
                                                                       03-14-00510-CV
                                                                              3762693
                                                             THIRD COURT OF APPEALS
                                                                        AUSTIN, TEXAS
                                                                 1/14/2015 11:07:21 AM

  ____________________________________________
                                                                      JEFFREY D. KYLE
                                                                                CLERK


                No. 03-14-00510-CV
 _____________________________________________
                                       FILED IN
                                          3rd COURT OF APPEALS
                                               AUSTIN, TEXAS
               IN THE COURT OF APPEALS    1/14/2015 11:07:21 AM
           THIRD JUDICIAL DISTRICT OF TEXAS JEFFREY D. KYLE
                      AT AUSTIN                    Clerk
_______________________________________________

      Noah S. Bunker, Paul Carrell, Everett Brew
      Houston, Jr., W. Andrew Buchholz, Scott J.
       Leighty, Jad L. Davis, and Holly Clause,
                          Appellants

                               v.

                  Tracy D. Strandhagen,
                           Appellee

           FROM THE DISTRICT COURT OF TRAVIS COUNTY,
      353RD JUDICIAL DISTRICT, CAUSE NO. D-1-GN-13-002811,
          THE HONORABLE ORLINDA NARANJO PRESIDING


               APPELLANTS’ BRIEF

                      Amanda G. Taylor
                      ataylor@textaxlaw.com
                      Texas Bar No. 24045921
                      MARTENS, TODD, LEONARD, TAYLOR & AHLRICH
                      301 Congress Avenue, Suite 1950
                      Austin, Texas 78701
                      Tele: (512) 542-9898
                      Fax: (512) 542-9899


              ORAL ARGUMENT REQUESTED
              IDENTITY OF PARTIES AND COUNSEL


         APPELLANTS                             APPELLEE


Noah S. Bunker, Paul Carrell,        Tracy D. Strandhagen
Everett Brew Houston, Jr., W.
Andrew Buchholz, Scott J. Leighty,
Jad L. Davis, and Holly Clause


Appellate Counsel:                   Trial and Appellate Counsel:
Amanda G. Taylor                     Daniel Byrne
ataylor@textaxlaw.com                DByrne@FBHH.com
Texas Bar No. 24045921               Lessie Fiztpatrick
MARTENS, TODD, LEONARD,              LFitzpatrick@FBHH.com
TAYLOR & AHLRICH                     Christine E. Burgess
301 Congress Avenue, Suite 1950      CBurgess@FBHH.com
Austin, Texas 78701                  FRITZ, BYRNE, HEAD
Tele: (512) 542-9898                 & HARRISON, PLLC
Fax: (512) 542-9899                  98 San Jacinto Blvd, Suite 2000
                                     Austin, TX 78701
                                     Tele: (512) 476-2020


Trial Counsel:
Kelly McDonald
kmcdonald@cmcdlaw.com
Carla Garcia Connolly
cconnolly@cmcdlaw.com
CARLS, MCDONALD &
DALRYMPLE, LLP
901 South MoPac Expressway
Barton Oaks Plaza
Building 1, Suite 280
Austin, Texas 78746
Tele: (512) 472-4845
Fax: (512) 472-8403


                                     i
                                  TABLE OF CONTENTS
IDENTITY OF PARTIES AND COUNSEL ..................................................... i

TABLE OF CONTENTS ................................................................................. ii

INDEX OF AUTHORITIES ........................................................................... v

STATEMENT OF THE CASE ....................................................................... ix

RECORD ABBREVIATIONS ......................................................................... x

STATEMENT REGARDING ORAL ARGUMENT........................................ xi

ISSUES PRESENTED ................................................................................. xii

STATEMENT OF FACTS ............................................................................... 1

   I.     The Parties Entered a Series of Contracts Governing
          Their Medical Practice. .................................................................... 2

          A.      The Partners Promised to Stay With the Practice
                  for a Defined Period for Important Financial
                  Reasons. .................................................................................. 4

          B.      The Partners Agreed to be Bound by a Liquidated
                  Damages Provision Regulating Early Departure
                  from their Practice. ................................................................. 5

   II.    Strandhagen Departed the Practice Five Years Earlier
          than She had Contractually Agreed.................................................. 8

   III.   Strandhagen Filed Separate Proceedings Against the
          Company and her Physician Partners. ............................................. 9

   IV.    The District Court Dismissed Part and Granted Part of
          the Declaratory Relief Strandhagen Sought Against the
          Physicians....................................................................................... 10

SUMMARY OF THE ARGUMENT.............................................................. 12

                                                     ii
ARGUMENT................................................................................................ 14

   I.      The District Court Erred by Granting Strandhagen’s
           Motion for Summary Judgment..................................................... 14

           A.      Summary Judgment Standard of Review. .............................15

           B.      Strandhagen Failed to Satisfy her Summary-
                   Judgment Burden on the Essential Elements of
                   her Claim............................................................................... 16

                   1.       Strandhagen was required to conclusively
                            establish two elements. ................................................ 17

                   2.       Strandhagen conceded her inability to prove
                            the “difficulty of estimation” element.......................... 22

                   3.       Strandhagen failed to conclusively prove the
                            “unreasonable forecast” element. ................................ 23

                            (a)     No evidence of actual damages. ......................... 23

                            (b)     Plain language of contract shows
                                    reasonable forecast. ........................................... 30

                            (c)     Fact issue exists regarding
                                    modification. ...................................................... 33

           C.      Strandhagen Failed to Satisfy her Summary-
                   Judgment Burden Regarding the Physicians’
                   Status as Third-Party Beneficiaries. ..................................... 35

                   1.       The Operations Agreement Provides a
                            Direct Line of Liability................................................. 36

                   2.       A Genuine Issue of Material Fact Remains
                            about the Physicians’ Third-Party
                            Beneficiary Status. ....................................................... 37



                                                    iii
   II.        The District Court Erred by Denying Part of the
              Physicians’ Plea to the Jurisdiction................................................ 38

              A.     Texas Law Prohibits Advisory Declarations on
                     Potential Defenses to Hypothetical Disputes. ...................... 38

              B.     Strandhagen’s Claim Is Not Ripe. ......................................... 43

PRAYER ...................................................................................................... 44

CERTIFICATE OF COMPLIANCE .............................................................. 45

CERTIFICATE OF SERVICE....................................................................... 45

APPENDIX:

         1.        Order Granting Summary Judgment (CR.212)

         2.        Order Granting in Part and Denying in Part Plea to the
                   Jurisdiction (CR.184-185)

         3.        Order Denying Motion for New Trial (CR.271)

         4.        Operations Agreement (CR.162-183)




                                                      iv
                             INDEX OF AUTHORITIES
CASES
Alvarado v. Lexington Ins. Co.,
     389 S.W.3d 544 (Tex. App.—Houston [1st Dist.] 2012, no pet.) ....... 37

Atmos Energy Corp. v. Abbott,
    127 S.W.3d 852 (Tex. App.—Austin 2004, no pet.) ........................... 40

Baker v. Int’l Record Syndicate, Inc.,
     812 S.W.2d 53 (Tex. App.—Dallas 1991, no writ)......................... 18, 25

BHP Petro. Co. v. Millard,
    800 S.W.2d 838 (Tex. 1990) .............................................................. 42

Brooks v. Northglen Ass’n,
     141 S.W.3d 158 (Tex. 2004) ................................................... 39, 40, 41

California Prods. v. Puretex Lemon Juice, Inc.,
      334 S.W.2d 780 (Tex. 1960) .............................................................. 40

Chenault v. Phillips,
     914 S.W.2d 140 (Tex. 1996) ............................................................... 39

City of Euless v. Dallas/Fort Worth Int’l Airport Bd.,
      936 S.W.2d 699 (Tex. App.—Dallas 1996, writ denied) ..................... 39

City of Pasadena v. Smith,
      263 S.W.3d 80 (Tex. App.—Houston [1st Dist.] 2006, pet. denied) .. 39

Farmers Ins. Exch. v. Rodriguez,
    366 S.W.3d 216 (Tex. App.—Houston [14th Dist.] 2012, pet. denied) 41

Federal Deposit Ins. Corp. v. Lenk,
     361 S.W.3d 602 (Tex. 2012) .......................................................... 16, 17

                                                v
Flores v. Millennium Interests, Ltd.,
     185 S.W.3d 427 (Tex. 2005)............................................................... 16

GPA Holding, Inc. v. Baylor Health Care Sys.,
    344 S.W.3d 467 (Tex. App.—Dallas 2011, pet. denied) .............. passim

Healix Infusion Therapy, Inc. v. Bellos,
     No. 11-02-00346-CV, 2003 WL 22411873 (Tex. App.—Eastland
     Oct. 23, 2003, no pet.) ................................................................. 20, 24

In re City of Dallas,
      977 S.W.2d 51 (Tex. App.—Fort Worth 1998, orig. proceeding) ........ 40

In re Kasschau,
      11 S.W.3d 305 (Tex. App.—Houston [14th Dist.] 1999,
      orig. proceeding) ................................................................................ 34

In re Poly-Am., L.P.,
      262 S.W.3d 337 (Tex. 2008) .............................................................. 33

Khan v. Meknojiya,
     No. 03-11-00580-CV, 2013 WL 3336874 (Tex. App.—Austin
     June 28, 2013, no pet.) ........................................................... 16, 19, 21

Landry's Seafood Restaurants, Inc. v. Waterfront Cafe, Inc.,
    49 S.W.3d 544 (Tex. App.—Austin 2001, pet. dism’d) ....................... 17

LHR Enters., Inc. v. Geeslin,
    No. 03-05-00176-CV, 2007 WL 3306492 (Tex. App.—Austin
    Nov. 7, 2007, pet. denied) ............................................................ 40, 42

Murphy v. Cintas Corp.,
    923 S.W.2d 663 (Tex. App.—Tyler 1996, writ denied) .......... 21, 28, 30




                                                    vi
Nexstar Broad., Inc. v. Gray,
     No. 09-07-00364-CV, 2008 WL 2521967 (Tex. App.—Beaumont
     2008, no pet.) ......................................................................... 21, 41, 42

Patterson v. Planned Parenthood,
     971 S.W.2d 439 (Tex. 1998) ............................................................... 40

Paulsen v. Texas Equal Access to Justice Found.,
     23 S.W.3d 42 (Tex. App.—Austin 1999, pet. denied) ......................... 40

Phillips v. Phillips,
      820 S.W.2d 785 (Tex. 1991) ....................................................16, 23, 24

Sealock v. Texas Fed. Sav. & Loan Assoc.,
     755 S.W.2d 69 (Tex. 1988) ................................................................. 25

Southern Union Co. v. CSG Sys., Inc.,
     No. 03-04-00172-CV, 2005 WL 171349 (Tex. App.—Austin
     Jan. 27, 2005, no pet.) ............................................................... passim

State v. Margolis,
      439 S.W.2d 695 (Tex. Civ. App.—Austin 1969, writ ref’d n.r.e.)........ 42

Tex. Ass’n of Bus. v. Tex. Air Control Bd.,
      852 S.W.2d 440 (Tex. 1993) .............................................................. 39

Texas Dep’t of Pub. Safety v. Moore,
     985 S.W.2d 149 (Tex. App.—Austin 1998, no pet.) ............................ 39

Texas Dept. of Crim. Justice-Cmty. Justice Assistance Div. v. Campos,
     384 S.W.3d 810 (Tex. 2012)............................................................... 14

Thomas v. Graham Mortg. Corp.,
    408 S.W.3d 581 (Tex. App.—Austin 2013, pet. denied)......................15



                                                  vii
Transcont’l Realty Investors, Inc. v. Orix Capital Markets, LLC,
     353 S.W.3d 241 (Tex. App.—Dallas 2011, pet. denied) ...................... 41

Triton 88, LP v. Star Electricity, LLC,
      411 S.W.3d 42 (Tex. App.—Houston [1st Dist.] 2013, no pet.) ..... 20, 24

Valence Operating Co. v. Dorsett,
     164 S.W.3d 656 (Tex. 2005) ...............................................................15

Waco Indep. Sch. Dist. v. Gibson,
    22 S.W.3d 849 (Tex. 2000)................................................................ 40

STATUTES & RULES

TEX. CONST. art. II, § 1.................................................................................. 40

Tex. R. App. P. 39.1 ...................................................................................... xi

Tex. R. App. P. 39.2 ...................................................................................... xi

Tex. R. App. P. 43.2 ..................................................................................... 14

Tex. R. App. P. 43.3 ..................................................................................... 14

Tex. R. App. P. 43.4 ..................................................................................... 44

Tex. R. Civ. P. 139 ........................................................................................ 44

Tex. R. Civ. P. 166a .......................................................................................15

Tex. R. Civ. P. 94 ......................................................................................... 16



OTHER AUTHORITIES
RESTATEMENT (SECOND) OF CONTRACTS § 356 ......................................... 28, 29


                                                     viii
                STATEMENT OF THE CASE

 Nature of    This appeal arises from Appellee Dr. Tracy
 the Case     Strandhagen’s declaratory judgment claims against
              seven of her former partners in the Austin
              Anesthesiology Group (“AAG”), Appellants Drs.
              Noah S. Bunker, Paul Carrell, Everett Brew Houston,
              Jr., W. Andrew Buchholz, Scott J. Leighty, Jad L.
              Davis, and Holly Clause (collectively, “the
              Physicians”).    Strandhagen sought declarations
              against them that (1) she was terminated without
              cause, meaning the liquidated damages provision in
              the parties’ contract would be inapplicable to her;
              and (2) the liquidated damages provision was an
              unenforceable penalty. (CR.4-9).

 Course of    The Physicians filed a Plea to the Jurisdiction
Proceedings   seeking dismissal of Strandhagen’s claims. (CR.77-
              84). The trial court granted the Plea as to ground (1)
              and denied it as to ground (2). (CR.184; Appx. 2).

              Strandhagen then filed a Motion for Summary
              Judgment on ground (2). (CR.154-159).

Trial Court   The trial court granted Strandhagen’s Motion,
Disposition   declaring the liquidated damages provision to be an
              unenforceable penalty. (CR.212; Appx. 1). This
              resulted in a Final Judgment.

              The Physicians filed a Motion for New Trial, urging
              in regard to ground (2) of Strandhagen’s claim that it
              was error to deny the Physicians’ Plea and to grant
              Strandhagen’s Motion. (CR.213-227). Following a
              hearing, the trial court denied the Physicians’ Motion
              for New Trial. (CR.271; RR.1-29; Appx. 3). The
              Physicians timely perfected appeal. (CR.272-273).




                               ix
                 RECORD ABBREVIATIONS


Abbreviation                         Meaning

   “CR”        The primary Clerk’s Record, pages 1-286, filed on
               10/15/14.

               A “supplemental” clerk’s record was subsequently
               filed on 10/30/14 (for reasons unknown to the
               Physicians) containing duplicates of documents
               already in the primary CR.

               A second “supplemental” clerk’s record was filed on
               12/22/14 containing the order directing transfer of
               the sealed documents referenced below.

               The Physicians do not cite to either portion of the
               “supplemental” record.

“Sealed.CR”    A sealed document (Strandhagen’s Employment
               Agreement), filed as an original exhibit on 12/22/14.

               The Physicians’ citations to the Sealed.CR correlate to
               the actual portions of the Employment Agreement,
               whether it be a numbered page of the contract or an
               Appendix thereto, because the District Clerk did not
               assign separate “record pages” to this original
               document.

   “RR”        The Reporter’s Record, pages 1-29, which was filed on
               9/25/14. This is the transcript from the hearing on
               the Physicians’ Motion for New Trial.




                                 x
           STATEMENT REGARDING ORAL ARGUMENT
      Oral argument should be granted because it will aid the decisional

process by allowing the Court clarify and further develop the unique facts

and legal issues in this case. See Tex. R. App. P. 39.1, 39.2.

      This case presents unique facts borne from Strandhagen’s decision to

file a preemptive lawsuit against the Physicians while simultaneously

pursuing a separate yet related claim in a different forum against their

parent company. This case also presents important and unsettled legal

questions as applied to these facts, including: (1) What elements of proof

are required to prevail on an affirmative defense of “unenforceable

penalty?”, and (2) When is a declaratory judgment claim sufficiently ripe

for review?




                                       xi
                         ISSUES PRESENTED


Issue 1:   Was it reversible error for the district court to grant
           Strandhagen’s traditional motion for summary judgment
           declaring the parties’ liquidated damages provision to be an
           unenforceable penalty?



Issue 2:   Was it reversible error for the district court to deny the portion
           of the Physicians’ Plea to the Jurisdiction contending that
           Strandhagen’s claim was not yet ripe for decision?




                                    xii
                           STATEMENT OF FACTS
      Dr. Tracy Strandhagen, an anesthesiologist, left her medical practice

group approximately five years prior to the expiration of the seven-year

term that she had contractually agreed to work. (CR.160; Sealed.CR.12).

Before Strandhagen’s partners decided whether to sue her for breach of

contract or other claims, Strandhagen filed this preemptive lawsuit seeking

judicial declarations that would preclude her partners from recovering

against her under the liquidated damages provision of the parties’ contract

if they decided to bring a future claim against her. (CR.4-9). Strandhagen

named as defendants seven individual partners, who were the then-current

members of the practice group’s Advisory Board (Appellants Dr. Noah S.

Bunker, Dr. Paul Carrell, Dr. Everett Brew Houston, Jr., Dr. W. Andrew

Buchholz, Dr. Scott J. Leighty, Dr. Jad L. Davis, and Dr. Holly Clause)

(collectively, “the Physicians”).         (CR.1-3, 162, 179). 1     The trial court

granted declaratory relief in favor of Strandhagen. (CR.212, 271). The

Physicians urge this Court to reverse that decision.




1      Although Strandhagen appears to have chosen these defendants based on their
prior service on the Board, she sued them in their individual capacities, not in their
capacities as Board members.


                                          1
I.      THE PARTIES ENTERED A SERIES OF CONTRACTS
        GOVERNING THEIR MEDICAL PRACTICE.

        Tracy Strandhagen and approximately sixty other anesthesiologists

were members of the Austin Anesthesiology Group (“AAG”). (CR.38, 160).

In October 2011, they collectively decided to sell 100% of their outstanding

interests in AAG to American Anesthesiology of Texas (“AAT” or “the

Company”)2 pursuant to a Membership Interest Purchase Agreement

(“the Purchase Agreement”).                    (CR.38, 77, 155, 162). 3            The

anesthesiologists thereby became “physician partners” of AAT (“the

Partners”). 4 (CR.162). In connection with this transaction, the Company

and the Partners entered two types of additional contracts. (CR.162, 186-

187).

        First, the Company and the Partners entered an Advisory Board and

Internal Operations Agreement (“the Operations Agreement”). (CR.77,

162-183; Appx. 4). This agreement (1) established the duties, powers, and



2      AAT is an indirect subsidiary of a national medical services provider, Mednax,
Inc. (CR.6, 80; Sealed.CR.11).
3    A copy of the Purchase Agreement is not included in the record. It is referenced,
however, by the other contracts contained therein. (See CR.162; Sealed.CR.1).

4       Under the assorted agreements, the anesthesiologists are referred as the
“Physicians,” “Partners,” and/or “Physician Partners.” Herein, when referenced as an
entire group, they will be called the “Partners.” To distinguish this from references to
the seven, individual physicians named as defendants in this lawsuit, the latter will be
called the “Physicians.”


                                           2
procedures of the Partners’ Advisory Board, Medical Director, and Partners’

Representative; (2) identified the individuals who would serve the initial

terms of those positions; and (3) set forth the obligations owed by each

physician to the other Partners and the Company. (Id.).

      Second, the Company entered separate Employment Agreements

with each of the Partners “to protect the business interests and goodwill of

[the Company] and to promote the effective administration and

continuation of the Practice.” (Sealed.CR.1, 3, 12; see also CR.111, 155, 166-

167).5 As shown by Strandhagen’s contract, the Employment Agreements

set forth, inter alia, (1) the duties, services, and standards of conduct that

the Partners promised to provide; (2) the parties’ billing and compensation

agreements;    and   (3)   the   terms    of   the   Partners’   non-competes.

(Sealed.CR.1-12, 24). Importantly, the Employment Agreements specified a

set number of years that each Partner agreed to work for the practice (“the

Initial Term”). (CR.167; Sealed.CR.12). Strandhagen’s contract specified

that “the term of [the Employment Agreement] shall be a period of seven

(7) years,” which would expire in approximately October 2018.

(Sealed.CR.12). 6


5     Strandhagen’s Employment Agreement was submitted as a sealed, in camera
“Exhibit A-1” as part of the summary-judgment record and in connection with the
Motion for New Trial. (CR.146-147, 150-152, 271; Sealed.CR; RR.23-24, 28).



                                      3
      A.     The Partners Promised to Stay With the Practice for a
             Defined Period for Important Financial Reasons.

      The Partners’ agreements to stay with the practice for a designated

period of time was tied to the amount of monetary consideration they

received under the Purchase Agreement. (See CR.144, 167-168). Their

collective agreements to stay for a designated number of years also had

important financial implications for the practice.              First, each of the

physicians brought to the practice many years of experience and goodwill

that could not be readily replaced in the event of an early departure. (See

Sealed.CR.1). Strandhagen’s Employment Agreement reflects that she, like

her Partners, “ha[d] practiced medicine in the Specialty for many years and

[] developed substantial personal goodwill, including business contacts,

reputation, and other relationships in the health care industry.”

(Sealed.CR.1).

      Beyond the Partners’ goodwill value, the profitability of their practice

also depended on each Partner working a designated shift schedule, as

determined by the Medical Director.             (CR.168; Sealed.CR.2-3).         They

worked in “units” to fulfill the schedule, which required the cooperation

and dedication of each Partner. (Sealed.CR.2, 7, Annex A, B). Fulfillment


6      It appears that the majority of the Partners, like Strandhagen, agreed to seven-
year terms while seven of them negotiated shorter terms of employment. (See CR.168;
Sealed.CR.12).


                                          4
of these obligations allowed the practice to earn annual gross profits, which

directly affected the Partners’ ability to earn annual incentive bonuses.

(CR.187; Sealed.CR.9, Annex A, B).

     B.    The Partners Agreed to be Bound by a Liquidated
           Damages Provision Regulating Early Departure from
           their Practice.

     In recognition of the financial importance of the Partners remaining

with the practice for the entire duration of their agreed-upon terms, they

collectively agreed to be bound by a liquidated damages provision stating

that, if a Partner departed the practice early, he or she would be liable to

the remaining Partners for a specified amount of damages, subject to

certain exceptions. (CR.168). More specifically, the Operations Agreement

provided that—given (1) the consideration received by the Partners under

the Purchase Agreement and the calculation of bonuses based upon the

profits of the Company, and (2) the Partners’ agreements to work for a

specified Initial Term—if any Partner departed early, the others “may suffer

harm, including, without limitation, increased workloads necessitated by

such termination, material impairment of the ability of the Physicians to

earn bonuses, . . . material impairment of the Physicians’ relationships with

hospitals and other [parties] . . ., and hiring and training costs related to

replacement physicians.” (CR.167-168, 187).


                                     5
     The Partners “acknowledge[d] and agree[d]” that such that damages

would be difficult to prove, and that it would otherwise be inconvenient or

non-feasible to obtain another adequate remedy. (CR.168). Thus, they

agreed that if any Partner terminated his or her employment prior to the

expiration of the Initial Term (with some exceptions, as discussed below),

then he or she would pay the remaining Partners “as liquidated

damages and not as a penalty, the amount set forth below.” (CR.168)

(emphasis added).

     The majority of the sixty Partners agreed to be bound by a liquidated

damage amount of $500,000. (CR.156, 168). Seven others negotiated

individual liquidated damages amounts between $240,000 and $400,000,

presumably tied to having negotiated shorter “Initial Terms” of

employment.     (CR.168).    The Partners “each acknowledge[d] and

agree[d] that the Liquidated Damages Amount is reasonable in

light of the anticipated harm which would be caused by a Terminating

[Partner’s] breach of or default under this Agreement, the difficulty of proof

of loss, the inconvenience and non-feasibility of otherwise obtaining an

adequate remedy, and the value of the transactions to be consummated

under the Purchase Agreement and the other Transaction Documents.”

(CR.168) (emphasis added).



                                      6
      The Partners agreed to several exceptions in which the liquidated

damages provision would not be enforced. First and foremost, a Partner

would not be liable for liquidated damages if the Company terminated the

Partner’s employment without cause prior to expiration of the Initial Term.

(CR.168). The Employment Agreement specified events that would provide

the Company “cause” for termination. (Sealed.CR.13-18). Second, a Partner

would not be liable for liquidated damages if his or her employment ended

early due to the Partner’s death or disability, a down-sizing of the company,

or similar specified exceptions. (CR.169). Finally, each Partner had the

option of petitioning for permission by the majority to terminate his or her

employment early without payment of liquidated damages in the event of

“unforeseen circumstances” or “to provide other services to the Company or

its Affiliates.” (CR.169).

      The Partners expressly acknowledged the importance of these

provisions. The Operations Agreement states that their “agreement to be

bound by the covenants set forth herein, which [] are narrowly tailored and

necessary to protect the Physicians’ legitimate interests as a group,”

constituted a “significant inducement to [the Partners] entering into the

Purchase Agreement and consummating the transaction contemplated

thereby.” (CR.162).



                                      7
II.    STRANDHAGEN DEPARTED THE PRACTICE FIVE YEARS
       EARLIER THAN SHE HAD CONTRACTUALLY AGREED.

       Under Strandhagen’s Employment Agreement, the initial seven-year

term of her employment was not set to expire until approximately October

2018. (Sealed.CR.12).     Strandhagen’s employment was terminated five

years early, between July-September 2013. (CR.88, 160, 187).

       Strandhagen claimed she was constructively discharged on the basis

of gender discrimination in July 2013. (CR.88, 93, 101). If that were true,

it would provide a “terminated without cause” exception to her liability

under the liquidated damages provision. (CR.168). To the contrary, the

Company claimed that, following a series of disciplinary infractions,

Strandhagen quit or was terminated with cause in September 2013.

(CR.103, 144). Under that circumstance—whether Strandhagen resigned

without first obtaining permission from the majority of her partners for an

early departure or was rightfully terminated for engaging in detrimental

conduct, failing or refusing to adhere to specified policies and standards, or

breaching other terms of her Employment Agreement—Strandhagen would

be liable for payment of liquidated damages. (CR.167-169; Sealed.CR.13-

15).




                                      8
III. STRANDHAGEN FILED SEPARATE PROCEEDINGS AGAINST
     THE COMPANY AND HER PHYSICIAN PARTNERS.

       In approximately December 2013, Strandhagen filed an employment-

discrimination complaint against the Company with the Texas Workforce

Commission, Civil Rights Division and the EEOC. (CR.39, 80, 85-87, 91-

92).   Despite having not made any representation of discrimination in

connection with the buyout just two months earlier, Strandhagen now

claimed that she had suffered such discrimination “for many years.”

(CR.93, 144). The primary issue in Strandhagen’s proceeding against the

Company was, therefore, whether she was terminated with or without cause

(i.e., whether Strandhagen’s termination resulted from her misconduct or

was based on gender discrimination).

       While those administrative claims were pending, Strandhagen

initiated this suit in the Travis County District Court against seven of her

Partners: Drs. Bunker, Carrell, Houston, Buchholz, Leighty, Davis, and

Clause (“the Physicians”). (CR.4). Strandhagen’s sole cause of action was a

declaratory judgment claim. (CR.40). She sought declarations that:




                                     9
     (1)   she was terminated without cause, meaning the liquidated
           damages provision is inapplicable to her; and

     (2)   the liquidated damages provision is an unenforceable
           penalty because:

           (a)   the resulting harm from Strandhagen’s early
                 termination was not incapable or difficult of
                 estimation,

           (b)   the liquidated damages amount is not a reasonable
                 forecast of just compensation, and

           (c)   it purports to render her liable to the Physicians for
                 a breach of her Employment Agreement to which
                 they are not parties or third-party beneficiaries.

(CR.40-41).


IV. THE DISTRICT COURT DISMISSED PART AND GRANTED
    PART OF THE DECLARATORY RELIEF STRANDHAGEN
    SOUGHT AGAINST THE PHYSICIANS.

     The Physicians filed a Plea to the Jurisdiction seeking dismissal of

both grounds of Strandhagen’s declaratory judgment claim. (CR.70, 77).

The Physicians argued: (1) Strandhagen’s request to declare whether or not

she was terminated for cause duplicated the primary issue pending before

the TWC/EEOC, and she was required to exhaust her administrative

remedies first; and (2) Strandhagen’s challenge to the liquidated damages

provision was not ripe because the Physicians had not made any demand

nor sued her to collect such damages. (CR.79-80). The district court (the



                                    10
Honorable Steven Yelenosky presiding) granted the first argument, thereby

dismissing ground (1) of Strandhagen’s declaratory judgment claim, and

denied the second, maintaining jurisdiction over ground (2) of

Strandhagen’s claim. (CR.184). Strandhagen does not appeal the dismissal

of ground (1) of her claim.

      Strandhagen then moved for a traditional summary judgment

granting ground (2) of her claim.         In so doing, she abandoned her

contention that (a) the resulting damages would be incapable or difficult of

estimation, instead arguing only that the liquidated damages provision was

unenforceable as a matter of law because (b) the amount to be paid was not

a reasonable forecast of just compensation, and (c) the Physicians were not

third-party beneficiaries of her Employment Agreement. (CR.154, 196).

Following the Physicians’ Response, further briefing by both parties, and a

hearing, the district court (the Honorable Orlinda Naranjo presiding)

granted Strandhagen’s motion.      (CR.186-212).   Without specifying any

grounds, the Court “declare[d] that the $500,000 purported liquidated

damages clause in the . . . Operations Agreement is an unenforceable

penalty,” and denied all other relief not expressly granted. (CR.212). This

resulted in a final judgment. (CR.212).




                                     11
      The Physicians filed a Motion for New Trial urging several reasons

why the grant of summary judgment was improper, as argued below.

(CR.213-250). The Court denied the motion following a hearing on its

merits. (CR.271; RR.1-29). The Physicians appealed. (CR.272-78).


                  SUMMARY OF THE ARGUMENT
      This Court must decide whether to uphold the plain language of a

contract that was mutually-agreed to by parties of equal sophistication or,

instead, allow one of those parties (Strandhagen) to secure a premature

avoidance of the contractual liability provision before any actual dispute

has arisen and without sufficient evidence to support her request.     The

district court improperly refused to enforce the parties’ contract and

granted Strandhagen advisory relief.     This Court should reverse those

errors.

      The first issue is whether the district court erred in granting

Strandhagen a traditional summary-judgment when she failed to satisfy her

burden of conclusively proving each element of her affirmative defense that

the liquidated damages provision in the parties’ Operations Agreement is

an unenforceable penalty. The answer is yes. The summary-judgment

order should be reversed.




                                    12
      Strandhagen failed to establish the two essential elements of her

claim.   She unequivocally abandoned the first element (that damages

resulting from her breach would be difficult to estimate), and she failed to

offer conclusive proof of the second element (that the liquidated amount

was an unreasonable forecast of the actual damages). In regard to the

latter, Strandhagen (a) offered no evidence of the actual damages to

establish an unreasonable disparity; (b) her contentions ignore the plain

language of the contract; and (c) in any event, a fact issue exists about

whether the court should modify the liquidated amount rather than strike it

all together.

      Strandhagen also failed to establish that it was necessary for the

Physicians to be third-party beneficiaries of her Employment Agreement to

enforce the liquidated damages provision under their own Operations

Agreement. Even had such status been required, Strandhagen did not

satisfy her summary-judgment burden of conclusively negating its

existence.

      The second issue is whether the district court erred in denying the

portion of the Physicians’ Plea to the Jurisdiction arguing that

Strandhagen’s declaratory judgment claim was unripe. Again, the answer is

yes. The partial denial of the Plea should be reversed. This presents an



                                     13
alternative basis to reverse the summary judgment because such relief

should not have been granted in the absence of jurisdiction. Strandhagen’s

claim misuses the Declaratory Judgment Act by seeking an advance ruling

on a potential affirmative defense to a dispute that has not yet (and may

never) come to exist. As such, the district court’s grant of a declaration in

her favor was advisory and improper.


                               ARGUMENT
        In two issues, the Physicians respectfully request that this Court

reverse the district court’s (1) grant of Strandhagen’s traditional Motion for

Summary Judgment on her declaratory judgment claim, and (2) partial

denial of the Physician’s Amended Plea to the Jurisdiction. If the latter is

reversed, then a judgment dismissing Strandhagen’s claims should be

rendered in favor of the Physicians.       See Texas Dept. of Crim. Justice-

Cmty. Justice Assistance Div. v. Campos, 384 S.W.3d 810, 812 (Tex. 2012).

Otherwise, the case should be remanded for further proceedings. Tex. R.

App. P. 43.2, 43.3.


   I.     THE DISTRICT COURT ERRED BY GRANTING
          STRANDHAGEN’S MOTION FOR SUMMARY JUDGMENT.

        Strandhagen’s Motion for Summary Judgment should have been

denied because she failed to conclusively establish (1) the essential


                                      14
elements of her claim and (2) that the status of the Physicians as third-

party beneficiaries to her Employment Agreement had any impact on the

enforceability of the liquidated damages provision. In any event, as argued

under Issue 2, the court erred in granting summary judgment on a

hypothetical (unripe) question because it lacked subject-matter jurisdiction

to do so.

      A.    Summary Judgment Standard of Review.
      This Court reviews the grant of summary judgment de novo. Valence

Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). Appellate

courts “review the evidence presented in the motion and the response in the

light most favorable to the party against whom the summary judgment was

rendered, crediting evidence favorable to that party if reasonable jurors

could, and disregarding contrary evidence unless reasonable jurors could

not.” Thomas v. Graham Mortg. Corp., 408 S.W.3d 581, 588 (Tex. App.—

Austin 2013, pet. denied). “A movant is entitled to traditional summary

judgment if (1) there are no genuine issues as to any material fact and (2)

the moving party is entitled to judgment as a matter of law.” Id. (citing Tex.

R. Civ. P. 166a(c)).




                                      15
      B.    Strandhagen Failed to Satisfy her Summary-Judgment
            Burden on the Essential Elements of her Claim.
      Strandhagen moved for a traditional summary judgment declaring

that the liquidated damages provision in the Operations Agreement is an

unenforceable penalty. (CR.154). “The term ‘liquidated damages’ ordinarily

refers to an acceptable measure of damages that parties stipulate in

advance will be assessed in the event of a contract breach.” Flores v.

Millennium Interests, Ltd., 185 S.W.3d 427, 431 (Tex. 2005).

      Although Strandhagen was the plaintiff, her declaratory judgment

claim—which was filed preemptively in attempt to avoid potential liability

under the liquidated damages provision—was in the nature of an

affirmative defense. “Whether a contractual provision is an unenforceable

penalty and not a liquidated damage clause is an affirmative defense.” GPA

Holding, Inc. v. Baylor Health Care Sys., 344 S.W.3d 467, 471 (Tex. App.—

Dallas 2011, pet. denied) (citing Tex. R. Civ. P. 94; Phillips v. Phillips, 820

S.W.2d 785, 789 (Tex. 1991)); Khan v. Meknojiya, No. 03-11-00580-CV,

2013 WL 3336874, *2 (Tex. App.—Austin June 28, 2013, no pet.) (same).

When a movant seeks a traditional summary judgment on an affirmative

defense, the movant carries the burden of demonstrating her entitlement to

judgment as a matter of law by conclusively proving each element of the

affirmative defense. Federal Deposit Ins. Corp. v. Lenk, 361 S.W.3d 602,


                                      16
609 (Tex. 2012); Landry's Seafood Restaurants, Inc. v. Waterfront Cafe,

Inc., 49 S.W.3d 544, 547 (Tex. App.—Austin 2001, pet. dism’d).

      Strandhagen agrees that she bore the burden of proof on her

affirmative defense of penalty. (CR.195-196, 262). Strandhagen and the

Physicians disagree, however, about which elements she was required to

prove to be entitled to summary judgment. The Physicians argue she had

to prove two elements, while Strandhagen claims she had to prove only one

or the other. (CR.188-189, 196, 262).

      Although the Texas Supreme Court has not definitively answered this

legal question, several intermediate courts—including this one—have

reached the conclusion urged by the Physicians. See infra. In any event,

because Strandhagen failed to conclusively prove both elements, the orders

granting her summary judgment and denying the Physicians’ Motion for

New Trial should be reversed. (RR.14).


           1.    Strandhagen was required              to   conclusively
                 establish two elements.

      The most on point opinion is GPA Holding, 344 S.W.3d at 476. Like

Strandhagen, GPA moved for summary judgment urging that the liquidated

damages clause in its contract with Baylor was an unenforceable penalty.

Id.   The Dallas Court held that, “[t]o obtain summary judgment on the



                                    17
affirmative defense of penalty, GPA [as the party seeking to avoid

enforcement of the provision] must prove each element of the defense.”

Id. (emphasis added). GPA’s required elements were that: (1) the harm

resulting from a breach was not incapable or difficult of estimation, and (2)

the amount of liquidated damages provided by the contract was not a

reasonable forecast of actual damages. Id.; see also Baker v. Int’l Record

Syndicate, Inc., 812 S.W.2d 53, 55 (Tex. App.—Dallas 1991, no writ)

(“Evidence related to the difficulty of estimation and the reasonable

forecast must be viewed as of the time the contract was executed.”).

     “The difficulty (or lack of difficulty) in estimation as well as

the unreasonableness of the damages estimate were GPA’s to

prove. General statements about a ‘more reasonable’ or ‘modest’ rate are

not evidence that the harm from late payment is difficult to estimate, or

that the normal billed charges were an unreasonable forecast of the loss

actually sustained.” GPA Holding, 344 S.W.3d at 476 (emphasis added).

“Because GPA did not meet its burden of establishing that the clause . . .

was an unenforceable penalty,” the trial judge did not err in denying GPA’s

motion for summary judgment on this issue.” Id.

     This Court reached the same conclusion following a jury trial in

Southern Union Co. v. CSG Systems, Inc., No. 03-04-00172-CV, 2005 WL



                                     18
171349, *4 (Tex. App.—Austin Jan. 27, 2005, no pet.). Southern Union

argued that the damages provision was an unenforceable penalty. Id. This

Court held that “[t]he party challenging the award of liquidated damages

has the burden to establish that the two-prong test is not satisfied

and that, instead, the award of liquidated damages is an unenforceable

penalty.” Id. at *4 (emphasis added). The Court then discussed whether

Southern Union satisfied the “first part of its burden” regarding “difficulty

of estimation” and the “second part of its burden” regarding “reasonable

forecast of just compensation.” Id. at *4-6. Concluding that Southern

Union failed to prove either essential element, the Court affirmed the award

of liquidated damages, subject to a partial remittitur on another issue. Id.

at *7-8.

      More recently, in Khan v. Meknojiya, 2013 WL 3336874 at *2,

Mekonjiya moved for summary judgment on the affirmative defense of

penalty. In considering whether the district court properly denied that

motion, this Court stated that, “to be entitled to summary judgment,

Meknojiya had to conclusively establish every element of this defense,”

and then set forth the two elements regarding (1) incapable or difficult of

estimation, and (2) reasonable forecast of compensation.         Id. at *2-3




                                     19
(emphasis added) (ultimately holding that the provision was not one for

liquidated damages and thus the penalty analysis was inapplicable).

      The Eastland Court of Appeals also held that a party seeking to avoid

enforcement of a liquidated damages provision on summary judgment

must prove both elements of the penalty affirmative defense.          Healix

Infusion Therapy, Inc. v. Bellos, No. 11-02-00346-CV, 2003 WL 22411873,

*2 (Tex. App.—Eastland Oct. 23, 2003, no pet.). The Court held that “the

burden Healix [as the party claiming penalty] must bear [is] that at the time

the agreement was made damages could be easily ascertained and that the

amount of the liquidated damages award was not a reasonable forecast of

just compensation.” Id. (emphasis added). Healix’s contention “that the

award of liquidated damages is disproportionate to actual damages” was

insufficient on its own. Id. “Healix still must show that, at the time the

agreement was made, the amount of the liquidated damages was not a

reasonable forecast.” Id. “Healix failed to meet his burden of proof on the

penalty issue.” Id. at *3.

       Other courts have reached similar conclusions. See Triton 88, LP v.

Star Electricity, LLC, 411 S.W.3d 42, 62 (Tex. App.—Houston [1st Dist.]

2013, no pet.) (favorably citing GPA Holding and concluding “Triton failed

to raise a fact question on its claim that the . . . clause constituted an



                                     20
impermissible penalty,” where Triton “did not present any evidence

regarding the parties’ ability to estimate actual damages . . . or what a

reasonable forecast of damages would have been at the time the contract

was formed.”); Murphy v. Cintas Corp., 923 S.W.2d 663, 666 (Tex. App.—

Tyler 1996, writ denied) (“For the provision to be an unenforceable penalty,

the uncertainty of the damages and the reasonableness of the stipulation

must have existed at the time when the contract was executed.” Where

neither element was proven, the clause was held enforceable.) (emphasis

added).

     The Physicians acknowledge that contrary authority exists in which

courts have not required proof of both elements before concluding the

provision to be a penalty. See, e.g., Nexstar Broad., Inc. v. Gray, No. 09-

07-00364-CV, 2008 WL 2521967 (Tex. App.—Beaumont 2008, no pet.)

(holding liquidated damages provision to be an unenforceable penalty

because it was an unreasonable forecast of just compensation without

discussion of the difficulty of estimation element); (RR.9-10).

     However—given the black-letter law that a movant seeking traditional

summary judgment on its affirmative defense is required to prove every

element of its defense, coupled with prior holdings of this Court (Southern

Union and Kahn) and the case most on point (GPA Holdings) requiring



                                     21
proof of both elements to prevail on the affirmative defense of penalty—the

Physicians urge this Court to conclude Strandhagen was required to

establish both elements, and decline to follow opinions to the contrary.

Consequently, this Court should reverse the judgment if it concludes that

Strandhagen failed to conclusively establish either one of the two required

elements that (1) the harm resulting from a breach was not incapable or

difficult of estimation (i.e., the harm could be easily and accurately

estimated), or (2) the amount of liquidated damages provided by the

contract was not a reasonable forecast of actual damages (i.e., the

liquidated damages amount was excessive compared to the actual damages

resulting from a breach).

     But even if this Court were to conclude that Strandhagen was

required to prove only one element of her affirmative defense, reversal of

the judgment is still necessitated by the fact that Strandhagen failed to

conclusively prove both of the foregoing elements.


           2.    Strandhagen conceded her inability to prove the
                 “difficulty of estimation” element.

     Strandhagen unequivocally admitted that “[s]he does not seek to

negate the element concerning the difficulty of estimation . . .; she only

seeks to negate the second element.” (CR.196, 263). The record leaves no



                                    22
doubt that Strandhagen failed to carry her burden of proof on this element.

The summary judgment should be reversed accordingly.


           3.    Strandhagen failed to conclusively prove the
                 “unreasonable forecast” element.

     Strandhagen did not satisfy her summary-judgment burden of

proving that the liquidated damages amount failed to reasonably forecast

actual damages because (a) she offered no evidence to demonstrate what

the actual damages were or that there was an excessive disproportion

between the amounts; (b) to accept her argument, this Court must

disregard the plain language of the contract; and (c) a genuine issue of

material fact remains about whether the liquidated damages clause should

be modified rather than struck as unenforceable.

                 (a)   No evidence of actual damages.
                       (i)   Texas law requires proof of actual damages.

     Although the question of “[w]hether a contractual provision is an

enforceable liquidated damages provision or an unenforceable penalty is a

question of law for the court to decide, [s]ometimes . . . factual issues must

be resolved before the legal question can be decided.” Phillips v. Phillips,

820 S.W.2d 785, 788 (Tex. 1991). Our supreme court identified a typical

fact issue in connection with the “unreasonable forecast” element arising



                                     23
from the movant’s requirement to “prove what the actual damages were” in

comparison to “the amount contracted for.” Id. The party claiming the

provision is a penalty “must prove actual damages, if any, to show that the

actual loss was not an approximation of the stipulated sum.” Healix, 2003

WL 22411873 at *2.

     Where a party fails to offer any evidence of actual damages in

comparison to the liquidated amount, the court may conclude that the

party has failed to carry its burden of proof and uphold the liquidated

damages provision. See e.g., Triton, 411 S.W.3d at 62 (“Triton did not

present any evidence regarding what a reasonable forecast of damages

would have been at the time the contract was formed, nor did it present any

evidence of StarTex’s actual damages. Thus, . . . [the] liquidated damages

[clause] provided a reasonable forecast of just compensation.”).

     Additionally, vague averments of “unreasonableness” not supported

by actual evidence will not suffice to establish the defense of penalty. The

movant cannot meet its burden simply by claiming that the actual damages

are not yet ascertainable and therefore tantamount to “zero.” Healix, 2003

WL 22411873 at *2. And as noted by this Court, a liquidated damages

amount awarding two to three times the amount of actual damages is not

per se unreasonable.    Southern Union, 2005 WL 171349 at *6 (citing



                                     24
Sealock v. Texas Fed. Sav. & Loan Assoc., 755 S.W.2d 69, 70 (Tex. 1988)

(“uph[olding] a trial court’s judgment awarding $790,000 in liquidated

damages, which was twice the $395,000 found as actual damages”); Baker

v. Int’l Record Syndicate, Inc., 812 S.W.2d 53, 56 (Tex. App.—Dallas 1991,

no writ) (“approv[ing] a liquidated damages award of $51,000, which was

more than triple the $15,000 found as actual damages”).

      In GPA Holding, 344 S.W.3d at 476, the movant “offered evidence

comparing the discounted rates to the hospital’s normal billed rates for the

charges at issue,” including an affidavit with an attached chart showing “the

percentage difference between the discounted rate and the normal billed

charge for each of the charges at issue,” and presented argument about an

alternative damage calculation that the movant contended would be more

reasonable. Even this was not enough. The court held that movant failed

to carry its burden of proof on the “unreasonable forecast” element because

it failed to attach evidence in support of the alternative calculation. Id.

                        (ii)   Strandhagen offered no proof of actual
                               damages, and her “one size fits all” argument
                               fails.

      Strandhagen offered no evidence of what the Physicians’ actual

damages were or would be in the event that they brought a future suit

against her for breach of contract nor did she establish any alternative



                                       25
damages calculation that she would contend is more reasonable. Instead,

Strandhagen claimed that, as a matter of law, the liquidated damage

amount was unreasonable because it was a “one size fits all” provision, i.e.,

the same amount of damages would be owed regardless of when she

terminated her employment. (CR.157, 197-98, 264). This contention is

insufficient without any proof of how the liquidated damage amount was

calculated or what the actual damages were.

      Strandhagen relied on cases holding that a liquidated damages

provision may be unenforceable if it imposes the same amount of liability

for breaches that are both trivial and severe. (CR.198). This is not the case

under the Operations Agreement. Here, the liquidated damages provision

applies to only one form of breach: a Partner’s early departure from the

practice. (CR.167-168). It does not apply, for example, to non-material

breaches like the Advisory Board’s failure to hold a regular meeting

(CR.163) or its failure to take a written vote upon request (CR.164).

      Strandhagen attempts to transform the time of the breach into a

measure of its materiality. But Strandhagen presented no evidence to

establish that the financial impact on the remaining Partners would be

substantially greater or lesser depending on the timing of another Partner’s

early departure.    As previously discussed, important financial reasons



                                     26
supported the Partners’ agreement to be bound by this liquidated damages

clause, including the anticipated impact that one’s early departure would

have on the practice’s gross profits and the Partners’ abilities to earn annual

bonuses, as well as the resulting loss of experience and goodwill, which

could not be easily or quickly replaced. Supra, Statement of Facts Section

I.A. These financial considerations could be the same whether Strandhagen

quit on day 1 or day 1,000.      Strandhagen offered no evidence to prove

otherwise.   Instead, she simply claimed that “the consequences of Dr.

Strandhagen’s employment terminating obviously varies over time.”

(CR.157). This unsupported allegation does not suffice to meet her burden.

      Strandhagen’s “one size fits all” contention also fails in light of the

several exceptions to the liquidated damages provision.         (CR.167-169).

Several types of “early departures” were carved out from application off the

provision. These exceptions eliminate the imposition of any liability for

early termination scenarios that would not constitute a material breach of

the contract (such as early termination based on disability or with

permission by the majority). Hence, the clause was narrowly drafted, not

an unenforceable “one size fits all” provision.

      Moreover, relevant legal authorities are contrary to Strandhagen’s

contention. The fact that a liquidated damages provision awards a uniform



                                      27
amount for the breach of a term agreement regardless of the date of the

breach is not per se unreasonable. In Murphy v. Cintas Corp., 923 S.W.2d

663, 666 (Tex. App.—Tyler 1996, writ denied), Murphy claimed that the

liquidated damages provision was an unenforceable penalty because it

imposed the same amount of damages for early cancellation of the parties’

agreement whether it resulted from his failure to pay for one of the

contemplated goods (at the end of the contract’s term) or all of them (at the

beginning).   Id.   The court rejected this argument and enforced the

provision. Id. at 666-667.

     The Restatement of Contracts regarding liquidated damages is

consistent with Murphy. See RESTATEMENT (SECOND) OF CONTRACTS § 356,

Liquidated Damages and Penalties (1981).           Comment (b), “Test of

Penalty,” states that a liquidated damages amount “is reasonable to the

extent that it approximates the actual loss that has resulted from the

particular breach, even though it may not approximate the loss that might

have been anticipated under other possible breaches.”         Id. (emphasis

added). Thus, this Court needs to determine only whether Strandhagen

conclusively established that the liquidated amount was an unreasonable

forecast of the actual damages resulting from this particular breach (her




                                     28
five-year premature departure from the practice). Strandhagen offered no

prove to establish this element.

      According to Restatement Section 356, whether the liquidated

amount reasonably forecast other breaches that may have occurred is not a

basis to deny the provision’s enforceability in this case.       Id.   This is

confirmed by Illustration 2 to Section 356. In that example, partners A, B,

and C formed a veterinary practice promising to remain as a partnership for

ten years. Id. The liquidated damages clause provided that, if one partner

terminated early (and the others continued the business), and the

terminating partner breached his duty of non-competition, he would be

liable for $50,000. This provision is enforceable because “[e]ven though

$50,000 may be unreasonable in relation to the loss that may have resulted

in other circumstances, it is not unreasonable in relation to the actual loss.”

Id.

      In the absence of any evidence from Strandhagen to support her

claim that the liquidated damages amount was not a reasonable forecast of

just compensation—and especially considering that all inferences must be

construed in favor of the Physicians as nonmovants—the record fails to

conclusively demonstrate that Strandhagen satisfied her burden of proof on




                                      29
this element. This Court should reject Strandhagen’s facial challenge just

as the court did in Murphy, 923 S.W.2d at 666.

                   (b)   Plain language of contract shows reasonable
                         forecast.
      Beyond the lack of evidence in support of Strandhagen’s contention

that the liquidated damages amount was an unreasonable forecast of the

actual damages, the plain language of the parties’ contract demonstrates

that it was not.    The Court would be required to disregard or render

meaningless certain portions of the contract to accept Strandhagen’s

argument.

      In determining whether Strandhagen has satisfied her burden on the

affirmative defense of penalty, this Court must keep in mind the basic rules

of contract construction, as recognized in GPA Holding, 344 S.W.3d at 471.

“The court’s primary concern in interpreting a written contract is to

determine the mutual intent of the parties as manifested in the contract, . . .

and the agreement must be enforced as written.” Id. Terms should be given

their plain and ordinary meaning, and interpretations that render any

portion meaningless should be avoided. Id.

      This Court considered the plain language of the contract as a basis for

rejecting a penalty defense and enforcing a liquidated damages provision in

Southern Union Co. v. CSG Systems, Inc., No. 03-04-00712CV, 2005 WL

                                      30
171349, *4-6 (Tex. App.—Austin Jan. 27, 2005, no pet.). There, the contract

stated that the damages provision was included “[b]ecause of the difficulty

in ascertaining CSG’s actual damages for a termination or other breach of

the Agreement,” and that “CSG would have been unwilling to provide the

Services at the fees set forth in the Agreement” had Southern Union not

promised “certainty of revenue” by obligating itself to pay the

discontinuance fee in the event that it breached the contract.” Id. at *4.

The damages provision also “expressly state[d] that it ‘is not a penalty’ and

that it ‘is a reasonable estimation of the actual damages which CSG would

suffer if CSG were to fail to receive the amount of processing business as

contemplated by this Agreement.’” Id. at *6. The Court clarified that,

“[a]lthough parties cannot avoid a challenge to a liquidated damages

provision simply by characterizing it as ‘reasonable,’ such express language

is instructive of the parties’ intent when the terms are mutually bargained

for between equally competent parties.” Id.

     This Court also put weight on the fact that the “provision was a

bargained-for exchange, negotiated and approved by both companies.” Id.

“When a provision is mutually bargained for by equally competent parties,

we give deference to its enforcement. . . . From the face of the contract,

Southern Union understood at the time it entered the agreement that CSG’s



                                     31
damages would be difficult to estimate and therefore agreed a liquidated

damages provision was necessary.” Id.

     Much like the Southern Union/CSG contract, the Operations

Agreement between Strandhagen and her Partners expressly stated that the

stipulated amount was to be paid “as liquidated damages, and not as a

penalty,” and that the amount was “reasonable in light of the anticipated

harm which would be caused by a Terminating Physician’s breach or

default under this Agreement.”      (CR.168).   Additionally, the Partners

agreed that the contract’s provisions were “narrowly tailored and necessary

to protect the Physicians’ legitimate interests as a group,” and that they

constituted a “significant inducement to [the Partners] entering into the

Purchase Agreement, and consummating the transaction contemplated

thereby.” (CR.162).

     Also like the Southern Union/CSG contract, Strandhagen and her

Partners were mutually competent parties who voluntarily and knowingly

entered this bargained-for exchange. (CR.162, 173-178). Hence, this Court

should defer to the plain language of the Operations Agreement, which

evidences the parties’ mutual intent for the liquidated damages provision to

be valid and enforceable, and not construed as a penalty. To do otherwise

would impermissibly render meaningless the express provisions of the



                                    32
contract stating that the damages provision was reasonable, narrowly-

tailored, a necessary inducement, and not a penalty.

                    (c)   Fact issue exists regarding modification.
      Finally, to any extent the Court believes Strandhagen offered proof

that the damages provision was not a reasonable forecast of actual

damages, she has still failed to conclusively establish this element of her

defense because the “Severability” clause in the parties’ contract creates a

genuine issue of material fact.

      Section 7(f) of the Operations Agreement provides:

               Severability. . . . In the event that any provision of
               this Agreement shall be declared by a Court of
               competent jurisdiction to exceed the limits such
               court deems reasonable and enforceable, said
               provisions shall be deemed modified to the
               minimum extent necessary to make such
               provisions reasonable and enforceable.

(CR.171) (emphasis added).

      “An illegal or unconscionable provision of a contract may generally

be severed so long as it does not constitute the essential purpose of the

agreement.” In re Poly-Am., L.P., 262 S.W.3d 337, 357, 360 (Tex. 2008)

(recognizing that, pursuant to the parties’ contract, the arbitrator “would be

free to modify” terms found to be unconscionable rather than striking them

altogether).     Severability is determined by the intent of the parties as



                                        33
evidenced by the language of the contract. In re Kasschau, 11 S.W.3d 305,

313 (Tex. App.—Houston [14th Dist.] 1999, orig. proceeding).

      Here, the liquidated amount could be modified in a narrow fashion

without undermining the essential purpose of the parties’ contract. The

express purpose of the Operations Agreement was to “establish an Advisory

Board and set forth certain understandings and agreements among

themselves regarding the operations of their practice.”        (CR.162).    The

specific amount of liquidated damages applicable to any particular

physician was not the “essential purpose” of the Agreement.

      In light of the Severability clause, the district court erred by declaring

the liquidated damages provision wholly unenforceable as a matter of law.

Even if the court considered $500,000 to be an unreasonable liquidated

amount, the court should have concluded that a genuine issue of material

fact exists about what modified amount or calculation would be reasonable

to enforce in its place, keeping with the parties’ express intent to modify the

term “to the minimum extent necessary.”          To do otherwise, the Court

would have to impermissibly rewrite the parties’ bargained-for exchange to

strike out the final sentence of Paragraph 7(f), which is a mandatory

provision voluntarily agreed to by the parties. Alternatively, if this Court




                                      34
concludes the Severability clause is ambiguous, then it creates a genuine

issue of material fact requiring reversal and remand. (RR.12-14, 22-23).

     C.    Strandhagen Failed to Satisfy her Summary-Judgment
           Burden Regarding the Physicians’ Status as Third-
           Party Beneficiaries.

     Strandhagen also moved for summary judgment based on her

argument that the liquidated damages provision is unenforceable because it

seeks to render her liable to the Physicians for a breach of her Employment

Agreement, to which the Physicians are not parties or third-party

beneficiaries. (CR.157-158). This did not provide a valid basis for summary

judgment because (1) Strandhagen’s liability for liquidated damages arises

directly from the Operations Agreement between her and her Physician

Partners, and does not require that the Physicians be third-party

beneficiaries of her Employment Agreement; and/or (2) Strandhagen failed

to conclusively establish that the Physicians were not third-party

beneficiaries of the Employment Agreement.




                                    35
           1.    The Operations Agreement Provides a Direct Line
                 of Liability.

     Paragraph 5 of the Operations Agreement provides:

           [I]f [any Partner] terminates his or her employment
           with the Company prior to the expiration of the
           Initial Term, the Physicians may suffer harm [as
           specified therein]. . . . In light of the foregoing, if a
           [Partner’s] employment with the Company is
           terminated for any reason during the Initial Term .
           . . other than a termination without cause . . . then
           such [Terminating Partner] shall promptly pay . . .
           as liquidated damages and not as a penalty . . . the
           amount set forth below.


(CR.167-168).

     This provision creates a direct line of liability for liquidated damages

between an early-terminating physician and her remaining Partners based

on the direct harm that will be suffered by the remaining Partners as a

result of the early termination. (Id.). Under this provision, there is no need

for the Physicians to be third-party beneficiaries of the Employment

Agreement to enforce the liquidated damages clause.         The Physicians (if

they sued Strandhagen for breach of contract) would not be attempting to

recover under the Employment Agreement as third-party beneficiaries.

Rather, they would be seeking and are entitled to directly enforce the

liability provisions contained within the four corners of their own contract

with Strandhagen. (RR.10-11).


                                      36
            2.    A Genuine Issue of Material Fact Remains about
                  the Physicians’ Third-Party Beneficiary Status.

      Alternatively, even if the Court were to conclude that the Physicians

are required to be third-party beneficiaries of Strandhagen’s Employment

Agreement to enforce the liquidated damages clause under the Operations

Agreement, it was error to grant summary-judgment on this ground

because Strandhagen did not conclusively establish the absence of such

third-party beneficiary status.

      Strandhagen’s Motion for Summary Judgment states in a single,

conclusory sentence that the Physicians “are [not] third-party beneficiaries”

to the Employment Agreement.         (CR.158).   She did not provide any

evidence or analysis about the intention of the Employer or herself (or any

of the other Partners) when entering their Employment Agreements, nor

about the meaning of the contract as a whole. Strandhagen failed to satisfy

her traditional summary-judgment burden on this ground. See Alvarado v.

Lexington Ins. Co., 389 S.W.3d 544, 564 (Tex. App.—Houston [1st Dist.]

2012, no pet.) (“It was Lexington’s burden, as movant for summary

judgment, to prove its entitlement to summary judgment against Alvarado

as a matter of law. We hold that Lexington failed to carry its burden of

conclusively negating Alvarado’s status as a third-party beneficiary to the




                                     37
Policy. Thus, we hold that the trial court erred in rendering summary

judgment in favor of Lexington.”).


   II.     THE DISTRICT COURT ERRED BY DENYING PART OF THE
           PHYSICIANS’ PLEA TO THE JURISDICTION.

      The Physicians’ Amended Plea to the Jurisdiction argued, in part, that

Strandhagen’s request for a declaration that the liquidated damages

provision was an unenforceable penalty was not yet ripe for decision

because the Physicians had not yet decided whether to sue her for breach of

contract, much less made a demand or filed suit on that basis. (CR.79-80).

In the absence of a live, justiciable controversy, the court lacked subject-

matter jurisdiction over Strandhagen’s claim. (CR.79-80). On this basis,

the district court erred by denying this portion of the Physician’s Plea and

by granting an advisory summary judgment on Strandhagen’s unripe

declaratory judgment claim, and by denying the opportunity to correct this

error in response to the Motion for New Trial. (CR.184-85, 212, 271). This

Court should reverse these decisions and render judgment dismissing

Strandhagen’s claims for a lack of jurisdiction.

      A.     Texas Law Prohibits Advisory Declarations                   on
             Potential Defenses to Hypothetical Disputes.

      In an action for declaratory relief, a plaintiff must allege facts that

affirmatively demonstrate that the trial court has subject matter

                                      38
jurisdiction. Tex. Ass’n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440,

446 (Tex. 1993); City of Pasadena v. Smith, 263 S.W.3d 80, 86 (Tex. App.—

Houston [1st Dist.] 2006, pet. denied). “A request for declaratory relief

alone does not establish jurisdiction in [the] Court. . . . [It is] merely a

procedural device for deciding cases already within a court’s jurisdiction.”

Chenault v. Phillips, 914 S.W.2d 140, 141 (Tex. 1996).

     For a court to have jurisdiction to consider a declaratory-judgment

action, there must be a “justiciable controversy as to the rights and status

of” the parties, and the requested declaration “must actually resolve the

controversy.” Brooks v. Northglen Ass’n, 141 S.W.3d 158, 163-64 (Tex.

2004). “A justiciable controversy is one in which a real and substantial

controversy exists involving a genuine conflict of tangible interests and not

merely a theoretical dispute.” Texas Dep’t of Pub. Safety v. Moore, 985

S.W.2d 149, 153 (Tex. App.—Austin 1998, no pet.); see also City of Euless v.

Dallas/Fort Worth Int’l Airport Bd., 936 S.W.2d 699, 703 (Tex. App.—

Dallas 1996, writ denied) (if there is no actual controversy between parties,

declaratory judgment is improper).

     “Section 37.004 does not . . . extend an open-ended invitation to

parties seeking interpretation of their contracts.       There must be some

showing that litigation is imminent between the parties unless the



                                     39
contractual uncertainties are judicially resolved.” Paulsen v. Texas Equal

Access to Justice Found., 23 S.W.3d 42, 46 (Tex. App.—Austin 1999, pet.

denied); see also In re City of Dallas, 977 S.W.2d 51, 57 (Tex. App.—Fort

Worth 1998, orig. proceeding). The Declaratory Judgments Act does not

permit litigants to “fish judicial ponds for legal advice.” California Prods.

v. Puretex Lemon Juice, Inc., 334 S.W.2d 780, 781 (Tex. 1960).

     “The need for a justiciable controversy is related to the jurisdictional

concepts of standing and ripeness and does not supersede these concepts.”

LHR Enters., Inc. v. Geeslin, No. 03-05-00176-CV, 2007 WL 3306492, *4

(Tex. App.—Austin Nov. 7, 2007, pet. denied). Ripeness is a necessary

component of subject matter jurisdiction.       Waco Indep. Sch. Dist. v.

Gibson, 22 S.W.3d 849, 850 (Tex. 2000); Atmos Energy Corp. v. Abbott,

127 S.W.3d 852, 857 (Tex. App.—Austin 2004, no pet.). “The requirement

that a claim be ripe for review is based on the prohibition against issuing

advisory opinions.”    LHR Enters., 2007 WL 3306492 at *4 (citing

Patterson v. Planned Parenthood, 971 S.W.2d 439, 442 (Tex. 1998); TEX.

CONST. art. II, § 1 (separation of powers); Brooks, 141 S.W.3d at 164

(explaining that separation of powers provision bars issuance of advisory

opinions)). “[T]here must be a concrete injury for the claim to be ripe.” Id.

“A claim is not ripe if it is based on hypothetical or contingent facts that



                                     40
may not occur as anticipated or may not occur at all.” Id.; see also Farmers

Ins. Exch. v. Rodriguez, 366 S.W.3d 216, 223 (Tex. App.—Houston [14th

Dist.] 2012, pet. denied) (declaratory claim was not ripe where parties’

liability for damages depended on outcome of a separate proceeding, which

had not yet finalized).

      Based on these concepts, a “defendant may not use a declaratory

judgment to prematurely adjudicate defenses to liability that may not yet

exist. . . . [U]nder the federal constitution, [a] party may not use a

declaratory judgment to get [an] advance ruling on an affirmative defense.”

Transcont’l Realty Investors, Inc. v. Orix Capital Markets, LLC, 353

S.W.3d 241, 245 (Tex. App.—Dallas 2011, pet. denied) (emphasis added)

(noting that a declaratory claim seeking to “assess[] the success of a defense

to a potential claim (breach-of-contract or otherwise) is generally the type

of hypothetical question federal courts endeavor to avoid”).             “The

declaratory judgment was not intended to permit the piecemeal trial of

lawsuits.” Id. (holding the court lacked jurisdiction to issue a premature

declaration regarding validity of contractual guarantee).

      In Nexstar Broad., Inc. v. Gray, No. 09-07-00364-CV, 2008 WL

2521967, *2 (Tex. App.—Beaumont June 26, 2008, no pet.), the court held

that it was an improper use of the DJA for a party with potential liability



                                     41
under a contract to seek a declaration that simply restated the “penalty”

affirmative defense and sought no relief beyond what that defense would

afford (i.e., avoidance of liquidated damages). This holding was based, in

part, on the fact that the parties had no ongoing relationship—as contrasted

from declarations in other cases that would settle future disputes of an

ongoing relationship between the parties. Id. (citing BHP Petro. Co. v.

Millard, 800 S.W.2d 838, 841-842 (Tex. 1990)).

      Similarly, this Court held in LHR Enterprises that the district court

lacked jurisdiction to declare the meaning of the Insurance Commission’s

conclusion that it “may impose an administrative penalty” in certain

circumstances where there was no pending or impending action to seek

such a remedy from plaintiff. 2007 WL 3306492 at *5; see also State v.

Margolis, 439 S.W.2d 695, 697-98 (Tex. Civ. App.—Austin 1969, writ ref’d

n.r.e.) (where plaintiff merely alleged, without any supporting proof, that

defendant had “indicated an intention” to seek statutory penalty against

plaintiff, and defendant denied that allegation in its pleadings, there was no

evidence that a bona fide controversy existed giving rise to any justiciable

issues between the parties; hence, declaratory judgment was improper).7


7      LHR Enterprises and Margolis involved statutory penalties available to the State
in specified circumstances. While the cases are procedurally similar to the instant case
in that they presented un-ripe claims for declaratory relief related to the enforcement of
these remedies prior to a pending demand for their recovery, they are substantively


                                           42
      B.     Strandhagen’s Claim Is Not Ripe.

      The    declaration    sought    by      Strandhagen    merely    presents    a

hypothetical or contingent question about what damages may be available

if the Physicians were to pursue a claim against her in the future for breach

of contract. Strandhagen only speculated that she has “learned . . . [the

Physicians] and perhaps others are seeking to pursue her for collection,”

but she failed to offer any proof that a live, justiciable controversy actually

existed. (CR.8, 112). The Physicians generally denied all of Strandhagen’s

allegations, specifically pled that her claim has not matured, and moved for

dismissal based on their specific contention to the contrary. (CR.74-75, 79).

A potential breach of contract suit against Strandhagen is not a certain,

imminent, or unavoidable controversy.             At best, it is hypothetical or

contingent on other events. Hence, there is not a sufficiently ripe dispute

between these parties about which declaratory relief may be appropriately

granted. Strandhagen’s attempt to misuse the Declaratory Judgment Act to

obtain an advance ruling on her affirmative defense should be dismissed.




distinct in that they involved “penalties” rather than a liquidated damages clause as
here.


                                         43
                                  PRAYER
      Based on the foregoing, Appellants respectfully pray that this Court

sustain both of their issues on appeal and reverse the district court’s grant

of Strandhagen’s Motion for Summary Judgment, its partial denial of the

Physicians’ Plea to the Jurisdiction, and its denial of the Physicians’ Motion

for New Trial. If the jurisdictional ruling is reversed, then this Court should

render judgment in favor of the Physicians dismissing Strandhagen’s claim

in its entirety. Otherwise, this Court should remand to the district court for

further proceedings.

      Appellants further pray that this Court tax all costs against

Strandhagen, both in this Court and below, and award the Appellants any

such other relief at law or equity to which they may be justly entitled. Tex.

R. App. P. 43.4; Tex. R. Civ. P. 139.

                        Respectfully submitted,

                        MARTENS, TODD, LEONARD, TAYLOR & AHLRICH

                        By: __/s/ Amanda G. Taylor____
                            Amanda Garrett Taylor
                            ataylor@textaxlaw.com
                            Texas Bar No. 24045921
                            301 Congress Avenue, Suite 1950
                            Austin, Texas 78701
                            Tele: (512) 542-9898
                            Fax: (512) 542-9899

                        ATTORNEY FOR APPELLANTS


                                        44
                   CERTIFICATE OF COMPLIANCE
      I certify that this Appellants’ Brief complies with the typeface
requirements of Tex. R. App. P. 9.4(e) because it has been prepared in a
conventional typeface no smaller than 14-point for text and 12-point for
footnotes. This document also complies with the word-count limitations of
Tex. R. App. P. 9.4(i) because, according to the word-count tool of the
computer program used to prepare this document, it contains 8,855
words, excluding any parts exempted by Tex. R. App. P. 9.4(i)(1).


                                       /s/Amanda Taylor__________
                                       Amanda Taylor




                       CERTIFICATE OF SERVICE
      I certify that a true and correct copy of this Appellants’ Brief was filed
electronically and served on all counsel via e-mail in compliance with Tex.
R. App. P. 9.5(b) and L.R.3 on this 14th day of January, 2015.


      Daniel Byrne
      DByrne@FBHH.com
      Lessie Fiztpatrick
      LFitzpatrick@FBHH.com
      FRITZ, BYRNE, HEAD & HARRISON, PLLC
      98 San Jacinto Blvd, Suite 2000
      Austin, TX 78701
      Telephone: (512) 476-2020

                                       /s/Amanda Taylor__________
                                       Amanda Taylor




                                      45
NOTICE SENT~LOCUTORY NONE
                                                DC          BK14156 PG221



DISP PARTIES· ALL
DISP CODE: ~ CLS 'flRtCf
REDACT PGS:_ _ _-,:o-~-
                                            NO. D-1-GN-13-002811
JUDQE OL!J CLERK.~~-
      TRACYD.sT                                         §        IN THE DISTRICT COURT
                                                        §
      PLAINTIFF                                         §
                                                        §
      v.                                                §
                                                        §
                                                        §
      NOAH S. BUNKER, PAUL                              §        353rd JUDICIAL DISTRICT
      CARRELL, EVERETT BREW                             §
      HOUSTON, JR., W.ANDREW                            §
      BUCHHOLZ, SCOTT J. LEIGHTY,                       §
      JAD L. DAVIS, and HOLLY                           §                                         ..... e"'
                                                                                                  <Cc:r
      CLAUSE,                                           §
                                                        §
      DEFENDANTS                                        §        TRAVIS COUNTY, TEXAS



             ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

                    On February 20, 2014, Plaintiffs Motion for Summary Judgment came on to be

           heard.    After reading the pleadings, hearing the arguments presented by counsel,

           reviewing the case law, and considering the same, the Court finds that the Motion is

           GRANTED.

                    Therefore, IT IS ORDERED, ADJUDGED, AND DECREED that Plaintiffs

           Motion for Summary Judgment is GRANTED, and the Court DECLARES that the

           $500,000 purported liquidated damages clause in the Advisory Board and Internal

           Operations Agreement is an unenforceable penalty.

                    All relief not expressly granted is DENIED.

           SIGNED on this the     &A'J      day of May, 2014.




                                                                     JUDGE ORLINDA L. NARANJO
                                                                     419TH DISTRICT COURT



                                                                            212
                                    DC                   BK14013 PG2586
                                                                                  1/1 0/2014 11 :21 :46 AM
                                                                                          Amalia Rodriguez-Mendoza
                                                                                                         District Cl+rk
                                                                                                         Travis County
                                                                                                         D-1-GN-13-00~811
                                                                                                                     I



                                                                                                                    I
                                  CAUSE NO. D-l-GN-l3-002Hll


TRACY D. STRANDHAGEN,                              §      IN THE DlSTRlCT COURT
        PLAfNTlFF,                                 §
                                                   §
                                                   §
V.                                                 §      TRA VTS COUNTY, TEXAS
                                                   §
                                                   §
NOAH S. BUNKER, PAUL CARRELL,                      §
EVERETT BREW HOUSTON, JR.,                         §
W. ANDREW BUCHHOLZ, SCOTT J.                       §
LEiGHTY, JAD L. DAVIS, and                         §
HOLLY CLAUSE                                       §
     DEFENDANTS.                                   §      353HD JUDICIAL DISTRICT



 ORDER GRANTING IN PART AND DENYING IN PART .DEFENDANTS 1 AMENDED
                    PLEA TO THE JlJRlSDlCTION

       On November 25, 2013 came on tbr hearing Defendants' Amended Plea to the

Jurisdiction. After considering the same, the Court is ofthe qpinion that the Amended Plea to the

Jurisdiction is meritorious in part and should be grarltea In patt and denied in patt.

rt is therefore ORDERED that:

 1,    Defendant's Amended Plea to the Jurisdiction is GRANTED as to Plaintiff's request for a
declaratory judgment that she was tertninated without cause and therefore the Termination
Penalty Provisions (as defined in the Plaintiffs First Amended Petition) are inappllcable to her.
The Court lacks jurisdiction over this claini, and it is therefore dismissed for lack of jurisdiction;
and

2.      Defendant's Amended Plea to ihe Jurisdiction is DENIED as to Plaintiffs request for
declaratory judgment that the liquidated damages provisibn in the Termination Penalty
Provisions is an invalid and tinenforceable penalty. The Court has jurisdiction over tnis claim.

SIGNED AND ENTERED thi$          _j_ {)   day of       ..,..jNy   '20.1 3.




                                                                                                                    184
                                DC          BK14013 PG2587




APPROVED AS TO FORM:

FRITZ, BYRNE, HEAD & HARRISON, PLLC
98 San Jacillto Boulevard, Suite 2000
Austin, Texas 78701-4286
(512) 476-2020
(512) 4 77-5267 (tax)




      Lessie G, Fitzpatrick
      State Bar No. 240122630

ATTORNEYS FOR PLAINTIFF
TRACY D. STRANDHAGEN


CARLS, McDONALD & DALRYMPLE, L.L.P.
Barton Oaks Plaza 1
901 S. Mopac Expressway, Suite 280
Austin, Texas 78746                /'

By:    ,kd~ ~ YvJ<:-DJ'VI-~·
      KeHy ;;::tM,cDonald
      State Bar Number 13551275
      Carla Garcia Connolly
      State BarNo. 07631100

ATTORNEYS :FOR DEFENDANTS
NOAH S. BUNKER, PAUL CARRELL,
EVERETT DREW HOUSTON, JR.,.
W. ANDREW BUCHI-IOLZ, SCO'tf J. HEJGHTY,
JAD L. DAVIS and HOLLY CLAUSE




                                        2




                                                             185
                                     DC       BK 14225 PG220
                                                                              Filed in The District Court
                                                                               of Travis County, Texas

                                                                                    JUL 30 2014
                               CAUSE NO. D-1-GN-13-002811                     At     3'. \~                M.
                                                                              Amalia Rodriguez:eJldaza, Clerk

 TRACY D. STRANDHAGEN                         §                      IN THE DISTRICT COURT
                                              §
 Plaintiff                                    §
                                              §
 v.                                           §
                                              §
 NOAH S. BUNKER, PAUL                         §                      TRAVIS COUNTY, TEXAS
 CARRELL, EVERETT BREW                        §
 HOUSTON, JR., W. ANDREW                      §
 BUCHHOLZ, SCOTT J. LEIGHTY,                  §
 JAD L. DAVIS, and                            §
 HOLLY CLAUSE,                                §
                                             §
 Defendants                                  §                       353rd JUDICIAL DISTRICT

                        ORDER DENYING DEFENDANTS'
                          MOTION FOR NEW TRIAL

       On this day came to be considered the Defendants' Motion for New Trial. The

Court, having considered the     ounds asserted in Motion, the Response, the arguments of

counsel, the evidence on fi1    , and the contents of the Court's file, determines that the

Motion for New Trial should be DENIED.




                                                                                     Pagel

                                                               271
                                  ADVISORY BOARD AND
                            INTERNAL OPERATIONS AGREEMENT

       This ADVISORY BOARD AND INTERNAL OPERATIONS AGREEMENT (this
"Agreement") is made and entered into this _.  . day of October 2011, by and among the
undersigned physicians who are employed by American Anesthesinlogy of Texas, Inc. (such
employed physicians being ref~rr~d to herein as the "Physicians''), a Texas non profit
corporation certified as a lieahh care organi7.ation by the Texas State Board of Megical
Examiners (the "Company"), Noah Bunker, M.D., the Corporate Medical Director of the
Company (the "Medical Director"), and Chi B. Vo, M.D., the Physician P<!rthers' Representative
under the Purchase Agreement (as defined below) (the ''Partners' Representative").

                                        RECITALS:

        WHEREAS, as of the date hereof, the Company intends to acquire all of the issued and
outstanding membership interests of Austin Anesthesiology Group, PJ.;LC C'AAG"), pursuant to
that certain Membership Interest Purchase Agreement, dated as of October 6, 2011, among the
Company, AAG, AAG Holdings, AAG Sidecar LLC, those certain Physicians who arc members
of AAG, and the Physician Partners' Representative (the "Purchase Agreement") (unless the
context shall otherwise require, capitalized terms used herein without definition shall have the
respective meanings ascribed thereto in the Purchase Agreement);

       WHEREAS, the Physicians desire to establish an Advisory Boru·d at1d set fmth certain
understandings and agreements among themselves regarding the operations of their practice
following the Closing under the Purchase Agreement; and

       WHEREAS, a significant inducement to Physicians~ entering into the Purchase
Agreement, and consummating the transaction contemplated thereby, is the Physicians'
agreement to be bound by the covenants set forth herein, which covenants are narrowly tailored
and necessary to protect the Physicians' legitimate interests.as a group.

        NOW THEREFORE, in consideration of the foregoing recitals, the mutu.al covenants
contained herein and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereby agree as follows:

         1.         Advisory Board.

                (a)   The Physicians hereby establish a board (the "Advisory Board") to
provide binding advice and guidance to the Medical Director on certain matterSas further set
forth herein. The Advisory Board shall consist ofseve11 (7) members{ea.cn an "Advisory Board
Member" and, colleCtively, the "Advisory Board Members"), each ofwhornmust be a pruty to
this Agreement, and one of which shall be the Medical Director. 'rhe Advisory Board Members
(other than the Medical Director) will serve tenns of three (3) years. '[wo (2) Advisory Board
Members will be elected each year consistent with AAG's past practices for management
committee elections. The Medical Director's term on the Advisory Board will be co-terminus
with the term as Medical Director set forth in Section 3(a). The names of the Advisory Board



23502.2-688675 v1
                                                                                            EXHIBIT

                                                                                            l-A       162
Members to serve as such shall be evidenced on Exhibit A attached hereto and made a part
hereof, as amended upon any change of the Advisory Board.

                 (b)    Any Advisory Board Member may resign at any time by giving written
notice to all of the Physicians. The resignation of l!lny Advisory Board Member shall talw effect
upqn receipt of notice thereof or at such later time as shall be specified in such notice; and,
unless otherwise specified therein, the acceptance of such resignation shall not be necessary to
make it effective.                                               ··

                (c)    An Advisory Board Member may be removed, with or without cause, by
the affirmative vote of at least a majority of the Physicians. Furthermore, the Advisory Board
may by majority vote cast a vqte of"no confidence" in an Advisory Board Member, in which
case the Advisory Board shall refer the matter to the Physicians for a vote to remove such
Advisory Board Member.

               (d)     If an Advisory Board Member (the "Vacating Member") (i) is removed in
accordance with Section 1(c) or (ii) resigns or otherwise vacates the position for any reaSoil, the
Physicians shall elect a new Advisory Board Member to replace the Vacating Member by the
vote of a simple majority of the Physicians.

               (e)     Unless otherwise prohibited by any officer or AfiHiate of the Company,
any Advisory Board Member may examine the books and records ofthe Company for a purpose
reasonably related to such Advisory Board Member's position as an Advisory Board Member.

              (f)    The Advisory Board Members will not receive any additional
compensation from the Company for serving as Advisory Board Members.

                (g)    The Advisory Board may designate one or more committees. Any such
committee, to the extent detetmined by the Advisory Board, shall have and may ex~icise all
authority deterniined by the Advisory Board, subject to any restrictions contained herein. The
terms. qualifications and duties ofthe members of such committees shall be detertnined by the
Advisory Board and shall be substantially consistent with the past practices of AAG.

              (h)    l}nless otherWise undertaken by an officer, director or other Affiliate of
the Company, the Medical Director, with input from the Advisory Board, shall be responsible for
implementing, documenting, carrying-out and enforcing the disciplin_ary procedures of the
Company substantially consistent with the pastpractices of AAG.

       2.      Meetings of the Advisory Board.

              (a)     The Advisory Board may hold its meetings, both regular and special, in
such manner as is determined by the Advisory Board from time to time.

               (b)    At least four (4) of the Advisory Board Members shall be necessary to
constitute a quorum for the transaction of business; provided, that every act or decision done or



                                                 2




                                                                                                      163
made by the Advisory Board shall require the affim1ative vote of at least four (4) Advisory
Board Members.

                (c)    Advisory Board Members may participate in any meeting of the Advisory
Board by means of conference telepqone or similar communications equipment, provided all
persons participating in the meeting can hear one aQOther, and such participation in a meeting
shall constitute presence in person at the meeting.

               (d)      All votes required of the Advisory Board hereunder may be by voice vote
unless a written ballot is requested, whiQh request may be made by one Advisory Board Member.

                (e)    Any action, which under any provision of this Agreement is to be taken at
a meeting of the Advisory Board, may be taken without a meeting 'by written consent signed by
not less than the number of Advisory Board Members necessary to take the action at a meeting
ofthe Advisory Board at which all Advisory Board Member~ were present and voted. Such
written consent will be kept with the records of the Advisory Board.

               (f)   A majority of the Advisory Board Members may adjourn any Advisory
Board meeting to meet again at a stated day and hour or until the time fixed for the next regular
meeting of the Advisory Board.


       3.      Medical Director.

               (a)      The Physicians acknowledge and agree that Noah Bunker, M.D. has been
appointed as the initial Medical Director of the C9mpany pursuant to the Corporate Medical
Director Agreement, dated as of the date hereof, by and between Noah Bunker, M.D. and the
Company (the "Medical Director Agreement"). Notwithstanding the terms and conditions of the
Medical Director Agreement, the initial Medical Director and each oth~r Medical Dii·ector Of the
Company thereafter shall serve for single tetms of four (4) yeats. Any Medical Director may
seek re-election for subsequent term{s) of four (4) years each; provided, that the then-current
Medical Director who is not re-elected must resigh in accordance with the Medical Director
Agreement with sufficient notice such th~t the Medical Director's term is limited to 1bur (4)
years. The Medical Director shall be elected by the affirmative vote of a simple majority of the
Physicians.

                (b)    I In the event of a dispute between the Medical Director and the Advisory
Bom·u and/or the Physicians, a simple majority of the Physicians may cast a vote of"no
confidence" in the Medical Director. In such event, the Medical Director shall have thirty (30)
days from the date of such vote of no confidence to resolve the dispute with due notification to
the Advisory Board and the Phy~icians of such dispute and !he resolution thereof. Should the
dispute remain unresolved following the expiration of such thirty {30) day cure period as
determined by th~ Advisory Board in it sole discretion then upon the affirmative vote of a simple
majority of the Physicians (excluding, for this purpose, the Medical Director), the Medical
Director shall resign as the Medical Director. Furthermore, seventy-five percent(75%) or more
of the Physicians (excluding, for this purpose, the Medical Director) (a "Supermajority ofthe


                                                 3



                                                                                                    164
Physicians") may elect to remove the Medical Director at any time for any reason or for no
reason; provided that the Physicians and the Medical Director understand and agree that ~uch
removal will be subject to the consent of the Company (such consent not to be unreasonably
withheld or delayed). Any such resignation by or removal of the Medical Director pursuant to
th:i.s Section S(b) shall occur upon at least ninety (90) days' prior written notice to the Company
and the Medical Director. The Physicians and !he Medical Director also understand and agree
that the Company may elect to remove the Medical Director for any reason or for no reason upon
at leasf ninety (9n) days' prior written notice to the Mc;:dical Director and the Partners'
Representative. The Medical Director may voluntarily resign and terminate his ot her services
under the Corporate Medical Director Agreement for any reason or for no reason upon at least
ninety (90) days' prior written notice to the Comp@y and the Partners' Repre~entative. A
majority of the Physicians shall have the power and authority to appoint, by written notice to the
Company, a replacement for n;ny terminated Medical Director (a "~Replacement Medical
Director"), which replacement shall satisfy the qualifications set forth in Addendum 1 to the
Corporate Medical Director Agreement ("Addendum 1") an!l otherwis_e be acceptable to the
Company (such acceptance not to be unreasonably withheld or delayed). The parties
acknowledge that under the terms of the Corporate Medical Director Agreement, if the
Physicians fail to appoint a Replacement Medical Director who satisfies the qualifications set
forth in such Addendum 1 and is otherwise acceptable to the Company (such acceptance not to
be unreasonably withheld or delayed) on or before the ninety-first (91 51) day following notice of
the termination of the Medical Director or the date of death of the Medical Director, then the
Co111pany will h:ave the power and authority to appoint a Replacement Medical Director in good
faith. If, for any reason, there is a vacancy in the Medical Director position, then pending any
replacement thereof in accordance with the terms hereof and the Corporate Medical Director
Agreement, a majority of the Physicians shall have the right to immediately appoint a temporary
successor to have responsibility for and authority to conduct the rights and duties granted to the
Medi_ccai Director Under the Purchase Agreement and the Physifans' Employment Agreements,
which temporary successor shall satisfy the qualifications set forth in Addendum 1 and otherwise
be acceptable to the Company (such acceptance not to be unreasonably withheld or delayed);
provided that the Company shall appoint a temporary successor if none i~ appointed by a
majority of the Physicians within ten (1 0) Business bays of any vacancy in the position of
MediCal Director. For the avoidance of doubt, the Advisory Board may at any time recommend
to the Physicians that the Medical Director be removed upon the required vote of the Physicians
specified above.

                (c)    T11e parties acknowledge that under the Corporate Medical Director
Agreement, the Medical Director will receive an a:tiliual service stipenq from the Company or
general group funds of the practice in an amount equal to Ten Thousand Dollars ($1 0,000). The
M{dical Director shall defray p~rsonal cos1s of all non-clinical work, i!lcludi]1g per diem
coverage, from any such stipend received for his other duties as the Medical Director. The
Advisory Board may determil1e in its sole discretion that the Medical Director should receive
additional compensation or bene:tits in consideration for the Medical Director's services in such
role, and in such event the Advisory BQard shall recommend to the Medical Director the source
of such additional compensation or bendits.




                                                 4



                                                                                                      165
                  (d)     The Medi_cal Director shall abide by all of the terms and conditions of this
Agreement. The Medical Director shall maintain his or her share ofciinical responsibilities
throughout his or her service tenn as Medical Director. The Medical Director is expected to be
an effective liaison between the Company and the Physicians and is expected to faithfully and
reciprocally communiq.te all expectations,demands and/or decisions as pertinent to the
Companf and tbe Physicians. The Medical Director shall not, and shall fisc coimneteially
reasonable efforts to cause the Company notto, without seeking approval from the Advisory
Board: (i) Ul}ilaterally hir~ or fire any Physicians, associate physiCians or other professionals or
office staff; (ii) unilaterally alter salaries ofthe Physicians, associate physicians or other
                                                           or
professiona}s or offt_ce staff; (iii) unil{iterally altefaaily monthly schedules; (iv) unilaterally
alter physician service sites ortimes; or (v) make recommendations to the President of the
Company on salary and bonus disbursement and the division ~nd allocatiop. of the "Performance
Incentive Bonus,"as de:flped in the Physicians' Employment Agreements; provided further, that
the Medical Director shall make bonus disbursement reports available for inspection by the
Physicians at the offices of the Practice. During the Initial Te11n of the Physiciails' Employm~ht
Agreements and during the applicable period for negotiating the Renewal term of the
Physicians' EmploymentAgreements, the Medical Director shall not on behalf of the Company,
either directly or indirectly, (i) negotiate, recomrricnd, approve or offer any Physician
employment terms and conditions inconsistent in any material respect with the employment
terms and conditions of other Physicians (except for the pre-approval of Outside Activities (as
defined in the Phys!cians' Employment Agreements)), or (ii) negotiate, recommend, approve or
offer any Physician-special incentives, bonuses or other benefits not alTered to the other
Physicians.

               (e)     The Corporate Medical Director shall use co:mifiercially reasonable efforts
to delegate appropriate duties and responsibilities to the Advisory Board from time to time. The
Medical Director shall use comin~rcially reasonable efforts to sH~re information fr()m or related
to the Company with the Advisory Board.

                (f)    Notwithstanding anything to the contrary herein, (i) in the event of any
conflict between the terms of this Agreement and the Medical Director Agreement, then the
terms Of the Medic-al Director Agreement shall control; and (ii) in the event the Medical Director
receives advice and/or directives from the Advisory Board and/or the Physicians that conflicts
With advice and/or directives from the Company or its Affiliates, then the Physicians understand
and agree thaithe Medical Director will follow the advice and/or directives from the Company
and its Affiliates,

        4.      Partners' Representative.

               (a)    ThePhysicians acknowle~ge and agree that Chi B. Vo, M.D. has been
appointed as the Pat1ner.s' Represent~tive pursuant to the Purchase Agreement and wil1 act as an
agent of the Physicians under the Purchase Agreement and is granted such powers as are
delegated under the Purchase Agreement,

               (b)    Notwithstanding the foregoing and the powers that are delegated to the
Partners' Representative under the Purchase Agreement, the Partners' Representative shall


                                                   5



                                                                                                         166
provide to the Physicians prompt notice and copies of all notices and communications
transmitted to the Partners' Representative by the Buyer under the Purchase Agreement. In
addition, the Partners' Representative shall not, without first consulting in good faith with and
receiving prior written consent from, a majority of the Physicians:

                     (A)   waive provisions of the Purchase Agreement or any other
       Transaction Document;

                      (B)   resolve any dispute arising under the Purchase Agreement or any
       other Transaction Document, including, btit not limited to, as contemplated by Section 6
       of the Purchase Agreement;

                       (C)     make any material decisions with respect to the defense of any
       litigation described in Section 6.3 of the Purchase Agreement;

                       (D)   agree to, negotiate, enter into settlements and compromises of, or
       d~mand arbitration with respect to any such claims referenced in subparagraphs (ii) and
       (iii) above; or

                      (E)    take or fail to take any other actions that would have an adverse
       impact on the rights of the Physicians, economic or otherwise, under the Purchase
       Agreement.

                (c)    The Partners' Representative may resign by delivering written notice t9
the Physicians with a copy to the Buyer, at least thirty (30) days prior to the effective date of
s11ch resignation. A majority ofthe Physicians may terminate the appointment ofthe Partners'
Representative, by delivering written notice thereto, with a copy to the Buyer, whiCh notice shall
designate the effective date of such termination not earlier than five (5) Business Days after the
B\lyer's rec~ipt of such notice. In the event of such resigmition or termination, a successor
Prutners' Representative shall be appointed by a majority ofthe Physicians and written notice of
such appointment shall be delivered to the Buyer. If, at any time, the Partners' Representative
has resigned or has been termitmted and a successor Partners' Representative has not been
appointed in accordance with the foregoing sentence, then _unless and until a successor Partners'
Representative is so appointed, the Medical Director shall be deemed to be the successor
Partners' Representative for purposes ofthis Agreement and the Purchase Agreement. After the
appointment (or deemed appointment) of a personas a successor Partners' Representative, all
references to such Partners' Representative shall be deemed to include such successor.

       5.      Physician Obligations.

                 (a)     Each Physicianlihderstarids and (lgrees that (i) in addition to the
consideration under the Purchase Agreement, beginningon January 1, 2013, the Physicians are
eligible fpr certain bonuses \Ulder the Company's PhysiCian Performance Incentive Program
based upon the proilts of the Company, (ii) he or she has entered into an Employment
Agreement with the Company to perfoi:m certain services for the Compatiy for an initial term as
set forth in his or her Employment Agreement (the "Initial Terni") and (iii) if he or she


                                                 6



                                                                                                     167
terminates his or her employment with the Company prior to the expiration of the Initial Term,
the Physicians may suffer harm, including, without limitation, increased workloads necessitated
by such terrrlination, mat¢rial impairment of the ability of the Physicians to earn bqrtuses under
the Company's Physician Perfbtmance Incentive Program, material impairment of the Physician'
relationships with hospitals and other health-care facilities, third-party payors and other
stakeholders, and hiring and tnrlning costs related to replacement physicians.

                (b)     In light oftheforegoing, if a Physician's employment With the Company
is terminated for any reason duringothe Initial Term of a te1minating Physician's Employment
Agreement other than atertninatio:h without cause by the Company, subject to Section 5(c)
hereof, theri such terminating physician (a "Terminating Physician") shall promptly pay to the
non-terminating Physiciaps, but in any event within five (5) Business Days of the termination of
s).lch Terminating Physician's employment, n.cs liquid11ted damages, and not as a penalty, the
amount set forth below to be shared equally by the non-terminating .Physicians (th~ ''Llguidated
Damages Amount"). If the Liquidated Damages Amount is not paid by the Terminating
Physician within such five (5) Business Day period, then the Liquidated Damages Amount shall
thereafter bear interest at the rate often percent (1 0%) per animm until such Liquidated Damages
Amount, together with the accrued interest, is paid in full.


               Terminating Physician                 Liquidated Damages Amount
               Carolyn G. Biebas, M.D.               $400,000
               James C. Chapin, M.D.                 $400,000
               Richard S. Himes, Jr., M.D.           $~~(),000
               Richard L. Laube, M.D.                $320,000
               Gary J. Mihm, M.D.                    $240,000
               Sharon A. Oxford, M.D.                $400,000
               All other Physicians                  $500,000


The Liquidated Damages Amount for Ann John, M.D. shall be (i) $375,000 ifthc terrilination
date occurs prior to the two (2) year anniversary of employment with the Company, or (ii)
$300,000 if the termination date occurs at anytime thereafter during the initial Term of her
Employment Agreement.

               In addition to the Liquidated Damages A!nount, the Terminating Physician shall
reimburse the Company and the Physicians for all out of pocket costs and attorneys' fees
incurred by the Company and/or the Phy~icians in any arbitration or litigation to enfotce the
Terminating Physician's Employment Agreement or this Agreement. The Physicians each
acknowledge and agree that the Liquidated Damage Amount is reasonable in light of the
anticipatedharm which would be causco by a Termin!lting Physician's breach of ordefault under
this Agreement, the difficulty ofproof ofloss, the inconvenience and non-feasibility of otherwise
optaining an adequate remedy, and the value of the transactions to be consummated under the
Purchase Agreement and the other Transaction Documents.




                                                7



                                                                                                     168
                  (c)     Notwithstanding the foregoing and for the avoidance of doubt, i1 is hereby
acknowledged and agreed that the provisions set forth in this Section 5 shall not apply to a
Physician in the event (i) of the death of such Physician, (ii) such Physician suffers a permanent
Disability (as defined in the Physician's Employment Agreement) or an "own occupation"
disabiBty 1 (iii) such Physician is terminated due to a Material Decline or Right-Sizing (as such
tertl)s·ai'edefineci in the P}1ysician's Employ111eilt AgreeJ1ient), (iv) the Company's contract with
St: David's Healthcare Partnership is terminated, (v) ofPhysician's Qualifying Termination (as
cl~fined in the Physicia:il's Employment Agreement), or (vi)of an approved termination pursuant
to Section 5(d) below. the Physicians also acknowledge and agree that unforeseen conditions
may arise during the Initial Term that rriay prompt a Physician to tertninate his or her
employment with the Company. Under such circumstances, a Physician may petition the
Advisory Board and upon receiving the written consent ofa majority of the Advisory Board,
may t~@inate his or her employment with the Company without being required to pay the
Liquidated Damages Amount and the out of pocket costs and attorneys' fees referenced in
Section $(b) above.

                 (d)     Conflict of Interest. In the event that a Physician desires to voluntarily
terminate his or her Employment Agreefuent in order to provide other services to the Company
or its Affiliates, such Physician may petition the other Physicians to allow the termination of his
or her employment with the Company, and upon receiving the written consent of at least a
majority of the other Physicians, may terminate his or her employment with the Company
without beip.g required to pay the Liquidated Damages Am()unt and the out ofpocketcosts and
attorneys' fees referenced in Section 5(b) above. During the Initial Term of the Physicians'
Employment Agreements and during the applicable }Jeriod for negoti~ting the Renewal Ts:rm of
the Physicians' Employment Agreements, each Phys:lcian shall report to the Advisory Board the
occurrence of any offer, negotiation or discussion whereby any such Physician would receive
¥rriployment terms and conditions inconsi~tent in any material respect with the employment
terms and conditions of other Physicians (except for the pre-approval of Outside Activities (as
defined in the Physicians' Employment Agreements)), or any special incentives, bonuses oi other
benefits not Offered to the other Physicians;

             (e)     The Physicians ackfi{)wledge and agree that nothing contained in this
Agreement shall in any way limit or impair the Company's rights under any Employment
Agreements or other agteements with the Physicians.

    6. Indemnification.

                 (a)    Any person who at any time serves or has served as an Advisory Board
Member shall have a right to be indemnified by the Physicians to the fullest extent permitted by
law agairist (i) reasonable expenses, including attorneys' fees, actually and necessarily incurred
by him or her in cohifection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (and '"1Y appeal therein), and
whether Qr not brought by or on behalf.ofthe Physicians, seeking to hold hi111-or het lhtblc by
reason of the fact that he or she is or was acting in such capacity, and (ii) reasonable payments
made by him or her in satisfaction of any judgment, money decree, fine, penalty or settlement for
which he or she may have become liable in any such action, suit or proceeding; provided


                                                  8



                                                                                                        169
however, that an Advisory Board Memb_er shall only he entitled to ind~mnification pursuant to
this Section 6 so long as such Advisory Board Member acted in good faith in carrying out the
decisions or actions which were the subject or basis of liability as set forth abovcin items (i) and
(ii); provided further, that no Advisory Board Member shall be entitled to indeJ1111ification in the
event of such Advisory Board Member's gross negligence.

                 (b)    The Advisory Board ~shall take all such action as may be necessary and
appropriate to require the Physicians to pay the indemnification requirecl by this provision,
including without limitation, to the extent needed, making a good faith evaluation of the manner
in which the claimant for indemnity acted and of the reasonable amount of indemnity due him or
her. The Physicians shall pay their Pro Rata Shan~ of such indemnity claim to tlie claimant within
ten (1 0) business days of receipt of notice of any such claim for indemnity. Forpurposes ofthis
Section 6, the "Pro Rata Share" shall he an amount equal to the total amount ofthe indemnity
claim approved by the Advisory Board divided by the then-cuiTent number of Physicians party to
this Agreement. If a Physician's Pro Rata Share is not paid within teh (1 0) business days, then
interest shall accrue at the rate often percent (10%) per annum until such Pro Rata Share,
together with the accrued interest, is paid in full.

                (c)     Any person who at any time after the adoption of this provision serves or
has serv(!d on the Advisory Board s}1all be deemed to be doing or .to have done so :in reliance
upon, and as consideration for, the right of indemnification provided herein. Such right shall
inure to the benefit of the legal representatives of any such person and shall not be exclusive of
any other rights to which such person may be entitled apart from the provision of this provision.

                (d)   The Physicians shall (upon receipt of an undertaking by or on behalfofthe
Advisory Board Member involved) pay expenses (including attorneys' fees) incuiTed by such
Advisory Board Member in defending any threatened, pending or completed action, suit or
proceeding and any appeal therein whether civil, criminal, administrative, investigative or
arbitrative and whether formal or informalor appearing as a witness at a time when he or she has
not been named as a defen:aartt or a respondent with respect thereto in advance of the flnal
disposition ofsuch proceeding.                          ·

        7.      Miscellaneous.

                (a)     Notices and Voting Procedures. All notices and other communications
hereunder shall be in writing and may be given by personal delivery, reputable express courier,
registered or certified fuail (return receipt requested), or by email, in t11e discretion of the
Advisory Board. Such notice shall be deemed effective when received if it is given by personal
delivery, reputable expre.ss courier or einail, and will be effective three (3) days after mailing by
registered or certified mail, so long as it is actually received within five (5) days (arid, if not so
receivs:o within five ($) days, is effective when actually received), fo the parties at the addre·~s.es
specified on Exhibit Rhcreto or such other address of which notice is provided pursuant to th:is
provisign. Any vote, consent or approval of either the Advisory Board or the Physicians may be
delivered and conducted by email ballot or any other means determined by the Advisory Board.
Meeting minutes and voting records shall be recorded and disseminated by the Advisory Board
in a maill1er substantially consistent with the past practices of AAG.


                                                   9



                                                                                                          170
                 (b)    Enforcement. The Physicians agree that a breach or violation of fhe tem1s
                            of
of this Agreement by any them may cause irreparabl~ damage to the other, the exact amount
of which is impossible to ascertain, and for that reason the Physicians agree that the non-
breaching parties wi11 be entitled to a decree of specific performance of the terms of this
Agreement or an itl.juhction restrai:tling further breach or violation thereof by the breaching party
or parties, said nght to be in addition to any other remedies of the parties.

                  (c)      Amendments. This Agreement may be amended only with the approval of
at least fl. majority of the Physicians. Any amendments tQ this Agreement shall be binding on all
Physicians, the Medical Director and the Partners' Representative.

                (d)     No Third Party Beneficiaries. This Agreement is entered into solely for the
benefit of the parties hereto and no term, provision or covenant hereunder shall confer or be
deemed to confer a benefit on any other person, oth(}r than as may be set forth hei'ein.

              (e)      Assignment. Np party hereto may assign, delegate or otherwise transfer
any of such party's rights, interests or obligations under this Agreement.

                 (f)     Severability. Each provision of this Agreement is intended to be
severable. If any term or provision hereof is illegal or invalid for any reason whatsoever, such
illegality ot invalidity sha11, to the greatest extent possible, not affecttbe legality or validity of
the remainder of this Agreement. In the event that any provision ofthis Agreement shall be
declared by a COUrt of COmpetent jurisdjctign to exceed the limits St1Ch ~OUrt deems tea~sonable
and enrorceable, said provisions shall be deemed modified to the minimum extent necessary to
make suchprovisions reasonable and enforceable.

                (g)     No Waiver. Neither the failure nor any delay on the part of any party
hereto in exe:rcising any right_, power or privilege granted herein shall op(!tatc as a waiver
thereof, nor shaH any single orpartial exercise thereof preclude any other or further exercise of
any other right, power or privilege which Il1ay be provided by law.

                 (h)     Counterparts: Delivery by Facsimile. 'Ibis Agreement may be executed in
any number of 90Unterparts with the saJI1,e effect as if all parties hereto h.aci signed the same
document. All counterparts shall be construed together and shall constitute one agreement. This
Agreement and any amcndil).enls hereto, to the extent signeo and delivcrt!d by mean~ of a
facsimile machine or by e-mail in PDF or similar format, shall be treated in all manner and
respects as an original agreement or instrument and shall be considered to have the same binding
legal effect as if it were the original signed version thereof delivered in person. At the request of
any party hereto, each other party hereto or thereto shall re-cxecute original forms of this
Agreefiieht and deliver thelJl to all other parties. N() PrfrtY hereto shall raise the l!Se Of a facsimile
machine or e-mail to deliver a signature or the fact that any signature or agreement or instrument
was transmitted or coffil!lunicated through the use of{l. facsimile l1l~chine or e-mail as a defense
to the formation of a contract and each such party forever waives any such defense.




                                                    10



                                                                                                             171
                (i)   Controlling Law. This Agreement has been entered into inthc State of
Texas, artd this Agreement, including any rights, remedies, or obligations provided for
hereunder, shall be construed and enforced in accordance with the laws of the State of Texas.

                G)       Non-Voting Physicians. Notwithstanding anything herein to the contrary,
]Uchard S.ijimecs, Jr., M.D., l9chard L. Laube, M.D. and (}aryJ. Mihni, M;D. (the "Non-Voting
Physicians'!) slrall not be entitled to vote on any matter set forth herein and are not eligible to
serve oJl the Advisory Board; provided how~ver, that sm.:h Non-Voting Physicians shiill have all
other rights, and be boundby all obligations, of the Physicians underthis Agreement.

                (k)     Additional Physicians. From time to time after the Effective Date of this
Agreement, the Advisory Board may invite new physicians hired by the Company ("New
PHysicians") to participate in the beilefits and become bound by the tem1s of this Agreement by
signing a joinder to this Agreement in a manner determined by the Advisory Board. In such
event, the Advisory Board will deterinine any and all conditions, rights and duties associated
with any New Physician's joinder to this Agreement~and such NewPhysicians shall thereafter be
''Physicians" hereunder for all purposes; provided however, that New Physicians shall not be
subject to the provisions of Sections 4 ana S(a) through S(d) ofthis Agreement and shall not be
considered a "Physician'' for the purposes of such sections.

               (1)     Replacement Medical Directors. Any Replacement Medical Director must
becom~ bound   by the terms of this AgfeeJUent by signing a joinder to this Agreement in the form
of Exhibit C hereto.

              (m)    Spousal Consent. As a condition precedent to the effectiveness ofthe
Agreement, each Physician's spouse shall execute a consent substantially in the form attached
hereto as EXhibit D.


                                       [Signature Pages Follow]




                                                 11



                                                                                                      172
       IN WITNESS WHEREOF, the undersigned have executed and delivered this Advisory
Board and Internal Operations Agreement to be effective as of the date first above written.

PHYSICIANS:




                                    Erick S. Allen, M.D.



                                    Mark Archibald, M.D.



                                    Scott Bale, M.D.



                                    Shawn A. Barrett, M.D.



                                    T. MarkBedillion, M.D.



                                    Carolyn G. Biebas, M.D.



                                    Ravneet K. Birmg, M.D.



                                    Elizabeth L. Buchholz, M.D.



                                    W. Andrew Buchholz, M.D.



                                    Noah S. Bunker, M.D.



                                    Paul Carrell, M.D.


23502.2-668675 v1



                                                                                              173
       IN WI'INESS WHEREOF, the undersigned have executed and delivered this Advisory
Board and Internal Operations Agreement to be effective as of the date first above written.




                                    James C. Chapin, M;D.



                                    Holly Clause, M.D.


                                    David J. Cross, M.D.



                                    William J. Crowley, Ill, M.D.



                                    B. Will Curtis, M.D.



                                    Jad L. Davis, M.D.



                                    Brian D. Dewan, M.D.



                                    Khoa J:)o, ~M.D.



                                    Allen D. Dornak, M.D.



                                    Cedric Dupont, M.D.



                                    Stanley R. Eckert, M.D.




23502.2-688675 v1



                                                                                              174
       IN WITNESS WHEREOF, the undersigned have executed and delivered this Advisory
Board and Internal Operations Agreement to be effective as of the date first above written.




                                    Joseph D. Eddings) M.D.



                                    William A. Eilers) III, M.D.



                                    S. Dralq: Fason, M.D.



                                    Troy W. Gras, M.D.



                                    Deborah L. Hamill, M.D.



                                    Christine Harrison) M.D.



                                    LD R. Herz_og) M.D.



                                    StevenS. Hewitt, M.D.



                                    RichardS. Himes, Jr., M.D.



                                    Everett Brew Houston, Jr., M.D.



                                    Rima Jakstys) M.D.




23502.2-688675 v1




                                                                                              175
       IN WITNESS WHEREOF, the undersigned have executed and delivered this Advisory
Board and Internal Operations Agreement to be effective as of the date first above written.




                                    Zeeyoung T. Jang, M.D.



                                    Jeffrey M. Jekot, M.D.




                                    Ann John, M.D.




                                    Joe D. Kocks, Jr., M.D.



                                    Richard L. Laube, M.D.


                                         ~           ~




                                    Jonathan J. Lee, M.D.



                                    Scott J. Leighty, M.D.



                                    SuzatmeN. Litna, M.D.



                                    Shelby Marquarat, M.D.



                                    Gary J. Mihm, M.D.



                                    George M. Miller, M.D.



23502.2-686675 v1




                                                                                              176
       IN WITNESS WHEREOF, the undersigned have executed a11d delivered this Advisory
Board and Internal Operations Agreement to be effective as of the date first above written.




                                    Steven E. Miller, M.D.



                                    Mattin C. Milliken, M.D.



                                    Paul B. Nelson, M.D.



                                    Jeffrey J. Nitzsche, M.D.



                                    Oliver E. Orth, M.D.



                                    Slfaron A. Oxford, M.D.



                                    Diinpal R. Patel, M:D.



                                    M. Brett Pillow, M.D.



                                    Vijay K. Ravula, M.D.



                                    Jeffrey J. Rockwell; M.D.



                                    Kevin R. Shelly, M.D.




23502.2-688675 v1




                                                                                              177
    . IN WITNESS WHEREOF, the undersigned have executed and delivered this Advisory
Board and Internal Operations Agreement to be effective as ofthe date first above written.




                                   Gary W; Smith, M.D.



                                   Tracy D. Stranc1hagen, M.D.



                                   Ryan Sturgeon, M.D.



                                   ChiB. Vo,M.D.



                                   David J. Walton, M.D.




MEDICAL DIRECTOR:
                                                 Noah Bunker,· M.D.

                                                 Address:




PARTNERS' REPRESENTATIVE:
                                                 Chi B. Vo, M.D.

                                                 Address:




23502.2-688675 v1




                                                                                             178
                                      EXHIBIT A

                                  ADVISORY BOARD




Noah S. Bunker, M.D.              (term expires on [October 6], 2Ql~)
Paul Carrell, M.D.                (term expires on Decernber31, 2012)
Jad L. Davis, M.D.                (tenn expires on December 31, ~013)
LD R. I-lerzog, }v1.D.            (term expires on Decen1ber 31, 2011)
Everett Brew Houston, Jr., M.D.   (term expires on December 31, 2013)
Jonathan J. Lee, M.D.             (term expires on December31, 2012)
Jeffrey J. Rockwell, M.D.         (term expires on December 31, 2011)




23502.2-688675 v1




                                                                         179
180
181
                                          EXHIBITC

                          JOINDER TO ADVISORY BOAR]) AND
                         INTERNAL OPERATIONS AGREEMENT


        I hereby accept my appointment as Med!c.a.! Director pursuant to the Advisory Board and
Internal Operations Agreement dated October 6, 2.011 (the "Agrement"), and agree to be bound
by the tctn1s of, and to comply with and fulfill all obligations, Goilirilitirients, and agreements
otherwise imposed upon the Medical Director thereunder.



----------'M.D.
''Replacement Corporate Medical Director"




 23502.2-688675 v1




                                                                                                      182
                                               EXHIBITD

                                    FORM OF SPOUSAL CONSENT

                                         WRITTEN CQNSENT
                                           OF SPOUSE OF
                                      "'--------'----~--' M.D.


        In cgnnection with that certain Advisory Board and Internal Operations Agreement entered
into on October_, 2011 (the "Advisory Board Agreement"),.by, between and among the individual
physicians, jncluding the Signatory (as defined below), whoseh!!tnes are set forth on the signature
pages thereto (collectively, the ''Physicians"), the undersigned, being the lawful spouse of
--------~--' M.D. (''Signatory'') hereby certifies as follows:

        1.     I hereby consent to the execution by Signatory of the Advisory Board Agreement
and the performance by Signatory of Signatory's obligations under the Advisory Board Agreement.

         2.          I have had an opportunity to review the Advisory Board Agreement.

        3.      I have had an opportunity to consult with an attorney and other advisors regarding
the Advisoty Board Agreement arid the tnmsactions contemplated thereurtder priotto executing and
delivering this written consent.

  . ..   4.          I hereby acknowledge and agree that the Physicians and their respective agents and
affiliates are entitled to rely on the consent provided hereunder.

      IN WITNESS WIIEREOF, the undersigned has duly executed this Written Consent on
October _ _, 2011.




                                                  Name:


Witness




23502.2-.688675 v1




                                                                                                          183
Alvarado v. Lexington Ins. Co., 389 S.W.3d 544 (2012)




                                             389 S.W.3d 544
                                         Court of Appeals of Texas,
                                           Houston (1st Dist.).

                                Javier ALVARADO, Appellant
                                            v.
                         LEXINGTON INSURANCE COMPANY, Appellee.

                  Nos. 01–10–00740–CV, 01–10–01150–CV.                  |   Oct. 18, 2012.

Synopsis
Background: Mortgagor brought action against insurance company that issued “force-placed”
insurance policy to mortgagee, for breach of contract, breach of the duty of good faith and
fair dealing, and violations of the Insurance Code and the Deceptive Trade Practices Act, after
insurance company rejected mortgagor's claim for property damage following a hurricane. The
11th District Court, Harris County, Mike Miller, J., granted insurance company's motion for
summary judgment. Mortgagor appealed.



[Holding:] On rehearing, the Court of Appeals, Evelyn V. Keyes, J., held that mortgagor qualified
as a third-party beneficiary under policy.


Reversed and remanded.

Jane Bland, J., dissented.

Opinion, 371 S.W.3d 417, superseded.


Attorneys and Law Firms

*546 Wyatt David Snider, Snider & Byrd, LLP, Beaumont, TX, Jacqueline M. Stroh, The Law
Office of Jacqueline M. Stroh, San Antonio, TX, for Appellant.

William M. Briscoe, Eggleston & Briscoe, LLP, Michael F. Hord, Hirsch & Westheimer, P.C.,
Houston, TX for Appellee.

Panel consists of Justices KEYES, BLAND, and SHARP.



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Alvarado v. Lexington Ins. Co., 389 S.W.3d 544 (2012)




                                       OPINION ON REHEARING

EVELYN V. KEYES, Justice.

Appellee, Lexington Insurance Company (“Lexington”), moved for rehearing of our April 19,
2012 opinion. We grant the motion for rehearing, withdraw our April 19, 2012 opinion and
judgment, and issue this opinion and judgment in their stead. Our disposition remains the same.
We dismiss Lexington's May 21, 2012 motion for en banc reconsideration as moot. 1

Appellant, Javier Alvarado, sued Lexington for breach of contract, breach of the duty of good faith
and fair dealing, and violations of the Texas Insurance Code and the Deceptive Trade Practices Act
(“DTPA”) after Lexington rejected Alvarado's claim for property damage following Hurricane Ike.
The trial court rendered summary judgment in favor of Lexington. In one issue, Alvarado contends
that the trial court erred in rendering summary judgment because Lexington did not conclusively
negate Alvarado's status as a third-party beneficiary under the “force-placed” insurance policy
issued by Lexington to Alvarado's mortgage lender.

We reverse and remand for further proceedings consistent with this opinion.



                                                  Background

Before May 2008, Alvarado maintained homeowner's insurance on his property with Columbia
Lloyds. Alvarado testified by affidavit that when he refinanced his mortgage in May 2008 with
Flagstar Bank (“Flagstar”), a Flagstar representative informed him that he had to cancel his policy
with Columbia Lloyds and that Flagstar would obtain homeowner's insurance on his behalf.
Flagstar obtained a “force-placed” insurance policy on Alvarado's property with Lexington (“the
Policy”). 2 Alvarado's *547 monthly payments to Flagstar included the principal and interest on
his mortgage, as well as taxes and the premiums on the Policy.

In September 2008, Alvarado's property sustained damage as a result of Hurricane Ike. Flagstar
made a claim on the Policy, and Lexington paid Flagstar $4,410.49 in damages. According to
Alvarado's affidavit, Flagstar did not provide any of these funds to Alvarado for the purpose of
repairs, and it did not apply these funds to the balance of his mortgage. The application of these
funds is not part of the record.

After Lexington denied his claim for damages, Alvarado sued Lexington for breach of contract,
breach of the duty of good faith and fair dealing, and various violations of the Texas Insurance

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Alvarado v. Lexington Ins. Co., 389 S.W.3d 544 (2012)



Code and the DTPA. 3 Alvarado alleged that he was the owner of the Policy and that Lexington
had “sold the policy, insuring the property to [Alvarado] or [Alvarado's] predecessors in interest.”
Among other allegations, Alvarado argued that Lexington “failed to perform [its] contractual
duty to adequately compensate [Alvarado] under the terms of the policy” and that Lexington
“misrepresented to [Alvarado] that the damage to the property was not covered under the policy,
even though the damage was caused by a covered occurrence.”

Lexington moved for traditional summary judgment. It argued that Alvarado could not recover on
any of his claims because Lexington never entered into a contract with Alvarado; Alvarado was
neither a named insured nor an additional insured on the Policy; Flagstar obtained the Policy “to
protect its interest in the residence for which Flagstar was the mortgagee”; the Policy provided
that all payments for damages were to be made solely to Flagstar; and the Policy “expressed no
intent to benefit [Alvarado] in any way.” Lexington contended that Alvarado did not qualify as a
third-party beneficiary of the Policy and that, as a result, no legal relationship existed between it
and Alvarado and Alvarado lacked standing to bring his claims. 4

As summary judgment evidence, Lexington attached a copy of the Policy as Exhibit A. Lexington
pointed out that the “Common Policy Declarations” in the Policy provide that “Flagstar Bank,
FSB” is the “named insured” and that the “Mortgage Guard Property Policy” section further
defines “named insured” as “the Lending Institution named on the Declaration Page” and “you”
as “the Named Insured shown in the Declarations.” It further pointed out that the Policy states,
“In consideration of the premium to be charged we will (as shown on the Declaration Page)
insure ... the Lending Institution (you, as shown on the Declaration Page) against direct physical
loss resulting from destruction of or damage to your property....” It also pointed to language in the
Policy stating that the Policy provides coverage for the dwelling, other structures on the property,
personal property, and loss of use “in which the insured has a mortgage and/or owner interest.”
Lexington argued that, although the Policy covers personal property, that coverage is limited to
the extent to which Flagstar, as *548 the named insured, has a mortgage or ownership interest
in the property.

The Policy also includes the following “Mortgage Clause”:

            Loss, if any, under this policy will be payable to the mortgagee (or trustee) as
            its interests may appear under all present or future mortgages upon the Covered
            Property described on the reporting forms in which mortgagee may have an
            interest as mortgagee (or trustee) in order of precedence of said mortgages.

Lexington pointed out that the “Loss Payable” clause provides, “Loss will be adjusted with and
made payable to you unless another payee is specifically named.” It observed that this clause does
not provide that Alvarado, the borrower, is entitled to proceeds in excess of Flagstar's insurable


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Alvarado v. Lexington Ins. Co., 389 S.W.3d 544 (2012)



interest in the property, nor does it allow Alvarado to participate in the claim adjustment process.
It emphasized that neither Alvarado nor his property is specifically mentioned in the Policy.

In response to Lexington's summary judgment motion, Alvarado argued that Endorsement #
12 to the Policy, entitled “Special Broad Form Homeowners Coverage,” expressly provides
homeowners' coverage for homeowners of properties specified on reporting forms referenced by
the Policy. He argued that this endorsement directly benefits him and supports his third-party
beneficiary status. Alvarado pointed to language in Endorsement # 12 defining “insured” as “[y]ou
and residents of your household” and defining “insured location” as the “residence premises,”
which is further defined as “[t]he one family dwelling where you reside.” He contended that this
language refers to him and not to Flagstar, the mortgage company. Alvarado also pointed out
that Endorsement # 12 provides coverage for direct physical loss to property, additional living
expenses, personal property damage, personal liability for suits brought against the insured for
bodily injury or property damage, and medical payments to others. He contended that this coverage
could only apply to him and not to Flagstar. He also argued that Endorsement # 12 confers a benefit
upon him because the endorsement's “Mortgage Clause” provides, “If a mortgagee is named in this
policy, any loss payable under Coverage A or B will be paid to the mortgagee and you, as interests
appear.” According to Alvarado, “This clearly shows that the word ‘you’ in the Endorsement
refers to [Alvarado] ... but it does not necessarily refer to the mortgagee which would be Flagstar
Bank.” Therefore, Alvarado contended, because Endorsement # 12 “was intended to confer a direct
benefit” on him, he qualifies as a third-party beneficiary of the Policy.

Lexington replied and argued that Endorsement # 12 “only provides homeowners coverage for
property and damages in which Flagstar has a mortgage and/or an ownership interest.” (Emphasis
in original.) Lexington contended that the

            Supplemental Declaration Page [to the Policy] qualifies every statement
            made about homeowner's insurance in the Policy, leaving no doubt that
            all homeowner's coverage statements and inclusions are meant solely and
            exclusively to pertain to the insured, Flagstar Bank's, interest. Any references
            [Alvarado] makes to the Homeowners Coverage Form are limited by the
            Supplemental Declaration Page.

(Emphasis in original.) Lexington argued that, under the supplemental declarations, any coverage
provided pursuant to the Policy is limited to property or damages in which the named insured,
which is defined in the Common Policy Declarations solely as Flagstar, has a mortgage or
ownership interest. Lexington also argued that the Policy language clearly defines “you” as *549
the “Named Insured shown in the Declarations” and that Alvarado is not named as an insured,
additional insured, or third-party beneficiary in any part of the Policy, including Endorsement # 12.




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Alvarado v. Lexington Ins. Co., 389 S.W.3d 544 (2012)



Neither Lexington nor Alvarado submitted any summary judgment evidence demonstrating
whether or not Alvarado's property is specified on the reporting forms submitted by Flagstar to
Lexington showing properties covered by Endorsement # 12. Nor is there any evidence as to what
Flagstar's and Alvarado's interests in the property are. However, there is some evidence, in the form
of Alvarado's affidavit, that Flagstar submitted a claim under the Policy to Lexington for damage
to Alvarado's property and that Flagstar did not repair the damage, did not distribute the funds to
Alvarado to repair the damage, and did not apply the funds to the balance of Alvarado's mortgage.

 [1] On August 19, 2010, the trial court granted Lexington's motion for summary judgment.
Because Alvarado's claims against Bower, Flagstar, and Proctor Financial remained pending, this
was an interlocutory order that was not yet final and appealable. Alvarado, however, prematurely
filed a notice of appeal, and the appeal was assigned to this Court and given appellate cause number
01–10–00740–CV. Alvarado filed a motion to sever his claims against Lexington, which the trial
court granted, and the trial court then rendered judgment in favor of Lexington on November 19,
2010. After the trial court rendered this final judgment, Alvarado filed a second notice of appeal,
which resulted in appellate cause number 01–10–01150–CV. We decide the first-filed appeal,
appellate cause number 01–10–00740–CV, and dismiss appellate cause number 01–10–01150–
CV. 5



                                             Standard of Review

We review de novo the trial court's ruling on a summary judgment motion. Mann Frankfort Stein
& Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex.2009). To prevail on a traditional
summary judgment motion, the movant must establish that no genuine issues of material fact exist
and that it is entitled to judgment as a matter of law. TEX.R. CIV. P. 166a(c); Little v. Tex. Dep't
of Criminal Justice, 148 S.W.3d 374, 381 (Tex.2004). When a defendant moves for summary
judgment, it must either: (1) disprove at least one essential element of the plaintiff's *550 cause
of action, or (2) plead and conclusively establish each essential element of its affirmative defense,
thereby defeating the plaintiff's cause of action. Cathey v. Booth, 900 S.W.2d 339, 341 (Tex.1995).

If the movant meets its burden, the burden then shifts to the nonmovant to raise a genuine issue of
material fact precluding summary judgment. See Centeq Realty, Inc. v. Siegler, 899 S.W.2d 195,
197 (Tex.1995). The evidence raises a fact issue if reasonable and fair-minded jurors could differ
in their conclusions in light of all of the summary judgment evidence. Goodyear Tire & Rubber
Co. v. Mayes, 236 S.W.3d 754, 755 (Tex.2007) (per curiam). To determine if the nonmovant has
raised a fact issue, we view the evidence in the light most favorable to the nonmovant, crediting
favorable evidence if reasonable jurors could do so, and disregarding contrary evidence unless
reasonable jurors could not. See Fielding, 289 S.W.3d at 848 (citing City of Keller v. Wilson, 168
S.W.3d 802, 827 (Tex.2005)). We indulge every reasonable inference and resolve any doubts in


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Alvarado v. Lexington Ins. Co., 389 S.W.3d 544 (2012)



the nonmovant's favor. See Sw. Elec. Power Co. v. Grant, 73 S.W.3d 211, 215 (Tex.2002) (citing
Sci. Spectrum, Inc. v. Martinez, 941 S.W.2d 910, 911 (Tex.1997)).



                                      Third–Party Beneficiary Status

In his sole issue, Alvarado contends that the trial court erred in rendering summary judgment
in favor of Lexington because Lexington failed to conclusively negate his status as a third-party
beneficiary of the Policy. Lexington responds that this Court should overrule Alvarado's sole issue
and affirm the summary judgment because Alvarado failed to plead his third-party-beneficiary
status. It further argues that we should affirm the summary judgment because Alvarado failed to
raise a genuine issue of material fact with respect to his third-party-beneficiary status.


1. Alvarado's Right to Argue His Third–Party–Beneficiary Status
 [2] Before we address the merits of Alvarado's sole issue, we address Lexington's contention that
Alvarado was required to plead third-party beneficiary status, and that, because he did not, we
should affirm the trial court's summary judgment on that basis alone.

 [3] Lexington's contention is without merit. Lexington itself raised the issue of Alvarado's third-
party-beneficiary status by arguing in its summary judgment motion that Alvarado did not qualify
as a third-party beneficiary to the Policy and therefore lacked standing. Standing is a jurisdictional
issue that cannot be waived and may be raised at any time. See Tex. Ass'n of Bus. v. Tex. Air
Control Bd., 852 S.W.2d 440, 445 (Tex.1993). Here, it was raised by Lexington as grounds for
granting it summary judgment against Alvarado.

Rule 166a provides that a defendant against whom a claim is asserted “may, at any time, move with
or without supporting affidavits for summary judgment in his favor as to all or any part thereof.”
TEX.R. CIV. P. 166a(b). The Rule further provides that summary judgment shall be granted if
the motion and the summary judgment evidence “show that, except as to the amount of damages,
there is no genuine issue as to any material fact and the moving party is entitled to judgment as a
matter of law on the issues expressly set out in the motion or in an answer or other response.” Id.
166a(c). Lexington moved for summary judgment on all of Alvarado's claims on the ground that
he lacked standing to pursue them because he was neither a party to the insurance contract between
Lexington and Flagstar nor *551 a third-party beneficiary of the contract. Alvarado responded
to this issue in his summary judgment response. The issue of Alvarado's third-party-beneficiary
status was thus squarely before the trial court in Lexington's motion and Alvarado's response.
Lexington's contention that Alvarado may not seek to overturn a summary judgment on the very
issue it presented to the trial court in its own motion as the basis for granting summary judgment
is directly contrary to the express language of Rule 166a and is without merit.


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Alvarado v. Lexington Ins. Co., 389 S.W.3d 544 (2012)




We now turn to the merits of Alvarado's sole issue.


2. Third–Party–Beneficiary Status Under Force–Placed Insurance Policies
 [4] [5] [6] [7] [8] Insurance contracts are subject to the same rules of construction as ordinary
contracts. Archon Invs., Inc. v. Great Am. Lloyds Ins. Co., 174 S.W.3d 334, 338 (Tex.App.-
Houston [1st Dist.] 2005, pet. denied) (citing Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d
819, 823 (Tex.1997)). When a policy permits only one reasonable interpretation, we construe it as
a matter of law and enforce it as written. Id. (citing Upshaw v. Trinity Cos., 842 S.W.2d 631, 633
(Tex.1992)). When construing an insurance policy, “[w]e must strive to effectuate the policy as
the written expression of the parties' intent.” Id. (citing State Farm Life Ins. Co. v. Beaston, 907
S.W.2d 430, 433 (Tex.1995)). To discern the intent of the parties to a contract, the court examines
and considers the entire writing to harmonize and give effect to all the provisions of the contract so
that none will be rendered meaningless, no single provision taken alone will be given controlling
effect, and all the provisions will be considered with reference to the whole instrument. In re
Serv. Corp. Int'l, 355 S.W.3d 655, 661 (Tex.2011). If the term to be construed is unambiguous
and susceptible of only one construction, we “give the words in the policy their plain meaning.”
Archon, 174 S.W.3d at 338 (citing Devoe v. Great Am. Ins., 50 S.W.3d 567, 571 (Tex.App.-Austin
2001, no pet.)).

 [9] [10] In determining whether a third party can enforce a contract, we look only to the intention
of the contracting parties. Basic Capital Mgmt., Inc. v. Dynex Commercial, Inc., 348 S.W.3d 894,
900 (Tex.2011); MCI Telecomms. Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 651 (Tex.1999);
Union Pac. R.R. Co. v. Novus Int'l, Inc., 113 S.W.3d 418, 421 (Tex.App.-Houston [1st Dist.] 2003,
pet. denied). The fact that a person might receive an incidental benefit from a contract to which he
is not a party does not give that person a right to enforce the contract. Basic Capital Mgmt., 348
S.W.3d at 899–900; MCI Telecomms., 995 S.W.2d at 651; Union Pac., 113 S.W.3d at 421.

 [11] [12] [13] [14] A third party may recover on a contract made between other parties only
if the contracting parties intended to secure a benefit to the third party and only if the contracting
parties entered into the contract directly for the third party's benefit. Basic Capital Mgmt., 348
S.W.3d at 900; MCI Telecomms., 995 S.W.2d at 651; Union Pac., 113 S.W.3d at 421. The third
party must show that he is either a donee or a creditor beneficiary of the contract, and not one who
is only incidentally benefitted by its performance. MCI Telecomms., 995 S.W.2d at 651; Union
Pac., 113 S.W.3d at 421. A party is a donee beneficiary if the promised performance will, when
rendered, come to him as pure donation. MCI Telecomms., 995 S.W.2d at 651; Union Pac., 113
S.W.3d at 421. If that performance will come to him in satisfaction of a legal duty owed to him by
the promisee, such as an “indebtedness, contractual obligation or other legally enforceable *552
commitment,” he is a creditor beneficiary. MCI Telecomms., 995 S.W.2d at 651; Union Pac., 113
S.W.3d at 421.

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Alvarado v. Lexington Ins. Co., 389 S.W.3d 544 (2012)




 [15] [16] [17] “We glean intent from what the parties said in their contract, not what they
allegedly meant.” Union Pac., 113 S.W.3d at 421. We will not create a third-party beneficiary
contract by implication. Basic Capital Mgmt., 348 S.W.3d at 900; MCI Telecomms., 995 S.W.2d
at 651; Union Pac., 113 S.W.3d at 422; see also Tawes v. Barnes, 340 S.W.3d 419, 425 (Tex.2011)
(“[I]n the absence of a clear and unequivocal expression of the contracting parties' intent to directly
benefit a third party, courts will not confer third-party beneficiary status by implication.”). As the
Texas Supreme Court held in MCI Telecommunications,

            The intention to contract or confer a direct benefit to a third party must be
            clearly and fully spelled out or enforcement by the third party must be denied.
            Consequently, a presumption exists that parties contracted for themselves unless
            it “clearly appears” that they intended a third party to benefit from the contract.

995 S.W.2d at 651; see also Basic Capital Mgmt., 348 S.W.3d at 900 (quoting same).

 [18] [19] Due to the presumption against finding third-party beneficiaries to contracts, courts
will generally deny third-party-beneficiary claims unless: (1) the obligation of the bargain-giver is
fully spelled out, (2) it is unmistakable that a benefit to the third party was within the contemplation
of the contracting parties, and (3) the contracting parties contemplated that the third party would
be vested with the right to sue for enforcement of the contract. Union Pac., 113 S.W.3d at 422. We
resolve all doubts against conferring third-party-beneficiary status. Tawes, 340 S.W.3d at 425; see
also First Union Nat'l Bank v. Richmont Capital Partners I, L.P., 168 S.W.3d 917, 929 (Tex.App.-
Dallas 2005, no pet.) (“If there is any reasonable doubt as to the intent of the contracting parties
to confer a direct benefit on the third party, then the third-party beneficiary claim must fail.”).

Texas's third-party beneficiary policy was recently examined and explained by the Texas Supreme
Court in Basic Capital Management. 348 S.W.3d 894. In that case, Basic managed real estate
investment trusts, including American Realty Trust, Inc. (“ART”) and Transcontinental Realty
Investors, Inc. (“TCI”). Id. at 896. Basic and Dynex signed a Commitment, in which Dynex agreed
to loan funds to “single-asset, bankruptcy-remote entities” (“SABREs”) owned by ART and TCI if
Basic would “propose other acceptable SABREs to borrow $160 million over a two-year period.”
Id. at 896–97. The issue on appeal was whether ART and TCI could recover damages from Dynex
for its alleged breach of the Commitment as third-party beneficiaries to the Commitment. Id. at
898.

The supreme court reasoned that, because the intention to confer a direct benefit to a third party
must be clearly and fully spelled out in the contract for that party to have standing as a third-party
beneficiary, “a presumption exists that parties contracted for themselves unless it clearly appears
that they intended a third party to benefit from the contract.” Id. at 900. Although only Dynex
and Basic had signed the Commitment, “Dynex knew that the purpose of the Commitment was


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Alvarado v. Lexington Ins. Co., 389 S.W.3d 544 (2012)



to secure future financing for ART and TCI, real estate investment trusts that Basic managed and
in which it held an ownership interest.” Id. Not only was Basic not intended to be the borrower,
but the Commitment expressly required that the borrowers be SABREs acceptable to Dynex, and
Dynex knew that Basic would not own the SABREs. Id.

 *553 The court concluded that this requirement was for Dynex's benefit, since SABREs are
designed to provide more certain recourse to collateral in the event of default. Id. The court pointed
out that “SABRE-borrowers provided a mechanism for ART and TCI to hold investment property
directly but in a way that would provide Dynex greater security.” Id. Thus, “if Dynex and Basic
did not intend the Commitment to benefit ART and TCI directly, then the Commitment had no
purpose whatsoever.” Id. Moreover, the Commitment “clearly and fully spelled out the benefit
to ART and TCI because their role was basic to Dynex's and Basic's agreement.” Id. at 901. The
court concluded, “The Commitment itself, and the undisputed evidence regarding its negotiation
and purpose, establish that ART and TCI were third-party beneficiaries.” Id.

Although Texas state courts have addressed whether a party may be a third-party beneficiary
in the general insurance policy context, they have not addressed the specific issue of whether a
homeowner-borrower qualifies as a third-party beneficiary under a force-placed insurance policy
entered into between the insurance company and the mortgage company. See, e.g., Paragon Sales
Co. v. N.H. Ins. Co., 774 S.W.2d 659, 660–61 (Tex.1989) (holding distributor presented some
evidence that it was third-party beneficiary of indemnity contract between insurance company
and public motor carrier). As a result of Hurricanes Dolly, Katrina, and Rita, however, some
federal courts within the Fifth Circuit Court of Appeals' jurisdiction, primarily in Louisiana, have
addressed this issue and have reached differing conclusions as to the homeowner's third-party-
beneficiary status according to the specific terms of the policy and the facts of the case.

When deciding whether a homeowner-borrower is a third-party beneficiary under a force-placed
insurance policy, the federal courts applying state law, like the Texas courts, have looked to the
language of the policy to determine whether any of the provisions clearly confer a direct benefit
upon the borrower. Thus, for example, the Fifth Circuit has found third-party beneficiary status
to exist (1) when the policy, although only listing the mortgage company as a named insured,
contains a subrogation clause providing that the homeowner-borrower will not be liable to the
insurance company for any loss paid to the named insured and (2) when the policy contains a
provision allowing for temporary housing expenses to be paid to the homeowner-borrower. See
Palma v. Verex Assurance, Inc., 79 F.3d 1453, 1457–58 (5th Cir.1996) (subrogation clause case
decided under Texas law).

In Palma, the Fifth Circuit held that the inclusion of the subrogation clause within the insurance
policy demonstrated a clear intention on the part of the contracting parties to benefit the
homeowner-borrower. See id. at 1458 (“[The subrogation clause] is written for the sole benefit of


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Alvarado v. Lexington Ins. Co., 389 S.W.3d 544 (2012)



the borrower.... We also find that the insurance contract was actually made, in part, for the benefit
of Palma [the borrower].”); see also Henderson v. Certain Underwriters at Lloyds, London, Civil
Action No. 09–1320, 2009 WL 3190710, at *3 (E.D.La. Sept. 30, 2009) (slip op.) (noting that
plaintiff's standing was limited solely to seeking temporary housing expenses because this was
only clause in policy providing direct benefit to borrower).

Primarily, the federal district courts have focused on whether the policy contains one of two
specific clauses that may benefit the borrower: (1) an “excess loss” or “residual payment” clause
or (2) a clause providing that the insurer will adjust all personal property losses with, and pay
any such proceeds to, the homeowner- *554 borrower. A common excess loss clause provides
as follows:

            We will adjust all losses with you [the mortgagee and named insured]. We
            will pay you but in no event more than the amount of your interest in the
            “insured location.” Amounts payable in excess of your interest will be paid to
            the “borrower” unless some other person is named by the “borrower” to receive
            payment....

See, e.g., Turner v. Gen. Ins. Co. of Am., Civil Action No. 5:09cv00057–DCB–JMR, 2009 WL
3247302, at *3 (S.D.Miss. Oct. 7, 2009) (slip op.). If the policy provides coverage for personal
property, the insurance policy may include a clause providing that the insurer will adjust all losses
to personal property with the homeowner-borrower and will pay the borrower any proceeds for
such loss, unless the borrower has named another person to receive payment. Id.

A number of courts in the cases in which there were force-placed policies with such clauses have
found third-party-beneficiary status for homeowners under the terms of the particular policy. For
example, in Lee v. Safeco Insurance Co. of America, the United States District Court for the
Eastern District of Louisiana held that the excess loss clause, which “clearly stipulate[d] that the
portion of any loss payment exceeding the value of [the mortgagee's] interest in the property
will be paid directly to [the homeowner-borrower],” manifested a “clear intent to benefit the
borrower.” Civil Action No. 08–1100, 2008 WL 2622997, at *4 (E.D.La. July 2, 2008) (not
designated for publication); see Turner, 2009 WL 3247302, at *4; Beck v. State Farm Fire & Cas.
Co., No. 2:07 CV 1998, 2008 WL 4155301, at *2 (W.D.La. Sept. 5, 2008) (not designated for
publication) (finding third-party-beneficiary status when policy contained excess loss clause and
provision allowing for adjustment of personal property losses with and payment of such losses to
borrower); Navarrete v. Gen. Ins. Co. of Am., Civil Action No. 07–4865, 2008 WL 659477, at *2
(E.D.La. Mar. 7, 2008) (not designated for publication) (same); Peters v. Safeco Gen. Ins. of Am.,
Civil Action No. 07–5612, 2008 WL 544226, at *1 (E.D.La. Feb. 25, 2008) (not designated for
publication) (same); Martin v. Safeco Ins. Co., Civil Action No. 06–6889, 2007 WL 2071662, at *3
(E.D.La. July 13, 2007) (not designated for publication) (same); see also Hickman v. SAFECO Ins.
Co. of Am., 695 N.W.2d 365, 370–71 (Minn.2005) (holding same when policy contained excess


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Alvarado v. Lexington Ins. Co., 389 S.W.3d 544 (2012)



loss clause, coverage for personal property, provision that insurer would adjust personal property
losses with borrower and would pay borrower, and provision allowing borrower to seek arbitration
of appraisal of covered loss).

The Eastern District of Louisiana has also held, however, that a homeowner-borrower was not a
third-party beneficiary to an insurance policy containing an excess loss clause when the claimed
damages did not exceed the mortgagee's interest in the property, as required by the terms of the
policy for her to be considered an additional insured. Graphia v. Balboa Ins. Co., 517 F.Supp.2d
854 (E.D.La.2007). In Graphia, the policy provided that the borrower “shall be considered
an additional insured with respect to any residual amounts of insurance over and above [the
mortgagee's] insurable interest.” Id. at 857. The borrower claimed damages of $56,542.91, and
she presented evidence that the balance remaining on her loan was $110,000. Id. The court noted
that there was “no amount ‘due for the loss' that exceeds [the mortgagee's] insurable interest.” Id.
The court concluded, “The contract does manifest a clear intention to benefit Graphia, but only
to the extent that she has an insurable interest in the property. *555 The contract evidences no
intent to give plaintiff personal rights in the insurance coverage for losses that do [not] exceed
the mortgagee's insurable interest.” Id. at 858. Because her losses did not exceed the mortgagee's
interest in the property, Graphia received only an incidental benefit from this policy and, therefore,
could not enforce the contract. Id.; cf. Mingo v. Meritplan Ins. Co., No. 2:06 CV 1914, 2007 WL
4292026, at *3 (W.D.La. Dec. 4, 2007) (not designated for publication) (denying insurer's motion
to dismiss for lack of standing because parties disputed amount of loss and record did not reflect
either amount of mortgage or mortgagee's interest in property).

The federal courts have also found the force-placed homeowner not to be a third-party beneficiary
when the homeowner did not receive a direct benefit from the policy under the policy's own
terms. Specifically, the federal courts have denied third-party beneficiary status when the insurance
policy states (1) that it does not provide coverage for loss of use, personal liability, or personal
property, (2) that the mortgagee is the sole insured, (3) that the policy is intended to protect the
mortgagee's interest only and not the borrower's, or (4) that all losses will be adjusted with and
made payable to the named insured, the mortgage company. See Williams v. Certain Underwriters
at Lloyd's of London, 398 Fed.Appx. 44, 48–49 (5th Cir.2010) (not designated for publication)
(policy specified that mortgagee was sole insured and all benefits were payable directly to
mortgagee); Lumpkins v. Balboa Ins. Co., 812 F.Supp.2d 1280, 1283–84 (N.D.Okla.2011) (policy
provided no coverage for contents, personal effects, personal living expenses, fair rental value or
liability and stated that contract was only with named insured and only intended to protect named
insured's interest); Barrios v. Great Am. Assurance Co., Civil Action No. H–10–3511, 2011 WL
3608510, at *4 (S.D.Tex. Aug. 16, 2011) (slip op.) (policy specified that, unless homeowners
coverage was specifically added by endorsement, homeowner-mortgagor was not insured under
policy); Williams v. Fid. Nat'l Ins. Co., Civil Action No. 07–4428, 2009 WL 2922310, at *3
(E.D.La. Sept. 8, 2009) (not designated for publication) (policy specified that, despite insurable


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Alvarado v. Lexington Ins. Co., 389 S.W.3d 544 (2012)



interests of homeowner, only mortgagee was insured under policy); Simpson v. Balboa Ins. Co.,
Civil Action No. 2:08cv281KS-MTP, 2009 WL 1291275, at *3–4 (S.D.Miss. May 7, 2009) (policy
provided no coverage for loss of use, personal liability, or personal property and no right of
borrower to participate in claim adjustment); Jones v. Proctor Fin. Ins. Corp., Civil Action No. 06–
9503, 2007 WL 4206863, at *3 (E.D.La. Nov. 21, 2007) (not designated for publication) (policy
provided no coverage for personal property, and adjustment of and payment for loss would be
made solely to mortgagee); Paulk v. Balboa Ins. Co., No. 1:04CV97, 2006 WL 1994864, at *3
(S.D.Miss. July 14, 2006) (not designated for publication) (same); see also Scheaffer v. Balboa
Ins. Co., 1 So.3d 756, 759 (La.Ct.App.2008) (notice of premium informed borrower that he was
not insured under policy, that he was not entitled to receive proceeds, and that policy protected
only mortgagee's interest).

Mere payment of the force-placed-policy premiums by the homeowner-borrower, without more,
does not necessarily confer third-party-beneficiary status on the borrower. See Scheaffer, 1 So.3d
at 760; Lee, 2008 WL 2622997, at *3 (“Mere payment or reimbursement of insurance premiums
by a plaintiff to an insurance provider does not create a right to recovery under an insurance policy
when the plaintiff is not the named insured and is nowhere named in the policy.”).


 *556 3. Alvarado's Status Under Flagstar's Force–Placed Policy
On appeal, Alvarado argues that he has third-party-beneficiary status under the Policy. He
contends that Endorsement # 12 to the Policy, which provides “Special Broad Form Homeowners
Coverage,” is analogous to an excess loss clause or a clause allowing for adjustment and payment
of losses to the borrower. He argues that it demonstrates that Lexington and Flagstar clearly
intended to benefit him because the terms of this endorsement provide the type of coverage that
he, as the homeowner, would seek to obtain if he contracted directly with Lexington to procure
homeowner's insurance and that these provisions are irrelevant to Flagstar as the mortgagee of the
property. He points out that Flagstar required the Policy when it loaned him the money to purchase
his house and took a mortgage on it. Alvarado paid the premiums on this force-placed Policy as
a separate part of his monthly mortgage payments, and Endorsement # 3 to the Policy required a
higher premium for the Special Broad Form Homeowners Coverage.

Lexington responds that Flagstar is the sole named insured in the Policy, that Alvarado is not
mentioned in the Policy, and that the plain language of the Policy can reasonably be construed only
as protecting Flagstar's mortgage interest in the property up to the extent of that interest, not as
protecting Alvarado's interest. It argues, therefore, that the Policy cannot be construed as intended
to benefit Alvarado, as a matter of law; that Alvarado is not a third-party beneficiary to the Policy
under prevailing law construing force-placed insurance policies; and that Alvarado has failed to
raise a material fact issue as to his third-party-beneficiary status.




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Alvarado v. Lexington Ins. Co., 389 S.W.3d 544 (2012)



We conclude that Lexington has failed to prove that Alvarado lacks third-party-beneficiary status
as a matter of law.


a. The “Common Policy Declarations” and the “Supplemental Declaration Page” of the
Policy
As Lexington states, the “Common Policy Declarations” in the “Commercial Lines Policy” at issue
list “Flagstar Bank, FSB” as the sole “Named Insured.” These Declarations state that the Policy
“consists of the following coverage parts for which a premium is indicated,” namely, a “Mortgage
Guard Property Coverage Part.” The Common Policy Declarations then state:

            THESE DECLARATIONS TOGETHER WITH THE COMMON POLICY
            CONDITIONS, COVERAGE PART DECLARATIONS, COVERAGE PART
            COVERAGE FORM(S) AND FORMS AND ENDORSEMENTS, IF ANY,
            ISSUED TO FORM A PART THEREOF, COMPLETE THE ABOVE
            NUMBERED POLICY.

For the “Form(s) and Endorsements(s) made part of this policy at time of issue,” the Common
Policy Declarations page states, “See attached Table of Contents.” The Table of Contents lists as
“[c]overage forms and endorsements forming a part of this policy” the “Mortgage Guard Property
Policy” and a number of additional endorsements, including Endorsement # 12, a “Homeowners
3 Special Form” providing “Special Broad Form Homeowner's Coverage.” The Common Policy
Declarations state that the complete Policy consists not only of the common declarations and policy
conditions, but also of the coverage part declarations, coverage part forms, and “the forms and
endorsements, if any, issued to form a part” of the Policy. In this case, therefore, the Policy at
issue includes not only the Common Policy Declarations and the Mortgage Guard Property Policy
with its declarations, but also Endorsement *557 # 12, the Special Broad Form Homeowner's
Coverage form, with its declarations.

In addition to the Common Policy Declarations, the Policy includes a “Supplemental Declaration
Page” that sets out Lexington's “Limits of Liability” under the Common Policy:

 $1,000,000.               Per property                 On Commercial or
                                                        Residential Properties*
 $500,000.                 Per location                 Mobile Home Properties*
 $1,000,000.               Per property                 Windstorm and Hail only*


   Homeowners Coverage as reported as HO on the reporting form




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Alvarado v. Lexington Ins. Co., 389 S.W.3d 544 (2012)




                                                        *
         A. Dwelling-$500,000. Any one loss

                                                                                                *
         B. Other Structures-$50,000. Or 10% of the insured value, whichever is the lesser

                                                                                                    *
         C. Personal Property-$250,000. Or 50% of the insured value, whichever is the lesser

         D. Loss of Use-$100,000. Or 20% of the insured value, whichever is the lesser *
Thus, the Policy provides that Lexington's liability is limited to $1,000,000 “per property.”
Additionally, coverage for properties with “Homeowners Coverage as reported as HO on the
reporting form” is limited to $500,000 for “any one loss,” plus the lesser of $50,000 or 10% of
the insured value for any other structure on the property, plus the lesser of $250,000 or 50% of
the insured value of any personal property, plus the lesser of $100,000 or 20% of the insured
value for loss of use. An asterisk by each of these categories of covered loss limits Lexington's
liability to properties “in which the Insured has a mortgage and/or owner interest and which is
specifically described in the Reporting Mechanism agreed upon by the Company.” Lexington has
produced no summary judgment evidence that Alvarado's property was not among the properties
with “Homeowners Coverage” reported by Flagstar on Lexington's reporting form and specifically
described by Flagstar in Lexington's Reporting Mechanism at the time of the occurrence made
the basis of his claim. However, it did produce the “Homeowners Coverage” part of the Policy,
Endorsement # 12, as part of the Policy applicable to Alvarado, and Alvarado has averred that he
paid premiums for this coverage. Therefore, we assume, for purposes of the summary judgment
motion, that Alvarado did have Homeowners Coverage and therefore was included on Lexington's
reporting forms. See Sw. Elec. Power Co., 73 S.W.3d at 215.


b. The “Mortgage Guard Property Policy”
The “Mortgage Guard Property Policy” provides that “[t]hroughout this policy the words ‘you’
and ‘your’ refer to the Named Insured shown in the Declarations,” namely Flagstar, and that “[t]he
words ‘we’, ‘us' and ‘our’ refer to the Company providing this insurance,” i.e., Lexington. The
Mortgage Guard Property Policy sets out the agreement of Lexington and Flagstar with respect
to this part of the Policy:

            In consideration of the premium to be charged we will (as shown on the
            Declaration Page) insure (but only in the event there is no other insurance
            applicable) the Lending Institution (you, as shown on the Declaration Page [here,
            Flagstar] ) against direct physical loss resulting from destruction of or damage
            to your property, reported by you on the reporting forms furnished by us, for the
            Covered Causes of Loss described in this policy.




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Alvarado v. Lexington Ins. Co., 389 S.W.3d 544 (2012)




The Mortgage Guard Property Policy thus protects Flagstar against physical loss to its property
reported on Lexington's reporting *558 forms, but “only in the event there is no other insurance
applicable.”

The Mortgage Guard Property Policy identifies several types of interest the “Named Insured”
lending institution, Flagstar, may have in a property and may report on Lexington's reporting
forms. These include a “Loan” consisting of “an advance of funds or a loan secured by a note and
first or second ‘mortgage interest/loan balance’ evidenced by a contract of sale for real property.”
Correspondingly, the Policy defines a “Borrower” as an individual “obligated on a ‘loan’ ... and
[who] has ... an interest in the property securing such ‘loan.’ ” The Mortgage Guard Property Policy
states, “Loss will be adjusted with and made payable to you unless another payee is specifically
named.” The “Mortgage Clause” states, “Loss, if any, under this policy will be payable to the
mortgagee [Flagstar] (or trustee) as its interests may appear under all present or future mortgages
upon the Covered Property described on the reporting forms in which mortgagee may have an
interest as mortgagee (or trustee) in order of precedence of said mortgages.” Thus, the Mortgage
Guard Property Policy, by its own terms, insures Flagstar against direct physical loss resulting
from the destruction of or damage to “your property,” i.e., property in which it has a mortgage or
ownership interest and that is reported by Flagstar on Lexington's reporting forms, in the event
there is no other insurance applicable.

The “Policy Conditions” for the Mortgage Guard Property Policy confirm the intent of the
contracting parties to cover physical loss to covered property at described locations, stating, “Our
liability for loss with respect to any property covered will not exceed the Limit of Liability stated
in the Declarations as applicable, nor exceed, in any event, the lesser of the amount it would cost
to repair or replace with material of like kind and quality, or the amount of insurance specified on
each Covered Property at the Described Location on the reporting forms completed by you and
furnished to us.”

Provisions in the Mortgage Guard Property Policy specify the means by which Flagstar must
report damage for property; they grant it permission, “[i]n the event of loss ... to make reasonable
repairs ... provided the repairs are confined solely to the protection of the Covered Property from
further damage and provided you keep an accurate record of the repair expenditures,” to “be
included in determining the amount of loss”; they impose duties of notice, reporting of damage,
and protection of the covered property in the event of loss; they provide for the examination of
Flagstar or its representative “about any matter relating to this insurance or a claim”; and, “[i]n
the event of a dual interest,” they allow Lexington to require the agreement of “any mortgagor
claiming coverage or monetary benefit under this insurance ” to “submit to an examination under
oath ... about any matter relating to this insurance or a claim.” (Emphasis added.) These provisions
thus recognize that the Mortgage Guard Property Policy covers payment for repairs to damaged



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Alvarado v. Lexington Ins. Co., 389 S.W.3d 544 (2012)



property within the scope of the Policy, and they also recognize that a mortgagor, as well as
Flagstar, may claim “coverage or monetary benefit under this insurance.”

There is no way to determine from the summary judgment evidence whether Alvarado is the owner
of residential property described by Flagstar on Lexington's reporting forms, because those forms
are not in the record. However, there is summary judgment evidence, in the form of Alvarado's
affidavit, that Flagstar reported damage to Alvarado's property to Lexington. *559 It is also not
possible to determine from the summary judgment record precisely what claims either Flagstar or
Alvarado submitted to Lexington with respect to damage to the property or what amount of money
for what losses was paid by Lexington to Flagstar. Nor is it possible to ascertain the extent of
Flagstar's mortgage interest in Alvarado's property and the extent of Alvarado's interest. However,
Alvarado avers that his property sustained damage as a result of Hurricane Ike in 2008, that Flagstar
made a claim on the Policy, and that Lexington paid Flagstar $4,410.49 in damages. He further
avers that Flagstar did not provide any of these funds to him for the purpose of repairs and that it
did not apply these funds to the balance of his mortgage. We consider each of these uncontested
facts as stated by Alvarado, the nonmovant, to be true, as we must under summary judgment law.
See Fielding, 289 S.W.3d at 848; City of Keller, 168 S.W.3d at 827.

We conclude that the Policy manifests a clear intent to directly benefit both Flagstar and “any
mortgagor claiming coverage or monetary benefit” for damage to property under the Policy, as
their interests may appear as mortgagee or mortgagor of a covered property at the described
locations listed by Flagstar on Lexington's reporting forms. We further conclude that Flagstar is
the mortgagee of Alvarado's property and that Alvarado is a mortgagor with an ownership interest
in a property described on Lexington's forms whose property was damaged and for which Flagstar
submitted a claim and was paid. However, it is not possible to determine from the Mortgage Guard
Property Policy whether Alvarado was a mortgagor who had a right to claim coverage under the
Policy for damage to his property. Therefore, we turn to Endorsement # 12 of the Policy.


c. Endorsement # 12: Special Broad Form Homeowners Coverage
 [20] Endorsement # 12, titled “Special Broad Form Homeowners Coverage,” is relied upon
by Alvarado to show his third-party-beneficiary status under the Policy. It provides the type of
coverage that an individual homeowner would generally seek from an insurance company, instead
of the coverage that a mortgagee seeking solely to protect its monetary interest in the property
would typically seek. Endorsement # 12 states, “It is understood and agreed [by Flagstar and
Lexington] that the following coverages are added to this policy and that these coverages apply
only to owner occupied properties reported as ‘HO’ property type by the Insured [Flagstar]:
Special Broad Form Homeowners Coverage, Homeowners 3, Special Form, ED. 10–00 (HO–
3, Ed. 10–00).” This statement is immediately followed by declarations specific to Endorsement
# 12 that incorporate the property coverage limits from the Common Policy Declarations and
Supplemental Declaration Page and add additional “Property Coverage,” “Liability Coverages,”

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Alvarado v. Lexington Ins. Co., 389 S.W.3d 544 (2012)



and “Exclusions.” The endorsement states, “All other terms and conditions remain unchanged.”
It is unclear, however, whether Endorsement # 12 formed a part of the Policy insuring Alvarado's
property. Alvarado claims that it did, and Lexington included Endorsement # 12 as part of the
Policy on Alvarado's property. Therefore, we take it as true for purposes of this summary judgment
motion that Alvarado's property was listed by Lexington as a property carrying Homeowner's
Insurance. 6 See Sw. Elec. Power Co., 73 S.W.3d at 215.

 *560 The Homeowners Coverage provided by Endorsement # 12 is spelled out on the
Special Form. Section I, “Property Coverage,” provides coverage up to the “[l]imit stated on
the Declaration Page.” This part of the Homeowners Coverage clearly references the limits
for property damage for residences referred to on the Supplemental Declaration Page of the
Policy. In addition, Section II, “Liability Coverages,” provides coverage to the owners of the
specified properties for “Personal Liability” of “$100,000 per person/$300,000 per occurrence”
and coverage for “Medical Pay to others” of “$1,000 per person/ $25,000 per accident.” This
Homeowners Coverage part of the Policy further provides that “[t]he combined limit of liability
under the policy for Special Broad Form Homeowners Coverage shall not exceed $1,000,000 for
the policy period.”

Endorsement # 12 also states that “[t]he earned premium for each daily period shall be calculated
by multiplying the total amount of insurance specified on the reporting form furnished by the
Company by the rate stated on the Rates and Deductibles Page.” The Rates and Deductibles
page—Endorsement # 3 to the Policy—specifies that, for “Special Broad Form Homeowners
Coverage,” “each claim for loss or damage (separately occurring) shall be adjusted separately,”
and it defines the deductible for different types of covered properties, including Occupied
Residences. Endorsement # 3 charges a higher premium for Special Broad Form Homeowners
Coverage. Finally, Endorsement # 12 specifies that the homeowner's coverage ceases to apply
when a property becomes vacant or goes into foreclosure, and it further specifies that “[o]n the
date the property status changes the regular residential coverage as indicated in the Residential
Property Coverages policy section will apply to that property,” i.e., the coverage indicated on the
Supplemental Declaration Page of the Common Policy applies, and not the coverage indicated in
Endorsement # 12.

The “Definitions” part of Endorsement # 12 defines the term “Insured” for the purpose of
properties covered under the “Homeowners Coverage” addition to the Policy in terms that can
reasonably refer only to the homeowner, not to Flagstar. Section A of the “Definitions” states,
“In this policy, ‘you’ and ‘your’ refer to the ‘named insured’ shown in the Declarations and the
spouse if a resident of the same household. ‘We’, ‘us' and ‘our’ refer to the Company providing
this insurance.” Section B of the “Definitions” states, “In addition, certain words and phrases are
defined as follows.” Definition 5 defines “Insured” to mean, in pertinent part, “[y]ou and residents
of your household who are ... [y]our relatives; or ... [o]ther persons under the age of 21 and in


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Alvarado v. Lexington Ins. Co., 389 S.W.3d 544 (2012)



the care of any person named above.” Thus, the “insured” for purposes of Endorsement # 12 can
reasonably be interpreted only as the homeowner of a covered property, and not as the “Named
Insured” under the Common Policy, Flagstar, or as *561 the “insured” Lending Institution under
the Mortgage Guard Property Policy, also Flagstar.

“Insured location” is defined to mean, in pertinent part, “the ‘residence premises.’ ” “Residence
premises” is further defined as “[t]he one family dwelling where you reside ... and which is shown
as the ‘residence premises' in the Declarations” and “other structures and grounds at that location.”

“Occurrence” is defined to mean, in pertinent part, “an accident, including continuous or repeated
exposure to substantially the same general harmful condition, which results, during the policy
period, in ... [p]roperty damage,” i.e., “physical injury to, destruction of, or loss of use of tangible
property.” The “Deductible” part of the endorsement states, “Unless otherwise noted in this policy,
the following deductible provision applies: Subject to the policy limits that apply, we will pay only
that part of the total of all loss payable under Section 1 [“Property Coverages”] that exceeds the
deductible amount shown in the Declarations.”

Subsection A of “Section 1—Property Coverages” of Endorsement # 12 expressly states, “We
cover ... [t]he dwelling on the ‘residence premises' shown in the Declarations, including structures
attached to the dwelling; and ... [m]aterials and supplies located on or next to the ‘residence
premises' used to construct, alter or repair the dwelling or other structures on the ‘residence
premises.’ ” Subsections B, C, and D of Section 1 provide insurance coverage for, among other
things, personal property, loss of use, which includes additional living expenses and fair rental
value, debris removal, reasonable repairs, and credit card fraud.

Finally, “Section 1—Conditions” of Endorsement # 12 provides that, “[e]ven if more than one
person has an insurable interest in the property covered, [Lexington] will not be liable in any one
loss [t]o an ‘insured’ for more than the amount of such ‘insured's' interest at the time of loss.”
The “Loss Payment” provision states: “We will adjust all losses with you. We will pay you unless
some other person is named in the policy or is legally entitled to receive payment.” Endorsement
# 12 also includes a “Mortgage Clause” that provides, “If a mortgagee is named in this policy,
any loss payable ... will be paid to the mortgagee and you, as interests appear.” (Emphasis
added.) “Section II—Liability Coverages” provides personal liability coverage for bodily injury
or property damage, as well as coverage for medical payments to others.

All of these provisions of this endorsement are meaningful only if the “Insured” and “you”
referenced in the Definitions and Property Coverages of Endorsement # 12 mean the homeowner
of an owner-occupied property reported by Flagstar to Lexington on Lexington's reporting forms
as having force-placed Homeowners Coverage and if the Homeowners Coverage part of the Policy
is interpreted as directly insuring the homeowner against loss to property, both real and personal,


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Alvarado v. Lexington Ins. Co., 389 S.W.3d 544 (2012)



as well as insuring him against personal liability and certain other personal losses, such as loss of
use of the property and additional living expenses.

We conclude that the language in Endorsement # 12 makes apparent the contracting parties'
intent to confer a direct benefit on the homeowner of “owner occupied properties reported as
‘HO’ property type by the Insured” under the conditions specified in the Policy and that that
benefit is made applicable to property owners when their property is “added to this policy” by
Flagstar on Lexington's reporting forms. See Basic Capital Mgmt., 348 S.W.3d at 900; *562 MCI
Telecomms., 995 S.W.2d at 651; see also Palma, 79 F.3d at 1457–58 (holding that homeowner-
borrower was third-party beneficiary of force-placed insurance policy when policy contained
provision that was for “sole benefit” of borrower); Henderson, 2009 WL 3190710, at *3 (limiting
standing to seeking temporary housing benefits because this was only clause in policy providing
benefit to homeowner); Beck, 2008 WL 4155301, at *2 (finding third-party-beneficiary status
when policy contained excess loss clause and allowed adjustment of personal property damages
with borrower); Navarrete, 2008 WL 659477, at *2 (same); Hickman, 695 N.W.2d at 370–71
(same).

We further conclude that, because Alvarado pays the premiums on his policy directly to Flagstar,
which forwards them to Lexington, and, in return, Alvarado receives the property and liability
coverage provided by the Policy under the “Special Broad Form Homeowners Coverage” added
by Endorsement # 12, Alvarado is a creditor beneficiary of the contract between Flagstar and
Lexington. See MCI Telecomms., 995 S.W.2d at 651 (stating that if performance will come to third
party in satisfaction of legal duty owed to him by promisee, including “contractual obligation or
other legally enforceable commitment,” he is creditor beneficiary of contract).

Lexington argues, however, that the type of policy at issue in this case does not confer third-
party-beneficiary status on homeowners. It refers us to a recent opinion from the United States
District Court for the Southern District of Texas in a diversity case brought under Texas law,
which addressed the effect of a “Special Broad Form Homeowners Coverage” endorsement on the
homeowner-borrower's status as a third-party beneficiary in a case similar to the present one. See
Trevino v. Evanston Ins. Co., Civil Action No. M–11–18, 2011 WL 2709063, at *3 (S.D.Tex. July
12, 2011). In that case, the homeowner made the same argument Alvarado makes here: because
the endorsement provides coverage that is irrelevant to the mortgagee and that “could only inure
to the benefit of [the homeowner],” the endorsement demonstrates the contracting parties' intent
to confer a direct benefit on the homeowner. Id.

The federal district court noted that the insurance company, Evanston, “counters that these
coverages [for personal liability, medical pay to others, personal property loss, and loss of use
coverage] only become available when a mortgagee complies with the reporting provisions of
the Mortgage Guard Policy, which require the mortgagee to notify Evanston of ‘any change


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Alvarado v. Lexington Ins. Co., 389 S.W.3d 544 (2012)



of ownership or occupancy or increase of hazard,’ i.e., foreclosure, and to pay additional risk
premiums.” Id. The court concluded, without analysis of the language in the endorsement or the
factual circumstances of the case, other than the plaintiff had “made a claim under the policy
seeking coverage for roof and water damage sustained by the property as a result of Hurricane
Dolly on July 23, 2008,” that “the Policy language unambiguously manifests the intent to provide
hazard coverage to [the mortgagee] to the extent of its interest in the property, and any benefit
conferred to [the homeowner] as a result is incidental,” and that the homeowner “has pointed to
no provision that makes clearly apparent the contracting parties' intent to confer a direct benefit
on Plaintiff.” Id. The court ultimately held that the homeowner-borrower was not a third-party
beneficiary under the insurance policy at issue and had no standing to pursue his claims. Id. at
*1, *3.

In the instant case, by contrast, the Policy language does unambiguously manifest the contracting
parties' intent to provide *563 coverage directly to the owners of the properties described by
Flagstar on Lexington's reporting forms for property damage, including coverage for personal
property damage and personal liability, when Special Broad Form Homeowners Coverage is added
to the Policy by an endorsement, as spelled out in the Policy. See Basic Capital Mgmt., 348 S.W.3d
at 900; MCI Telecomms., 995 S.W.2d at 651. Alvarado, unlike Trevino, did point to a provision
in the Policy, Endorsement # 12, that makes apparent the contracting parties' intent to confer a
direct benefit on owners of property reported by Flagstar on Lexington's reporting forms that meet
certain conditions specified in the Policy, including owning a Homeowner's Policy. Thus, we find
Trevino to be distinguishable and its legal conclusions to be inapplicable to this case.

The dissent, however, finds Trevino persuasive. It reasons that this case is more closely analogous
to the Texas Supreme Court's decision in MCI Telecommunications, in which the court found no
third-party-beneficiary status, than to its decision in Basic Capital Management. We disagree.
In MCI Telecommunications, Texas Utilities contracted with the Missouri Pacific Railroad
(“MoPac”) to obtain a license to install an electric transmission line on MoPac's right-of-way. 995
S.W.2d at 648–49. Twelve years later, MCI contracted with MoPac to use the right-of-way to
install a fiber optic cable. Id. at 649. MCI's contract with MoPac contained a provision requiring
MCI to exercise its contract rights “in such a manner as not to interfere in any way with any existing
prior rights,” such as the rights of existing licensees. Id. The contract also included a provision
explicitly stating that no provision of the contract “shall be construed as being for the benefit of
any party not in signatory hereto.” Id. at 649–50. The Texas Supreme Court reversed both the
trial court and the Fort Worth Court of Appeals and held that Texas Utilities was not a third-
party beneficiary of MCI's contract with MoPac. Id. at 651. The court reasoned that, although the
contract included a provision protecting Texas Utilities' rights as an earlier licensee, the contract
did not provide a direct benefit to Texas Utilities and no contractual language indicated that MCI
and MoPac contracted for Texas Utilities' benefit. Id. at 651–52. At best, Texas Utilities was an
“incidental beneficiary” of the contract. Id. at 652. The court also noted that the contract explicitly


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Alvarado v. Lexington Ins. Co., 389 S.W.3d 544 (2012)



stated that it “is not to be interpreted as conferring any benefits on nonsignatory parties” and that
it “reflects the intention of the parties that there be no third-party beneficiary to the contract.” Id.

Unlike the contract at issue in MCI Telecommunications, the Policy at issue in this case
includes provisions directly benefitting the owners of properties reported on Lexington's forms—
specifically including those set out in Endorsement # 12—and it does not include a comparable
explicit provision restricting construction of the Policy to benefit only the signatories to the Policy.
In fact, the Mortgage Guard Property Policy contains language contemplating that the homeowner-
mortgagor may have a dual interest and may potentially claim coverage or a monetary benefit
under the Policy. And Endorsement # 12 expressly states that it provides additional coverage
to that provided by the rest of the Policy, spells out the protections that the additional coverage
provides, and states where this coverage differs from the coverage in the Common Policy in
terms that can apply only to the homeowner of a residential property, here Alvarado, reported to
Lexington by a mortagee, here Flagstar, as having Special Broad Form Homeowners Coverage.
It also defines *564 such a residential homeowner as the “insured” for purposes of homeowners'
coverage. Finally, Endorsement # 12 expressly distinguishes the insured residential mortgagor
from the mortgagee as a person having covered interests under the Policy and recognizes that they
may have dual interests.

As the Texas Supreme Court noted in MCI Telecommunications, when interpreting a contract,
“we examine the entire agreement in an effort to harmonize and give effect to all provisions
of the contract so that none will be meaningless.” Id. at 652. We conclude, as in Basic Capital
Management, that the additional coverage in Endorsement # 12 for which the homeowner is forced
to pay additional premiums “ha[s] no purpose whatever” and is meaningless unless the “Special
Broad Form Homeowners Coverage” was intended by Lexington, the insurer of the property,
and Flagstar, the mortgagee, to directly benefit the mortgagors and homeowners of the properties
specifically described by Flagstar on Lexington's reporting forms. See Basic Capital Mgmt., 348
S.W.3d at 900.

It was Lexington's burden, as movant for summary judgment, to prove its entitlement to summary
judgment against Alvarado as a matter of law. We hold that Lexington failed to carry its burden of
conclusively negating Alvarado's status as a third-party beneficiary to the Policy. Thus, we hold
that the trial court erred in rendering summary judgment in favor of Lexington.

We sustain Alvarado's sole issue.



                                                   Conclusion




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Alvarado v. Lexington Ins. Co., 389 S.W.3d 544 (2012)



We reverse the judgment of the trial court in appellate cause number 01–10–00740–CV and
remand that case for further proceedings consistent with this opinion. We dismiss appellate cause
number 01–10–01150–CV.



Justice BLAND, dissenting.


Footnotes
1    See Brookshire Bros., Inc. v. Smith, 176 S.W.3d 30, 40 & n. 2 (Tex.App.-Houston [1st Dist.] 2004, pet. denied).

2    A “force-placed,” or “lender-placed,” mortgage protection insurance policy “insures the lender's collateral when the borrower fails to
        maintain a specific type of insurance” and “allows the lender to protect its exposure on a property up to the amount of the mortgage
        on the date of issuance.” Williams v. Certain Underwriters at Lloyd's of London, 398 Fed.Appx. 44, 45 (5th Cir.2010) (not designated
        for publication).
3       Alvarado also sued Michael Bower, the insurance adjuster who handled Alvarado's claim. Bower is not a party to this appeal.

4       After Lexington moved for summary judgment, Alvarado amended his petition to add claims against Flagstar and Proctor Financial,
        Inc., the insurance agent responsible for procuring the Policy. Alvarado subsequently non-suited his claims against Flagstar with
        prejudice. Neither Flagstar nor Proctor Financial is a party to this appeal.
5       Pursuant to Texas Rule of Appellate Procedure 27.1, Alvarado's first prematurely filed notice of appeal was effective and was deemed
        filed on the day of, but after, the event that began the period for perfecting the appeal: November 19, 2010, the day the trial court
        granted Alvarado's motion to sever and rendered a final judgment in favor of Lexington. See TEX.R.APP. P. 27.1(a); Ganesan v.
        Reeves, 236 S.W.3d 816, 817 (Tex.App.-Waco 2007, pet. denied) (“[Rule 27.1] is designed to make it clear that a notice of appeal filed
        before the final appealable judgment is rendered is nevertheless effective to invoke our appellate jurisdiction of such a judgment.”);
        Espalin v. Children's Med. Ctr. of Dallas, 27 S.W.3d 675, 681 (Tex.App.-Dallas 2000, no pet.) (“[A] document filed in an attempt
        to appeal an interlocutory order that later becomes final serves to appeal the final judgment.”). In a factually similar scenario, the El
        Paso Court of Appeals noted that the second notice of appeal, filed after the trial court rendered a final judgment, “was unnecessary
        to perfect appeal.” Lerma v. Forbes, 144 S.W.3d 18, 20 (Tex.App.-El Paso 2004, no pet.). The El Paso court dismissed the later cause
        number on its own motion and consolidated the record with the first cause number. Id. We follow the El Paso Court of Appeals'
        decision in Lerma and hold that Alvarado's first notice of appeal invoked our appellate jurisdiction, and, thus, the second notice of
        appeal was unnecessary to perfect his appeal and is now moot. We therefore dismiss appellate cause number 01–10–01150–CV,
        which resulted from his second notice of appeal.
*          in which the Insured has a mortgage and/or owner interest and which is specifically described in the Reporting Mechanism agreed
           upon by the Company.
6       Lexington attached to its motion for rehearing a document purporting to show that Alvarado's property was listed as a “Residential
        Owner” or “RO” on its reporting forms and claimed that this is a different type of coverage that does not extend the protections of
        “HO” coverage to Alvarado. This improper attempt to supplement the summary judgment record to change the facts of Alvarado's
        status on appeal is sufficient by itself to show that summary judgment was improperly granted. See TEX.R. CIV. P. 166a(c) (“The
        judgment sought shall be rendered forthwith if ... the pleadings, admissions, affidavits, stipulations of the parties, and authenticated
        or certified public records, if any, on file at the time of the hearing, or filed thereafter and before judgment with permission of the
        court, show that, except as to the amount of damages, there is no genuine issue as to any material fact and the moving party is entitled
        to judgment as a matter of law on the issues expressly set out in the motion or in an answer or any other response.”).


End of Document                                                             © 2015 Thomson Reuters. No claim to original U.S. Government Works.




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Alvarado v. Lexington Ins. Co., 389 S.W.3d 544



    History (6)

    Direct History (6)
      1. Alvarado v. Lexington Ins. Co.
    2010 WL 8749753 , Tex.Dist. , Aug. 10, 2010


      Reversed by

        2. Alvarado v. Lexington Ins. Co.
      389 S.W.3d 544 , Tex.App.-Hous. (1 Dist.) , Oct. 18, 2012


      Judgment Vacated Pursuant to Settlement, Opinion Not Withdrawn

    3. Alvarado v. Lexington Ins. Co.
    2012 WL 6213457 , Tex.App.-Hous. (1 Dist.) , Dec. 13, 2012




      4. Alvarado v. Lexington Ins. Co.
    371 S.W.3d 417 , Tex.App.-Hous. (1 Dist.) , Apr. 19, 2012


      Opinion Withdrawn and Superseded on Rehearing by

        5. Alvarado v. Lexington Ins. Co.
      389 S.W.3d 544 , Tex.App.-Hous. (1 Dist.) , Oct. 18, 2012


      Judgment Vacated Pursuant to Settlement, Opinion Not Withdrawn

    6. Alvarado v. Lexington Ins. Co.
    2012 WL 6213457 , Tex.App.-Hous. (1 Dist.) , Dec. 13, 2012




            © 2015 Thomson Reuters. No claim to original U.S. Government Works.   23
Brooks v. Northglen Ass'n, 141 S.W.3d 158 (2004)
47 Tex. Sup. Ct. J. 719




                                             141 S.W.3d 158
                                         Supreme Court of Texas.

                                Geneva BROOKS, et al, Petitioners,
                                             v.
                             NORTHGLEN ASSOCIATION, Respondent.

                          No. 02–0492. | Argued Sept. 3, 2003. | Decided
                          June 25, 2004. | Rehearing Denied Sept. 3, 2004.

Synopsis
Background: Homeowners' association brought action for injunctive and declaratory relief
against lot owners due to the lot owners' efforts to remove association's board of directors.
Lot owners counterclaimed for declaratory relief pertaining to assessments and late charges.
Association moved for summary judgment on the counterclaims. The 129th Judicial District Court,
Harris County, Patrick W. Mizell, J., granted the motion. Lot owners appealed. The Texarkana
Court of Appeals, Cornelius, C.J., 76 S.W.3d 162, affirmed in part and reversed in part. Review
was granted.



Holdings: The Supreme Court, Jefferson, J., held that:

[1] the declaratory judgment could by entered without joining all lot owners;

[2] the assessments on some subdivisions could not exceed $10 per month or $120 per year;

[3] deed restrictions prohibited accumulation of unassessed increases over multiple years;

[4] the association could assess late charges in addition to interest; and

[5] foreclosure was not an appropriate remedy for a subdivision lot owners' failure to pay a late
charge.


Affirmed in part, vacated in part, and reversed and rendered in part.


Attorneys and Law Firms

*160 Sue Auclair, Houston, TX, pro se.


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Brooks v. Northglen Ass'n, 141 S.W.3d 158 (2004)
47 Tex. Sup. Ct. J. 719


David Alfred Kahne, Law Office of David A. Kahne, Robin Rankin Willis, P.C., Houston, for
Petitioner.

John Bradley Mitchell, Clayton Rowland Hearn, Marc D. Markel, Stephanie Lee Quade, Roberts
Markel Guerry, P.C., Houston, for Respondent.

Opinion

Justice JEFFERSON delivered the opinion of the court.

This is a declaratory judgment action involving eight property owners' challenge to their
homeowners association's attempt to increase and accumulate annual assessments and impose late
fees. The trial court held that chapter 204 of the Texas Property Code 1 authorized the Board
to raise assessments unilaterally. The court of appeals affirmed the trial court's judgment in part
and reversed in part. Both parties petitioned this Court for review. We granted the petitions to
review the interplay between Texas Property Code chapter 204 and Northglen Association's deed
restrictions. We affirm the court of appeals' judgment in part, vacate in part, and reverse and render
judgment in part.



                                                       I


                                                   Background

Northglen Association (“Northglen”) is the homeowners association for six Harris County
subdivisions or “sections” encompassing more than 1600 single-family residences. Each section is
governed by a separate set of deed restrictions through which every property owner is a member of
the Association. The restrictions subject each homeowner to an annual assessment that is deposited
into a maintenance fund for such services as maintaining common areas, contracting for garbage
disposal, and constructing parks.

 *161 In 1994, Northglen's Board of Directors amended the deed restrictions to expand the Board
and to assess late fees on unpaid assessments. Geneva Brooks and other Northglen property
owners (“Brooks”) organized a committee, called the Committee to Remove the Board, to remove
certain Board members who, they complained, acted outside the bounds of the deed restrictions
by adopting the amendments. Northglen responded by suing for injunctive and declaratory relief.
Northglen sought an order enjoining the eight homeowners from conveying the false impression
that Brooks's committee was formed pursuant to Northglen's bylaws and from other conduct
designed to disrupt the Board's activities. Northglen also sought a judgment declaring that its


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Brooks v. Northglen Ass'n, 141 S.W.3d 158 (2004)
47 Tex. Sup. Ct. J. 719

actions in electing the Board and assessing late fees were valid exercises of its authority. Brooks
counterclaimed for a declaratory judgment that Northglen had no authority to raise assessments or
charge late fees without a vote of the property owners. Northglen eventually nonsuited its claims,
and the case proceeded on Brooks's declaratory judgment action.

The trial court granted summary judgment for Northglen, declaring that, without a vote of the
homeowners, Northglen had the authority to: (1) raise the assessment for Sections One, Two,
and Three; (2) raise the assessment for Sections Four, Five, and Six by ten percent each year or
accumulate and assess the increase after a number of years; and (3) charge delinquent homeowners
a $35 late fee. Finding that both parties had pursued legitimate interests, the trial court elected not
to award attorney's fees.

The court of appeals affirmed the trial court's judgment in part and reversed in part. 76 S.W.3d
162, 176. It reversed as to Sections One, Two, and Three, holding that the deed restrictions did not
permit annual assessments exceeding $120. As to Sections Four, Five, and Six, the court of appeals
held that because the deed restrictions contained no language expressly forbidding accumulation,
Northglen could accumulate previous assessments under Property Code section 204.010(16). Id. at
167. The court also held that section 204.010(10) gave Northglen the right to assess a $35 late fee
in addition to the interest charge permitted by the deed restrictions. Id. at 174. Because the property
owners did not have prior notice of the late fee, the court of appeals held that Northglen could not
foreclose on any homesteads to collect those fees. Id. at 175. The court of appeals affirmed the
trial court's denial of attorney's fees. Id. at 176.

We hold that Northglen cannot accumulate unassessed fee increases because the language in
the deed restrictions prevails over chapter 204, and we reverse that portion of the court of
appeals' judgment. We affirm the portion of the court of appeals' judgment restricting increases in
assessments to $120 and holding that Northglen has the authority to assess late charges for unpaid
fees, in addition to the interest charges described in the deed restrictions. We conclude, however,
that Northglen may not foreclose on the property if late charges are not paid. Finally, we affirm
the court of appeals' judgment regarding attorney's fees.



                                                        II


                                                   Jurisdiction

We first consider Northglen's contention that the trial court lacked subject matter jurisdiction
because Brooks did not join all Northglen property owners as parties. Northglen argues that Brooks
was required to join all property owners in each affected section before the trial court could render


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Brooks v. Northglen Ass'n, 141 S.W.3d 158 (2004)
47 Tex. Sup. Ct. J. 719

a declaratory judgment and, alternatively, *162 that the trial court was without jurisdiction to
render a declaratory judgment interpreting the deed restrictions for Sections Three and Six because
property owners from those sections were not represented in the lawsuit.

 [1] We do not have the benefit of the lower courts' views on jurisdiction because Northglen did
not raise the issue either in the trial court or the court of appeals. Northglen contends that the
doctrine of fundamental error excuses it from “the usual requirements of preservation of the error
or briefing of the ... argument” because the absence of jurisdiction may be raised for the first time
on appeal. We disagree that the absence of parties within the represented sections deprived the
court of jurisdiction and therefore reject Northglen's contention as to Sections One, Two, Four and
Five; however, because no property owners in Sections Three or Six were joined in the suit, we
agree with Northglen that any judgment affecting those sections would be advisory.



                                                      A

 [2] No one disputes that the trial court had jurisdiction to declare the “rights, status, and other
legal relations” for the named homeowners, who are “interested under a deed, ... written contract,
or other writings constituting a contract or whose rights, status, or other legal relations are affected
by a statute....” Tex. Civ. Prac. & Rem.Code §§ 37.003(a) and 37.004(a). The question, then, is
not “whether jurisdiction is lacking,” as Northglen asserts, but whether the trial court should have
refused to enter a judgment when a subset of the homeowners was not joined in the lawsuit. See
Cooper v. Tex. Gulf Indus., Inc., 513 S.W.2d 200, 204 (Tex.1974) (“[the] concern is less that of the
jurisdiction of a court to proceed and is more a question of whether the court ought to proceed with
those who are present”). To answer that prudential question, we turn to Rule 39, which governs
joinder of persons under the Declaratory Judgment Act. Tex.R. Civ. P. 39; Clear Lake City Water
Auth. v. Clear Lake Util., 549 S.W.2d 385, 390 (Tex.1977) (applying Rule 39 to actions under the
Declaratory Judgment Act).

Rule 39, like the Declaratory Judgment Act, mandates joinder of persons whose interests would be
affected by the judgment. See Tex. Civ. Prac. & Rem.Code § 37.006 (“When declaratory relief is
sought, all persons who have or claim any interest that would be affected by the declaration must
be made parties.”) (emphasis added); Tex.R. Civ. P. 39(a) (“A person who is subject to service of
process shall be joined as a party in the action if ... he claims an interest relating to the subject of
the action ....”) (emphasis added). Rule 39 determines whether a trial court has authority to proceed
without joining a person whose presence in the litigation is made mandatory by the Declaratory
Judgment Act. Clear Lake City Water Auth., 549 S.W.2d at 390.

Rule 39(a)(1) requires the presence of all persons who have an interest in the litigation so that
any relief awarded will effectively and completely adjudicate the dispute. In this case, nothing


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Brooks v. Northglen Ass'n, 141 S.W.3d 158 (2004)
47 Tex. Sup. Ct. J. 719

in the rule precluded the trial court from rendering complete relief among Northglen and the
eight homeowners who had sued for a declaration of rights. Although the parties continue to
litigate its correctness, the trial court's judgment represents a final and complete adjudication of the
dispute for the parties who were before the court. See Caldwell v. Callender Lake Prop. Owners
Improvement Ass'n, 888 S.W.2d 903, 907 (Tex.App.-Texarkana 1994, writ denied). Rule 39(a)(2)
relates to situations in which the absent party:

              *163 [C]laims an interest relating to the subject of the action and is so situated
             that the disposition of the action in his absence may (i) as a practical matter
             impair or impede his ability to protect that interest or (ii) leave any of the persons
             already parties subject to a substantial risk of incurring double, multiple, or
             otherwise inconsistent obligations by reason of his claimed interest.

Tex.R. Civ. P. 39.

Section 37.006(a) of the Declaratory Judgment Act, which provides that a trial court's declaration
does not prejudice the rights of any person not a party to the proceeding, dispenses with the first
of these concerns. See Tex. Civ. Prac. & Rem.Code § 37.006(a). Any non-joined homeowner
would be entitled to pursue individual claims contesting Northglen's authority to raise assessments
or impose fees, notwithstanding the trial court's judgment in the current case. 2 See Cooper,
513 S.W.2d at 204 (“[I]t would be rare indeed if there were a person whose presence was so
indispensable in the sense that his absence deprives a court of jurisdiction ...”).

We appreciate the risk that, unless each homeowner is joined in one suit, Northglen may be
subject to inconsistent judgments. Tex.R. Civ. P. 39(a)(2)(ii). Northglen's dilemma, however, is
the product of its own inaction. Northglen could have sought relief at trial by urging the court,
among other things, to abate the case, join absent homeowners, or grant special exceptions. See,
e.g., Pirtle v. Gregory, 629 S.W.2d 919, 920 (Tex.1982); Dahl v. Hartman, 14 S.W.3d 434,
436 (Tex.App.-Houston [14th Dist.] 2000, pet. denied); Adams v. Owens, 519 S.W.2d 260, 261
(Tex.Civ.App.-Beaumont 1975, writ ref'd n.r.e.); Pan Am. Petroleum Corp. v. Vines, 459 S.W.2d
911, 912 (Tex.Civ.App.1970, writ ref'd n.r.e.); Texaco, Inc. v. Lettermann, 343 S.W.2d 726, 733
(Tex.Civ.App.-Amarillo, 1961, writ ref'd n.r.e.). Instead, it waited until the case reached this Court
to first raise the specter of multiple or inconsistent judgments.

[3] Northglen counters that the doctrine of fundamental error excuses its failure to preserve error.
However, when Rule 39 was amended, a young law professor remarked:

             Henceforth, it will be rare indeed when an appellate court properly determines
             that the trial court lacked jurisdiction to adjudicate a dispute when the nonjoining
             person's absence is raised for the first time on appeal by one of the parties in
             the trial court, at least insofar as the judgment affects parties who participated in


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Brooks v. Northglen Ass'n, 141 S.W.3d 158 (2004)
47 Tex. Sup. Ct. J. 719

             the trial, directly or indirectly, or who purposely bypassed the proceedings. The
             doctrine of fundamental error should no longer protect persons from the binding
             force of judgments when they have had an opportunity to raise the absence of
             the nonjoined person and waived it.

William V. Dorsaneo, III, Compulsory Joinder of Parties in Texas, 14 Hous. L.Rev. 345, 369
(1977). We conclude that Northglen “had an opportunity to raise the absence of the nonjoined
person and waived it.” Id.; Tex.R.App. P. 33.1.



                                                      B

 [4] [5] [6] Sections Three and Six present a different question — does a trial court have
jurisdiction to declare the rights of parties who are not before the court? A declaratory judgment
requires a justiciable *164 controversy as to the rights and status of parties actually before the
court for adjudication, and the declaration sought must actually resolve the controversy. See, e.g.,
The M.D. Anderson Cancer Ctr. v. Novak, 52 S.W.3d 704, 708 (Tex.2001); Texas Workers' Comp.
Comm'n v. Garcia, 893 S.W.2d 504, 517–18 (Tex.1995). A judicial decision reached without a
case or controversy is an advisory opinion, which is barred by the separation of powers provision
of the Texas Constitution. Tex. Const. art. II, § 1; see Southwestern Elec. Power Co. v. Grant,
73 S.W.3d 211 (Tex.2002); Texas Ass'n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 444
(Tex.1993). We must decide, then, whether there is a case or controversy with respect to these
sections.

Because there are no “plaintiffs” from Sections Three and Six, there is no person in those sections
for whom rights could be declared in this declaratory judgment action. As a consequence, the trial
court was without jurisdiction to issue a judgment with respect to those sections, and any opinion
interpreting those sections would be purely advisory. Accordingly, we vacate those portions of
the lower courts' judgments relating to Sections Three and Six and dismiss those claims for want
of jurisdiction.

Having resolved Northglen's appellate pleas to the jurisdiction, we reach the merits for Sections
One, Two, Four and Five.



                                                     III


                                           Sections One and Two



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Brooks v. Northglen Ass'n, 141 S.W.3d 158 (2004)
47 Tex. Sup. Ct. J. 719

 [7] We first decide whether the deed restrictions for Sections One and Two, which are identical,
allow Northglen to assess additional maintenance fees above the restrictive covenant's express
limitation. The restrictions provide:

             Each Lot in said Subdivision, when said Lot is certified by the Subdivision
             Engineer to be a completed building site, is hereby subjected to an annual
             maintenance charge and assessment not to exceed $10 per month or $120 per
             annum, for the purpose of creating a fund to be designated and and [sic] known
             as the “maintenance fund”, [sic] which maintenance charge and assessment will
             be paid by the Owner or Owners of each Lot within said Subdivision, and any
             annexed areas, to Northglen Association in advance annually, commencing as to
             all Lots on the first day of the month following their certification of completion.
             The rate at which each Lot will be assessed will be determined annually by the
             Board of Directors of Northglen Association at least thirty (30) days in advance
             of each annual assessment. Said rate and when same is payable may be adjusted
             from year to year by said Board of Directors as the needs of the Subdivision may
             in the judgment of the Directors require.

The restrictions also outline requirements for amendment. Article VIII provides that “... the
covenants and restrictions of this Declaration may be amended during the first forty (40) year
period by an instrument signed by not less than ninety percent (90%) of the Lot Owners, and
thereafter by an instrument signed by not less than seventy-five percent (75%) of the Lot Owners.”
Therefore, a small number of homeowners may exert enormous influence on the extent to which
amendments will be adopted. 3

 *165 Although there are practical hurdles to persuading seventy-five or ninety percent of
homeowners to modify the restrictions or agree to an additional assessment, it is clear that the
restrictions provide a mechanism by which Northglen can assess an annual fee greater than $120.
The court of appeals agreed, holding that because the deed restriction provided that the annual
assessments were “not to exceed” $10 per month or $120 per annum, Northglen did not have the
authority to exceed the stated limits without first obtaining the homeowners' consent in accordance
with the restrictions. 76 S.W.3d at 174.

Northglen disputes this holding, arguing that the deed restrictions should be read in three steps.
First, the restrictions create a maintenance fund, for which the assessment shall not exceed $10 per
month or $120 per annum. Second, when the maintenance fund is created, the Board of Directors
has discretion to determine the rate at which each lot will be assessed above the $120. Third, the
assessment rate and date payable may be adjusted from year to year, as the needs of the subdivision
require.



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Brooks v. Northglen Ass'n, 141 S.W.3d 158 (2004)
47 Tex. Sup. Ct. J. 719

In support of its argument, Northglen cites Samms v. Autumn Run Cmty. Improvement Ass'n. 23
S.W.3d 398 (Tex.App.-Houston [1st Dist.] 2000, pet. denied). The Samms court held that a deed
restriction with language similar to Section One and Two granted the homeowners association the
authority, from year to year, to determine the rate at which property owners would be assessed.
Id. at 402. The court held that the homeowners association had authority to raise the assessment
without limitation because a phrase in the deed restriction said “the rate at which each Lot will
be assessed ... will be determined annually by the Board of Directors....” Id. But the court did not
discuss another provision of that deed restriction which stated explicitly that the assessment was
“not to exceed” a particular amount.

The Northglen deed restrictions subject each property owner to “an annual maintenance charge
and assessment not to exceed $10 per month or $120 per annum, for the purpose of creating ...
the ‘maintenance fund’....” (Emphasis added.) The restrictions further provide that “[t]he rate at
which each Lot will be assessed will be determined annually” by Northglen, and that “[s]aid rate
and when same is payable may be adjusted from year to year by [Northglen] as the needs of the
Subdivision may in the judgment of [Northglen] require.”

Northglen's argument does not survive the restrictions' plain language. First, the annual assessment
is not to exceed $10 per month or $120 per year. The restrictions do not require that Northglen
charge the maximum amount. Rather, Northglen may charge any amount so long as the amount
does not exceed $120 per year. So, if Northglen had been assessing $50 per year and decided the
next year that $120 was necessary, it has the authority to raise the rates unilaterally. Second, the
deed restrictions neither contemplate nor permit an additional assessment once the maintenance
fund is whole because the language says plainly that the assessment is not to exceed $10 per month
or $120 per year. There is no language permitting an additional assessment beyond that which is
included in the maintenance fund, aside from the special assessment for capital improvements.

 *166 We hold that the court of appeals correctly concluded that Northglen cannot increase
assessments beyond the $120 limitation set forth in the deed restrictions, and we affirm that part
of the court of appeals' judgment.



                                                     IV


                                          Sections Four and Five

 [8] Northglen argues — and the court of appeals held — that the deed restrictions permit
accumulation of unassessed increases in maintenance fees for Sections Four and Five. 76 S.W.3d at
167. Northglen contends, specifically, that Property Code section 204.010 allows it to accumulate


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Brooks v. Northglen Ass'n, 141 S.W.3d 158 (2004)
47 Tex. Sup. Ct. J. 719

and assess a $430 single-year increase — raising the assessment from $120 to $550. That section
provides:

   § 204.010. Powers of Property Owners' Association

   (a) Unless otherwise provided by the restrictions or the association's articles of incorporation or
   bylaws, the property owners' association, acting through its board of directors or trustees, may:

   ...

   (16) if the restrictions allow for an annual increase in the maximum regular assessment without
   a vote of the membership, assess the increase annually or accumulate and assess the increase
   after a number of years.

Tex. Prop.Code § 204.010.

The property owners counter that the trial court properly interpreted Sections Four and Five as
to allowable increases. They argue that by limiting the annual assessment increase to ten percent,
the deed restrictions “otherwise provide” that accumulation is not permitted. We examine the
competing contentions first by analyzing the deed restrictions and then by determining the extent
to which they are affected by the Property Code.



                                                      A

Determining whether the statute applies requires an understanding of the deed restrictions. The
deed restrictions for Section Four provide:

             Until January 1 of the year immediately following the conveyance of the
             first Lot to an Owner, the maximum annual assessment shall not exceed Ten
             ($10.00) Dollars per month, or One Hundred Twenty ($120.00) Dollars per
             annum, per lot; provided, however, that from and after January 1 immediately
             following the conveyance of the first Lot to an Owner, the Board of Directors
             of the Association shall be empowered to increase said rate as the needs of the
             Association require; except that if any such increase shall cause the annual
             assessment to be greater than the aforesaid $120.00 plus the rise, if any, of
             the Consumer Price Index as published by the United States Department
             of Labor for the preceding month of July; or more than One Hundred
             Ten (110%) percent of the amount assessed in the preceding calendar year,
             whichever is greater, then shall such an increase require the vote of two-




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Brooks v. Northglen Ass'n, 141 S.W.3d 158 (2004)
47 Tex. Sup. Ct. J. 719

             thirds (2/3) of each class of Members of the Association who are voting in
             person or by proxy, at a meeting duly called for that purpose.

(Emphasis added.)

Section Four thus permits an increase of ten percent more than the previous year's assessment,
and a greater increase if the Consumer Price Index is higher. The restriction requires a vote of the
homeowners to raise the assessment beyond those amounts.

The restrictions for Section Five are similar to Section Four:

              *167 Until January 1 of the year immediately following the date of
             commencement of the first annual assessment as determined by the Board of
             Directors, the maximum annual assessment shall be $120.00 per Lot. From and
             after the first day of January of the year immediately following the date of
             commencement of the first annual assessment, the maximum annual assessment
             may be increased by the Board of Directors of the Association, effective the
             first day of January of each year, in conformance with the rise, if any, in the
             Consumer Price Index for Urban Wage Earners and Clerical Workers published
             by the Department of Labor, Washington, D.C., or any successor publication,
             for the preceding month of July or alternatively, by an amount equal to a
             ten percent (10%) increase over the prior years [sic] annual assessment,
             whichever is greater, without a vote of the Members of the Association. The
             maximum annual assessment may be increased above that established by the
             Consumer Price Index formula or the above-mentioned percentage increase only
             by approval of two-thirds (2/3rds) of each class of Members in the Association
             present and voting at a meeting duly called for this purpose. In lieu of notice and
             a meeting of Members as provided by the By–Laws of the Association, a door to
             door canvass may be used to secure the written approval of two-thirds (2/3rds)
             of each class of Members for such increase in the annual assessment or in the
             special assessment for capital improvements as provided.... After consideration
             of current maintenance costs and future needs of the Association, the Board
             of Directors may fix the annual assessment at an amount not in excess of the
             maximum amount approved by the Members.

(Emphasis added.)

Both Sections Four and Five maintain an initial $120 per annum limit on assessments, followed
by discretionary increases of up to ten percent or the rise in the Consumer Price Index, whichever
is greater. Those increases are tied to the previous year's assessment.



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Brooks v. Northglen Ass'n, 141 S.W.3d 158 (2004)
47 Tex. Sup. Ct. J. 719




                                                      B

We now consider how the Texas Property Code applies to the preceding deed restrictions. One of
the stated purposes in chapter 204 is to provide a mechanism “to readily facilitate increases in the
amount of the regular or special assessments to allow the property owners' associations to better
provide services to the subdivisions.” Tex. Prop.Code § 204.001 historical note, [Act of May 27,
1995, 74th Leg., R.S., ch. 1040, § 1, 1995 Tex. Gen. Laws 5170, 5171]. The Legislature observed
that severe restrictions on the ability to adjust regular assessments “may result in the inability of an
ineffective property owners' association to maintain common area facilities, including swimming
pools, tennis courts, clubhouses, greenbelt areas, or jogging trails, or to provide services, including
streetlights, security, architectural control, and deed restriction enforcement.” Id. Read in isolation,
the legislature's preamble to section 204 offers some support for Northglen's argument that it has
the authority to accumulate previously unassessed fee increases beyond the maximum stated in
the restrictions to maintain common facilities or to provide services. The Legislature, however,
inserted a caveat that governs here: the statutory provision permitting accumulation does not apply
if the deed restrictions “otherwise provide.” Tex. Prop.Code § 204.010.

In this case, the Northglen deed restrictions for Sections Four and Five “otherwise provide” that
accumulation is not permitted. Section Four limits the ten *168 percent increase to “the amount
assessed in the preceding calendar year.” (Emphasis added.) Section Five also limits the “increase
over the prior years [sic] annual assessment.” (Emphasis added.) The natural consequence of
each restriction's language is that if the annual assessment for this year is $120, then next year's
assessment may not be raised to the $550 that Northglen seeks. Rather, next year's assessment may
be no more than $132. By specifically tying any increase to the previous year's annual assessment,
the deed restrictions do not permit accumulation over multiple years.

Additionally, in Section Four, Northglen may increase fees beyond the limits by receiving a “vote
of two-thirds (2/3) of each class of Members of the Association who are voting in person or by
proxy, at a meeting duly called for that purpose.” In Section Five the Board must receive “approval
of two-thirds (2/3rds) of each class of Members in the Association present and voting at a meeting
duly called for this purpose.” Although a two-thirds vote may be difficult to achieve, the deed
restrictions offer Northglen a procedure for increasing fee assessments beyond the ten-percent
limit other than accumulation. The voting mechanism, combined with the increase being tied to
the previous year's assessment, establishes that the deed restrictions “otherwise provide.”

Because we conclude that the statute does not permit accumulation or fee increases above the deed
restrictions, we need not address Brooks's contention that the statute's accumulation provisions
are unconstitutional.



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Brooks v. Northglen Ass'n, 141 S.W.3d 158 (2004)
47 Tex. Sup. Ct. J. 719




                                                      V


                                                   Late Fees

We next consider whether section 204.010(a)(10) authorized Northglen to impose a $35 late
charge, in addition to the interest charge included in the deed restrictions, for failure to pay the
annual assessments, and if so, whether such a construction violates the Contract Clause of the U.S.
or Texas Constitution. The trial court held that Northglen could charge a late fee under section
204.010(a)(10), and the court of appeals affirmed. Both courts noted that the deed restrictions did
not expressly prohibit late fees nor limit penalties to the interest charge. We hold that Northglen
may charge a $35 late fee and that such a charge is constitutional.



                                                      A

 [9] The homeowners argue that permitting Northglen to unilaterally assess late charges would
defeat the purpose of the deed restrictions, which already impose a six percent interest charge for
nonpayment. Additionally, the homeowners argue that by expressly including the interest charge in
the restrictions, the homeowners necessarily rejected late charges, under the doctrine of expressio
unius est exclusio alterius (to include one thing implies the exclusion of the other). Black's Law
Dictionary 602 (7th ed.1999).

The court of appeals disagreed with the homeowners' argument and held that Northglen could
assess late charges. The court considered the language of section 204.010(a)(10), which provides,
in pertinent part:

   (a) Unless otherwise provided by the restrictions or the association's articles of incorporation or
   bylaws, the property owners' association, acting through its board of directors or trustees, may:

   ...

   (10) impose interest, late charges, and, if applicable, returned check charges for *169 late
   payments of regular assessments or special assessments.

Tex. Prop.Code § 204.010(a)(10). The court held that this statutory language granted Northglen
authority to assess the late charge in the absence of specific language to the contrary. Because
the deed restrictions do not mention late charges specifically, the court held that silence could not
mean “otherwise provide.” 76 S.W.3d at 174.



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Brooks v. Northglen Ass'n, 141 S.W.3d 158 (2004)
47 Tex. Sup. Ct. J. 719

We agree that nothing in the Northglen deed restrictions could be considered “otherwise
providing.” Each deed restriction contains the same provision for failing to pay assessments:

   Effect of Non-payment of Assessments: Remedies of the Association. Any assessment not paid
   within thirty (30) days after the due date shall bear interest from the due date at the rate of
   six percent (6%) per annum. The Association may bring an action at law against the Owner
   personally obligated to pay the same, or foreclose the lien against the property. No Owner may
   waive or otherwise escape liability for the assessments provided for herein by non-use of any
   Common Area or abandonment of his Lot.

Contrary to Brooks's argument, the deed restrictions do not say the penalties are the exclusive
remedies for late payments, nor do they say that late charges are not permitted. The deed
restrictions only set the rate at which Northglen may charge interest on unpaid assessments.

 [10] When construing a statute, the Court must presume that every word of the legislation
has meaning. Riverside Nat'l Bank v. Lewis, 603 S.W.2d 169, 173 (Tex.1980). The statute
unequivocally says the Board may impose both interest charges and late charges. That the deed
restriction mentions interest charges but not late charges is not sufficient to “otherwise provide.”



                                                      B

Brooks argues that the assessment of a late fee would violate the U.S. 4 and Texas 5 Constitutions'
impairment-of-contracts provisions because the deed restrictions do not provide for late fees. The
court of appeals examined the constitutionality of the statute and held that Section 204.010 “is
not directed to any specific kind of contracts, and it does not directly contradict any contractual
provision....” 76 S.W.3d at 168. The court further noted that the statute is a permissible exercise
of the State's police power because “it was enacted to promote the public welfare with regard to
the property owners associations' ability to better provide services to the homeowners, maintain
the common area facilities, and provide for the common security and restriction enforcement.” Id.
at 168–69. We agree and hold that the same rationale applies to the late fees imposed pursuant
to chapter 204.

 [11] [12] A statute is presumptively constitutional. Barshop v. Medina Cty. Underground
Water Conservation Dist., 925 S.W.2d 618, 625 (Tex.1996). As such, we are obligated to avoid
constitutional problems if possible. Id. In this case, we must consider two factors: first, whether the
 *170 statute substantially impairs the contract; and second, if so, whether the Legislature acted
within its police powers in enacting the legislation. See Allied Structural Steel Co. v. Spannaus,
438 U.S. 234, 244–45, 98 S.Ct. 2716, 57 L.Ed.2d 727 (1978).



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Brooks v. Northglen Ass'n, 141 S.W.3d 158 (2004)
47 Tex. Sup. Ct. J. 719

 [13] Section 204.010 does not substantially impair Northglen's deed restrictions. The statute
operates only where the deed restrictions do not “otherwise provide.” Tex. Prop.Code § 204.010.
It does not serve to withdraw or remove any contractual obligation. If the statute required the
assessment of late fees where late fees were expressly prohibited by the deed restrictions, this
would likely be a different case. See Travelers' Ins. Co. v. Marshall, 124 Tex. 45, 76 S.W.2d
1007 (1934)(discussing statutes that declare a complete moratorium on particular contracts). We
are not faced with that circumstance here. Thus, applying the statute to authorize a late fee is not
unconstitutional.



                                                       VI


                                                   Foreclosure

 [14] Because we hold that Northglen may charge late fees for unpaid fee assessments, we
must address whether it has the authority to foreclose on the homestead if a property owner
fails to pay the late fee. This Court has clarified that Texas' homestead laws authorize a
homeowners association to foreclose on homesteads for the nonpayment of fee assessments.
Inwood Homeowners' Ass'n v. Harris, 736 S.W.2d 632, 635–36 (Tex.1987). In Inwood, we
considered whether the homestead laws of Texas protect a homeowner against foreclosure for
failure to pay homeowners association assessments. Id. at 633. As a general rule, a homestead
is protected against the debts of those who live in the homestead. Id. at 634. However, the deed
restrictions for the subdivision included a vendor's lien permitting foreclosure on the homestead
for failure to pay the fee assessment. Id. at 633. Because the property owner had notice when
purchasing the property that a lien attached to the land, we held that foreclosure was permissible.
Id. at 635–36.

The court of appeals, in our case, focused on the notice requirement and held that foreclosure was
not a potential remedy against unpaid late charges. 76 S.W.3d at 175. The court noted that the lien
to enforce the late charges attached to the property after the homestead was acquired because late
charges were not included in the deed restriction. Id.

The court cited as authority an Attorney General opinion that said costs imposed upon property
owners because of Chapter 204, which were not part of the deed restriction, could not be enforced
through foreclosure. Id. (citing Tex. Att'y Gen. Op. LO–97–019 (1997)). The Attorney General
concluded that, in determining whether foreclosure is a remedy, the issue is “whether the lien
for those costs (i) attached to the property prior to the homestead right and (ii) is the result of
a restriction that runs with the land.” Tex. Att'y Gen. Op. LO–97–019. The court of appeals
considered the two elements and held that because late charges were not part of the deed restrictions


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Brooks v. Northglen Ass'n, 141 S.W.3d 158 (2004)
47 Tex. Sup. Ct. J. 719

but rather a function of the statute, Northglen could not foreclose for failure to pay late charges.
76 S.W.3d at 175–76.

Northglen argues that a developer has the authority to create liens to ensure the payment
of fee assessments, and under Inwood, an appropriate remedy for failure to pay assessments
is foreclosure. Northglen also contends that because property *171 owners were aware that
delinquent assessments would be subject to late charges, in the form of an interest charge, the
property owners had actual notice sufficient to satisfy Inwood. Thus, because the property owners
had actual notice, Northglen asserts, the late charge should also run with the land as the interest
charge does.

We disagree with Northglen and agree with the court of appeals. Northglen's argument essentially
amends the deed restrictions to include both late fees and interest charges. But the restrictions did
not provide any notice that a late fee would be imposed in addition to the interest charge. As a
result, the property owners did not have notice of the late charge. Therefore, in light of Inwood 's
notice requirement, foreclosure is not an appropriate remedy for a failure to pay the late charge. 6



                                                    VII


                                       Non-profit Corporation Act

 [15] Northglen challenges that portion of the trial court's judgment providing that “the bylaws
may only be amended by the members....” Northglen argues that, even absent Property Code
chapter 204, it had the authority to increase assessments because it may amend the bylaws
unilaterally under the Texas Non–Profit Corporation Act. Tex.Rev.Civ. Stat. art. 1396–1.01 et seq.
That statute provides, among other things, that a board of directors has the authority to amend
bylaws unless the articles of incorporation reserve the power exclusively to the members. We
cannot reach this issue. Northglen did not file a notice of appeal from the trial court's judgment,
did not notice a cross-appeal, and did not petition this court for review on the point. Accordingly,
Northglen did not preserve this issue for our review. Tex.R.App. P. 25.1(c) (“[A] party who seeks
to alter the trial court's judgment or other appealable order must file a notice of appeal.... The
appellate court may not grant a party who does not file a notice of appeal more favorable relief than
did the trial court except for just cause.”), 53.1 (“A party who seeks to alter the court of appeals'
judgment must file a petition for review.”); see also Dean v. Lafayette Place (Section One) Council
of Co–Owners, Inc., 999 S.W.2d 814, 818 (Tex.App.-Houston [1st Dist.] 1999, no pet.).




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Brooks v. Northglen Ass'n, 141 S.W.3d 158 (2004)
47 Tex. Sup. Ct. J. 719




                                                                  VIII


                                                         Attorney's Fees

The final issue is whether the property owners should be awarded attorney's fees. The trial court
declined to award attorney fees, finding that “the parties each had legitimate interests to pursue.”
The court of appeals affirmed, holding that “[i]n the judgment we render, neither side would be
considered a prevailing party.” 76 S.W.3d at 176. The Declaratory Judgment act permits a court
to “award costs and reasonable and necessary attorney's fees as are equitable and just.” Tex. Civ.
Prac. & Rem.Code §§ 37.009. Although we reverse *172 part of the court of appeals' judgment,
the basis for the trial court's decision for denying fees — that each side pursued legitimate interests
— has not changed. Accordingly, we will not disturb the trial court's discretionary decision in that
regard. We affirm the court of appeals' judgment on attorney's fees.



                                                                   IX


                                                             Conclusion

We (1) affirm the court of appeals' judgment as to the increased assessments in Sections One and
Two, the assessment of late fees, and foreclosure; (2) reverse the court of appeals' judgment and
render judgment as to accumulation of fee increases under Sections Four and Five; (3) vacate the
trial court's and the court of appeals' judgments as to Sections Three and Six and dismiss for want
of jurisdiction Brooks's claim as to those sections; and (4) affirm the court of appeals' judgment
regarding attorney's fees. Tex.R.App. P. 60.2(a), (c), (e).


Parallel Citations

47 Tex. Sup. Ct. J. 719


Footnotes
1    Chapter 204 applies to residential real estate subdivisions in a county with a population of 2.8 million or more. Tex. Prop.Code §
        204.002. According to the 2000 U.S. Census, of the 254 counties in Texas, only Harris County comes within the chapter's purview.
        2000 United States Census, available at http://quickfacts.census.gov/qfd/states/48/48201.html.
2       Despite the notoriety this dispute engendered in the neighborhood, the record does not disclose that any other homeowners filed suit
        or were otherwise disposed to contest Northglen's actions.
3       A similar, though less onerous, supermajority is required to charge a special assessment in a given year. The restrictions provide
        that Northglen may:




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Brooks v. Northglen Ass'n, 141 S.W.3d 158 (2004)
47 Tex. Sup. Ct. J. 719

             [l]evy, in any assessment year, a special assessment applicable to that year only for the purpose of defraying, in whole or in part,
             the cost of any acquisition, construction, reconstruction, repair or replacement of a capital improvement ... provided that any
             such assessment shall have the assent of two-thirds (2/3rds) of the votes of each class of members....
          (Emphasis in original.)
4      “No State shall ... pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts....” U.S. Const. art.
       I, § 10.
5      “No bill of attainder, ex post facto law, retroactive law, or any law impairing the obligation of contracts shall be made.” Tex. Const.
       art. I, § 16.
6      We express no opinion on the court of appeals' holding that “any new type of assessment ... or attorney's fee that is imposed solely
       through the authority of Chapter 204 of the Texas Property Code cannot be enforced by foreclosure against a homestead.” 76 S.W.3d
       at 175. Inasmuch as we have reversed the court of appeals' judgment regarding accumulation, we need not decide whether foreclosure
       would be an appropriate remedy for accumulated assessments. Similarly, attorney's fees imposed through Chapter 204 are not at
       issue in this case.


End of Document                                                            © 2015 Thomson Reuters. No claim to original U.S. Government Works.




                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                                         17
Brooks v. Northglen Ass'n, 141 S.W.3d 158



    History (9)

    Direct History (3)
      1. NORTHGLEN ASSOCIATION, v. GENEVA BROOKS D/B/A COMMITTEE
    TO REMOVE THE BOARD, Dianne Higgins, Pauline White, Don Yust Virginia Yust,
    Aurelio Ojada, Antony Mcbride and Susan Auclair.
    1999 WL 34804055 , Tex.Dist. , June 25, 1999


      Judgment Affirmed in Part, Reversed in Part by

      2. Brooks v. Northglen Ass'n
    76 S.W.3d 162 , Tex.App.-Texarkana , Apr. 18, 2002 , review granted (2 pets.) ( Feb
    13, 2003 )


      Affirmed in Part, Vacated in Part, Reversed in Part by

        3. Brooks v. Northglen Ass'n
      141 S.W.3d 158 , Tex. , June 25, 2004 , rehearing denied ( Sep 03, 2004 )



    Related References (6)
    4. NORTHGLEN ASSOCIATION, v. GENEVA BROOKS D/B/A COMMITTEE TO
    REMOVE THE BOARD, Dianne Higgins, Pauline White, Don Yust Virginia Yust,
    Aurelio Ojada, Antony McBride and Susan Auclair.
    1999 WL 34794783 , Tex.Dist. , Feb. 16, 1999


    5. NORTHGLEN ASSOCIATION, v. GENEVA BROOKS D/B/A COMMITTEE TO
    REMOVE THE BOARD, Dianne Higgins, Pauline White, Don Yust, Virginia Yust,
    Aurelio Ojada, Antony Mcbride and Susan Auclair.
    1999 WL 34804056 , Tex.Dist. , Mar. 22, 1999


    6. NORTHGLEN ASSOCIATION, Plaintiff, v. GENEVA BROOKS D/B/A COMMITTEE
    TO REMOVE THE BOARD, Dianne Higgins, Pauline White, Don Yust, Aurelio Ojada,
    Anthony McBride, and Susan Auclair, Defendants.
    1999 WL 34794782 , Tex.Dist. , Mar. 26, 1999




           © 2015 Thomson Reuters. No claim to original U.S. Government Works.            18
Brooks v. Northglen Ass'n, 141 S.W.3d 158



    7. Northglen Ass'n v. Geneva Brooks D/B/A Committee to Remove the Bd.
    1999 WL 34855360 , Tex.Dist. , Aug. 02, 1999


    8. Northglen ASSOCIATION, v. GENEVA BROOKS D/B/A COMMITTEE TO REMOVE
    THE BOARD, Dianne Higgins, Pauline White, Don Yust, Virginia Yust, Aurelio Ojada,
    Antony Mcbride and Susan Auclair.
    2000 WL 35528626 , Tex.Dist. , July 10, 2000


    9. Northglen Ass'n v. Geneva Brooks D/B/A Committee to Remove the Bd.
    2000 WL 35606986 , Tex.Dist. , Nov. 29, 2000




           © 2015 Thomson Reuters. No claim to original U.S. Government Works.          19
California Products, Inc. v. Puretex Lemon Juice, Inc., 160 Tex. 586 (1960)
334 S.W.2d 780




                                                160 Tex. 586
                                           Supreme Court of Texas.

                         CALIFORNIA PRODUCTS, INC., et al., Petitioners,
                                           v.
                           PURETEX LEMON JUICE, INC., Respondent.

            No. A-7421.        |    March 23, 1960.          |   Rehearing Denied May 18, 1960.

Action for declaratory judgment to determine whether or not design of bottle in which plaintiff
planned to market its lemon and lime juice would violate terms of an injunction which defendant
had obtained in an earlier action enjoining plaintiff from marketing its product in bottles which
resembled in appearance the bottles used by defendant. The 107th District Court, Willacy County,
Hawthorne Phillips, J., entered judgment in favor of plaintiff and the defendant appealed. The San
Antonio Court of Civil Appeals Fourth Supreme Judicial District, 324 S.W.2d 449, reversed and
plaintiff brought error. The Supreme Court, Griffin, J., held that the adjudication sought was but
an advisory opinion and therefore not a proper subject of declaratory judgment action.

Affirmed.


Attorneys and Law Firms

*587 **780 Robert H. Kern, Jr., McAllen, James & Conner, Ft. Worth, for petitioners.

Strickland, Wilkins, Hall & Mills, Mission, for respondent.

Opinion

GRIFFIN, Justice.

Petitioners herein, hereafter called plaintiffs, filed this suit in the 107th District Court of Willacy
County, Texas, against respondent herein, hereafter called defendant, seeking a declaratory
judgment to determine whether or not a certain bottle in which plaintiffs expected to sell lemon
and lime juice would violate a judgment of the 107th District Court entered June 3, 1952. The
prior suit in the 107th District Court was between the same parties, except petitioners herein were
defendants and respondent herein was plaintiff. In the first suit between the parties, Puretex, as
plaintiff, recovered a permanent injunction against California Products and Davis prohibiting them
from marketing their lemon and lime juice in bottles which resembled in appearance the bottles
used by plaintiff. This judgment was an agreed judgment and there was no appeal taken from it and
it became final. After the entry of the above decree, petitioner files this declaratory judgment suit.


              © 2015 Thomson Reuters. No claim to original U.S. Government Works.                    1
California Products, Inc. v. Puretex Lemon Juice, Inc., 160 Tex. 586 (1960)
334 S.W.2d 780


 **781 Trial was had before a jury and two special issues were answered by the jury. The first
issue asked the jury to find from a preponderance of the evidence whether plaintiff planned to
have bottles made of the kind set out in a blueprint introduced in evidence, such bottles to be used
as containers in which to market its lemon and lime juice. The jury answered this issue in the
affirmative which was favorable to the plaintiff. The second issue asked the jury to find from a
preponderance of the *588 evidence whether the bottle and its markings which plaintiff proposed
to use to market its lemon and lime juice ‘will not so closely resemble in appearance the bottle of
defendant and its markings as to be liable to deceive a reasonably prudent buyer, exercising such
ordinary care and observation as shoppers generally may be expected to use so as to mislead such
buyer into believing that this bottle contains Puretex lemon or lime juice.’ The jury answered, ‘It
will not be likely to deceive.’ On this verdict, the court rendered judgment for plaintiff-California
California Products, Inc. The judgment entered by the trial court reads, in part, as follows:
‘That the terms of the agreed judgment entered by this Court on June 3, 1952, in Cause No. 1860,
entitled Puretex Lemon Juice, Inc. v. California Products, Inc., and Charles H. Davis, properly
construed, do not prohibit the use by Plaintiffs herein, in the marketing of lemon and lime juices,
of a bottle resembling the said bottle of Defendant in any respect whatsoever, but the purport and
meaning thereof is to prevent the use by Plaintiffs of a bottle so resembling in appearance that of
Defendant's bottle as to be calculated to mislead and deceive the buying public, and;

‘That the use by Plaintiff, California Products, Inc. of its proposed bottle, above described in the
marketing of its lemon and lime juices will not be violative of, or inconsistent with, the injunction
issued by this Court in said Cause No. 1860.’


Defendant appealed to the Court of Civil Appeals. That Court reversed and rendered denying
plaintiff and relief. The basis for the opinion of the Court of Civil Appeals was (1) plaintiffs had
shown no justiciable interest, and were only seeking an advisory opinion from the Court and (2)
the trial court had no right to modify and change the terms of the judgment entered some five years
in the past. 324 S.W.2d 449.

We granted the petition for writ of error on plaintiffs' first point. This asserted error by the Court
of Civil Appeals in holding there was not an actual, real, or bona fide controversy between the
parties. Petitioners-plaintiffs also have points on the error of the Court of Civil Appeals in holding
that the trial court had no right to modify and change the terms of the previous judgment.
 [1] All parties agree that there must be a justiciable controversy between the parties before a
declaratory judgment action *589 will lie. That is well settled law. Board of Water Engineers v.
City of San Antonio, 1955, 155 Tex. 111, 283 S.W.2d 722(1); Parks v. Francis, Tex.Civ.App.1947,
202 S.W.2d 683(5), no writ history; Southern Traffic Bureau v. Thompson, Tex.Civ.App. 1950,
232 S.W.2d 742(10), ref., n.r.e.; Anderson, Declaratory Judgments, 2d Ed., Vol. 1, p. 38, s 9; 16
Am.Jur. 282, s 9; Hodges, General Survey of the Uniform Declaratory Judgments Act in Texas,


              © 2015 Thomson Reuters. No claim to original U.S. Government Works.                  2
California Products, Inc. v. Puretex Lemon Juice, Inc., 160 Tex. 586 (1960)
334 S.W.2d 780

Vernon's Texas Civil Statutes, Vol. 8, p. VII. The Court of Civil Appeals has cited and discussed
some additional authorities and we will not repeat them.


‘The rule with respect to the necessity for a justiciable controversy may be stated in the vernacular
in this wise: The Uniform Declaratory Judgments Act does not license litigants to fish in judicial
ponds for legal advice.’ Anderson, Declaratory Judgments, 2d. Ed., Vol. 1, p. 47, quoting from
Lide v. Mears, 231 N.C. 111, 56 S.E.2d 404.

 **782 The case nearest in point to the case at bar which we have been able to find is the case of
Ladner v. Siegel, 1928, 294 Pa. 368, 144 A. 274, 275. Plaintiffs Ladners owned certain residences
on land purchased from defendant Siegel. On the remaining land adjoining plaintiffs' residences,
Siegel proposed to erect a shopping center. One of the buildings was to be occupied by a garage
operated for the general repair and service of automobiles for the public. The Ladners brought
suit against Siegel seeking to restrain him from erecting and occupying the garage as a violation
of the residential district use. The Ladners won this suit and secured their injunction. That cause
became final.

Thereafter Siegel filed a declaratory judgment action asking the court to fix his rights in the conduct
of the garage in case it was carried on in such a way as not to constitute a private nuisance. The
court was presented with the question of determining a method by which Siegel would operate the
garage, and then asked to determine whether or not such method of operation would be permitted
in this residential district. The trial court entered a judgment setting out a method whereby the
garage could be operated so as not to constitute a private nuisance.

On appeal the Supreme Court of Pennsylvania says the crucial question is ‘do the circumstances
here disclosed give any jurisdiction to the court below to enter a declaratory judgment?’ *590 The
Court then quotes from the Declaratory Judgments Act which provides that courts of record ‘within
their respective jurisdictions, shall have power to declare rights, status, and other legal relations'
between parties where there is a real matter in controversy. These are the identical provisions in
our statute-art. 2524-1, Vernon's Ann.Civ.St. The Court then says the Declaratory Judgments Act
gives the court no power to grant advisory opinions, or to determine matters not essential to the
decision of the actual controversy although such questions may in the future require adjudication,
or passing upon contingent or certain other situations. The court then says:
         ‘* * * In the present case, the question of whether the use of the garage as now
         contemplated would constitute an offensive business in the neighborhood, and
         a private nuisance, affecting not only complainants, but others residing near by,
         could not be determined until its actual operation at some future date.’


And the Court further says:


              © 2015 Thomson Reuters. No claim to original U.S. Government Works.                    3
California Products, Inc. v. Puretex Lemon Juice, Inc., 160 Tex. 586 (1960)
334 S.W.2d 780

‘* * * If such a proceeding (as sought) was to be countenanced, then approval would be given to
applications in any like equity case to have a determination as to whether the court's order should
be held ineffective, under stated facts depending on contingent and future events, with resulting
confusion, and the decree would lack the finality which is contemplated in law. If petitioners
believe the operation intended to be unobjectionable under the order made, they may proceed at
their own risk. * * * ‘Construction of a decree cannot be given until the question comes regularly
before the court in proceedings requiring construction and application to acts alleged to have been
done or omitted under it.’ 21 C.J. 689.'


To the same effect see Shattuck v. Shattuck, 1948, 67 Ariz. 122, 192 P.2d 229(18); Glassford
v. Glassford, 1953, 76 Ariz. 220, 262 P.2d 382(3); National Biscuit Co. v. Kellogg Co.,
D.C.Del.1938, 22 F.Supp. 801; J. Greenebaum Tanning Co. v. National Labor Relations Board,
7 Cir., 129 F.2d 487(2); 154 A.L.R. 740, et seq.,

In the case of Southern Traffic Bureau v. Thompson, Tex.Civ.App.1950, 232 S.W.2d 742, 751,
ref., n. r. e., it was said:
‘The Uniform Declaratory Judgments Act does not provide for the giving of merely advisory
opinions on the part of courts. In government this is a duty of the executive branch. In private
 *591 business it is the function of **783 the legal profession. City and County of Denver v.
Lynch, 92 Colo. 102, 18 P.2d 907, 86 A.L.R. 907.

‘It is further a well established rule that a declaratory judgment should not be based upon
facts which are particularly subject to mutation and change as are the facts here. Anderson on
Declaratory Judgments, p. 195, s 72.’

 [2] A declaratory judgment rendered herein would not settle the controversy between the parties.
The permanent injunction in Cause No. 1860 is still outstanding. A violation of that judgment is
subject to be punished for contempt in a proper proceeding. It cannot be determined whether or
not a proposed bottle will be violative of the injunction issued on June 3, 1952 until California
Products seeks to market its product in a bottle in the same market with Puretex. Only in this way
can it be determined whether the California Products' bottle is of the size and appearance that it
misleads and deceives the buying public into believing that it is securing Puretex products rather
than California products.


We agree with the Court of Civil Appeals that this proceeding is one in which an advisory opinion
is sought. Should we decide that the bottle proposed to be used by California Products did violate
the injunction, we would settle nothing. California could continue indefinitely to propose bottles of
different sizes, shapes and colors on which it could seek an equally indefinite number of advisory
opinions as to whether such bottles violate the injunction. Such procedure would accomplish


              © 2015 Thomson Reuters. No claim to original U.S. Government Works.                  4
California Products, Inc. v. Puretex Lemon Juice, Inc., 160 Tex. 586 (1960)
334 S.W.2d 780

nothing. California Products should propose a bottle which it thinks does not violate the injunction,
use it and litigate the material issue on a contempt hearing.

We affirm the judgment of the Court of Civil Appeals.


GREENHILL, J., not sitting.

Parallel Citations

334 S.W.2d 780

End of Document                                                © 2015 Thomson Reuters. No claim to original U.S. Government Works.




              © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                               5
California Products, Inc. v. Puretex Lemon Juice, Inc., 160 Tex. 586



    History (2)

    Direct History (2)
    1. Puretex Lemon Juice, Inc. v. California Products, Inc.
    324 S.W.2d 449 , Tex.Civ.App.-San Antonio , May 06, 1959


       Judgment Affirmed by

        2. California Products, Inc. v. Puretex Lemon Juice, Inc.
      160 Tex. 586 , Tex. , Mar. 23, 1960




            © 2015 Thomson Reuters. No claim to original U.S. Government Works.   6
Chenault v. Phillips, 914 S.W.2d 140 (1996)
39 Tex. Sup. Ct. J. 204




                                              914 S.W.2d 140
                                          Supreme Court of Texas.

                              Bill CHENAULT et al., Relators,
                                             v.
                 The Honorable Tom PHILLIPS, Dan Morales, John T. Adams,
               and Martha Whitehead, In Their Official Capacities, Respondents.

                                      No. 95–0865.     |   Jan. 11, 1996.

Attorneys filed original petition in Supreme Court seeking declaration that attorney occupation
tax was unconstitutional, injunction against officials responsible for collecting tax, and writs
prohibiting enforcement of tax. The Supreme Court held that action to challenge constitutionality
of attorney occupation tax was not within original jurisdiction granted to Supreme Court.

Denied.


Attorneys and Law Firms

*141 Miles H. Appleberry, San Antonio, Roy Beene, Houston, William B. Chenault, III, San
Antonio, for Relators.

Dan Morales, David S. Morales, Austin, for Respondents.

Opinion

PER CURIAM.

In this case we decide whether this Court, in exercising its original jurisdiction, may consider
an original petition seeking relief from the Attorney Occupation Tax, Texas Tax Code §§
191.141–.145. Without reaching the merits, we hold that this action is not within the original
jurisdiction granted to this Court by either the Texas Constitution or the Legislature, and deny the
motion for leave to file the petition because Relators have an adequate remedy at law.

Bill Chenault, Roy Beene, and Miles Appleberry (Relators) filed an original petition in this Court
seeking a declaration that the attorney occupation tax is unconstitutional, an injunction against
the officials responsible for collecting the tax, and writs prohibiting enforcement of the tax. 1
Relators, members of the State Bar of Texas, argue that the statute's enforcement provision, which
automatically suspends the license of any attorney who does not timely pay the tax, deprives
attorneys of their right to a full impartial hearing prior to the imposition of any sanction. Relators


               © 2015 Thomson Reuters. No claim to original U.S. Government Works.                  1
Chenault v. Phillips, 914 S.W.2d 140 (1996)
39 Tex. Sup. Ct. J. 204

further contend that the statute improperly infringes on this Court's inherent power to regulate
the legal profession in Texas, and that it violates the separation of powers provision of Article
II, section one of the Texas Constitution by delegating the tax collection powers of the executive
branch to the judicial branch. Relators argue that this Court has jurisdiction over this original action
under Article III of the Texas Constitution, sections 22.001–.002 of the Government Code, and
Rules 121 and 122 of the Texas Rules of Appellate Procedure.

 [1] [2] [3] This Court's jurisdiction, like that of all Texas courts, is conferred solely by the
Texas Constitution and state statutes. We do not have jurisdiction to decide any case absent an
express constitutional or statutory grant. See Pope v. Ferguson, 445 S.W.2d 950, 952 (Tex.1969),
cert. denied, 397 U.S. 997, 90 S.Ct. 1138, 25 L.Ed.2d 405 (1970). A request for declaratory relief
alone does not establish jurisdiction in this Court. We have held that the Uniform Declaratory
Judgments Act, TEX.CIV.PRAC. & REM.CODE §§ 37.001–.011, is not a grant of jurisdiction,
but “merely a procedural device for deciding cases already within a court's jurisdiction.” State v.
Morales, 869 S.W.2d 941, 947 (Tex.1994); see also Texas Ass'n of Business v. Texas Air Control
Bd., 852 S.W.2d 440, 444 (Tex.1993). Likewise, we may not consider the merits of Relators'
requests for injunctions, writs of prohibition, and other relief under Rules 121 and 122 in a case
not otherwise properly before the Court. See Texas Employers' Ins. Ass'n v. Kirby, 137 Tex. 106,
152 S.W.2d 1073, 1073 (1941).

 [4] [5] Relators also seek a writ of mandamus. Mandamus is an extraordinary remedy and
generally is not available from any court in this state when a party has an adequate legal remedy.
Walker v. Packer, 827 S.W.2d 833, 840 (Tex.1992); Holloway v. Fifth Court of Appeals, 767
S.W.2d 680, 684 (Tex.1989); State v. Walker, 679 S.W.2d 484, 485 (Tex.1984). Relators may
file their challenge to the Attorney Occupation Tax in district court and appeal any adverse ruling
through the ordinary appellate process. They have not met their burden of showing that pursuing
their claims first in the trial court will cause them to suffer any immediate harm that would entitle
them to mandamus relief under the Walker standard.

 *142 [6] [7] Moreover, this Court will not issue an original writ of mandamus absent a
“compelling reason.” TEX.R.APP.P. 121(a); LaRouche v. Hannah, 822 S.W.2d 632, 633–34
(Tex.1992); Sears v. Bayoud, 786 S.W.2d 248, 249–50 (Tex.1990). Relators assert as compelling
reasons for the invocation of this Court's original jurisdiction the need to protect this Court's role
as the ultimate supervisory authority over the State Bar of Texas, the presence of state officers as
necessary parties in the suit, and the statewide importance of the issue. None of these proffered
jurisdictional bases presents a compelling reason for this Court to exercise its original jurisdiction.

Relators cite State Bar of Texas v. Gomez, 891 S.W.2d 243 (Tex.1994), as authority for the relief
they seek. In Gomez, several indigent litigants brought an action in district court to mandate that
the State Bar of Texas or this Court require all Texas attorneys to provide pro bono legal services.


               © 2015 Thomson Reuters. No claim to original U.S. Government Works.                    2
Chenault v. Phillips, 914 S.W.2d 140 (1996)
39 Tex. Sup. Ct. J. 204

Central to our decision in that case was this Court's exclusive administrative authority to regulate
the practice of law in Texas, an authority that “is derived from both statutory and inherent powers.”
Id. at 245. The State Bar, we held, is by itself powerless to address the harm alleged by the indigent
litigants, as its authority in this regard is limited to proposing regulations to the Court. We then
rejected any attempt to involve the district court in the regulation of the practice of law: “[T]o
the extent the remedies are sought against the Supreme Court, they would clearly impinge on the
Court's exclusive authority to regulate the practice of law.... No subordinate court in Texas has the
power to usurp our authority or responsibility in this area.” Id. at 246.

Relators interpret this language as this Court's assumption of exclusive original jurisdiction over
any action affecting attorneys in Texas. In so doing, they misconstrue our decision in Gomez.
First, we observed that the Court's inherent powers, such as the power to regulate the bar,
are administrative powers, not jurisdictional powers. Id. at 245. We then held that a district
court could not impose a new requirement on Texas attorneys because “a district court has no
authority to assume this Court's authority to regulate the legal profession.” Id. at 246. Unlike the
plaintiffs in Gomez, Relators do not seek imposition of new regulations on lawyers in Texas,
but rather challenge the constitutionality of a statute that affects lawyers. Yet, as we noted in
Gomez, constitutional challenges to rules enacted by this Court must be brought in the district
court and heard by this Court in the exercise of its appellate jurisdiction. “Had this Court
actually promulgated rules establishing a pro bono program and had Gomez challenged the
constitutionality of such rules, the district court would have jurisdiction to decide, in the first
instance, whether such rules met constitutional standards.... Such a case would be justiciable
because the district court would be capable of rendering a judgment that accords the parties
complete relief, subject of course to appellate review.” Id. at 246. Analogously, Relators must
follow the same procedure in challenging the constitutionality of the Attorney Occupation Tax. A
litigant may not bring such a claim in the first instance in this Court.

Accordingly, without hearing oral argument, see Texas Rule of Appellate Procedure 122, a
majority of this Court overrules Relators' motion for leave to file an original petition for writ of
mandamus and writs pursuant to Texas Rules of Appellate Procedure 121 and 122.


Parallel Citations

39 Tex. Sup. Ct. J. 204


Footnotes
1    While     the enforcement mechanisms for the various statutes differ, at the same time the Legislature imposed the
       Attorney Occupation Tax, it increased by $200 the fees assessed against numerous other license holders, including the
       following: physicians, TEX.REV.CIV.STAT.ANN. art. 4495b, §§ 3.10–.11A; dentists, TEX.REV.CIV.STAT.ANN. art. 4550c;
       optometrists, TEX.REV.CIV.STAT.ANN. art. 4552–3.03B; accountants, TEX.REV.CIV.STAT.ANN. art. 41a–1, § 9A; engineers,




               © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                       3
Chenault v. Phillips, 914 S.W.2d 140 (1996)
39 Tex. Sup. Ct. J. 204

       TEX.REV.CIV.STAT.ANN. art. 3271a, § 13B; real estate brokers, TEX.REV.CIV.STAT.ANN. art. 6573a, § 11A; and securities
       dealers, TEX.REV.CIV.STAT.ANN. art. 581–41. The proceeds of these increases in fees, like the proceeds of the Attorney
       Occupation Tax, go into the foundation school fund and the general revenue fund. Id.


End of Document                                                  © 2015 Thomson Reuters. No claim to original U.S. Government Works.




               © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                                4
Farmers Ins. Exchange v. Rodriguez, 366 S.W.3d 216 (2012)




                                             366 S.W.3d 216
                                         Court of Appeals of Texas,
                                           Houston (14th Dist.).

                        FARMERS INSURANCE EXCHANGE and Allstate
                         County Mutual Insurance Company, Appellants,
                                              v.
                                 Juan RODRIGUEZ, Appellee.

    No. 14–10–00995–CV.              |    Feb. 16, 2012.    |   Rehearing Overruled May 9, 2012.

Synopsis
Background: Property owner's neighbor brought action against owner, owner's liability insurer,
and neighbor's automobile insurer, seeking recovery for injuries allegedly sustained while
removing deer stand from property owner's trailer and seeking declaratory judgment stating that
homeowner's insurance policy provided liability coverage regarding neighbor's claims. Following
a jury trial after neighbor was granted summary judgment against insurers, the 125th District Court,
Harris County, Kyle Carter, J., entered judgment in favor of neighbor. Insurers appealed.



Holdings: The Court of Appeals, Martha Hill Jamison, J., held that:

[1] declaratory-judgment claim was not ripe;

[2] unloading of deer stand from trailer constituted use of trailer, for purposes of underinsured-
motorist (UIM) coverage, and

[3] injuries that neighbor sustained arose out of use of trailer.


Affirmed in part and reversed and rendered in part.


Attorneys and Law Firms

 *219 Nicole Shirley Bakare, Ronald J. Restrepo, Houston, Kent R. Chambers, Magnolia, for
appellants.

Scott Rothenberg, Houston, for appellee.



             © 2015 Thomson Reuters. No claim to original U.S. Government Works.                   1
Farmers Ins. Exchange v. Rodriguez, 366 S.W.3d 216 (2012)




Panel consists of Justices FROST, SEYMORE, and JAMISON.



                                                  OPINION

MARTHA HILL JAMISON, Justice.

Appellee Juan Rodriguez was injured while helping his neighbor Michael Woodling remove a deer
stand from Woodling's trailer. Rodriguez sued Woodling for negligence and, in the same case,
Rodriguez's automobile insurer, appellant Allstate County Mutual Insurance Company, seeking
coverage under an uninsured/underinsured motorist (UIM) policy. Rodriguez later amended his
petition to add Woodling's insurer, appellant Farmers Insurance Exchange, seeking liability
coverage for Woodling under his homeowner's policy. In a pre-trial partial summary judgment,
the court declared the claims were covered by both insurance policies. At trial, the jury found
no negligence on the part of Rodriguez, found that Woodling was negligent, and found that
Woodling's negligence caused Rodriguez's damages. The primary issues on appeal pertain to
the trial court's subject matter jurisdiction over the claims against Farmers and interpretation of
standard form language in the Allstate automobile policy.

Farmers appeals the trial court's grant of summary judgment against Farmers in favor of Rodriguez,
denial of Farmers' plea to the jurisdiction, and entry of declaratory judgment finding coverage
under the Farmers insurance policy. In three issues, Farmers contends the trial court lacked subject
matter jurisdiction over Rodriguez's claim against Farmers, the homeowner's policy issued by
Farmers does not provide liability coverage for Woodling, and Rodriguez filed an impermissible
direct action against Farmers without satisfying conditions precedent in Woodling's insurance
policy. We hold the trial court erred by granting summary and declaratory judgments against
Farmers and denying Farmers' plea to the jurisdiction because Rodriguez's claim against Farmers
was not ripe when the court made its rulings. We therefore reverse and render judgment dismissing
Rodriguez's claims against Farmers for lack of subject matter jurisdiction.

Allstate appeals the trial court's summary judgment in favor of Rodriguez against Allstate and
declaratory judgment finding coverage under the UIM policy. In four issues, Allstate contends its
policy does not cover Rodriguez's injury but the Farmers policy does. We hold the UIM provisions
in Rodriguez's automobile policy provide coverage for his injury. We therefore affirm the trial
court's summary judgment and declaratory judgment against Allstate.



                                    Undisputed Factual Background



             © 2015 Thomson Reuters. No claim to original U.S. Government Works.                  2
Farmers Ins. Exchange v. Rodriguez, 366 S.W.3d 216 (2012)



The following facts are undisputed. Using a trailer hitched to his pickup truck, *220 Woodling 1
transported a deer stand from his deer lease to his residence. He pulled into his driveway and
attempted to remove the deer stand from the trailer. He pushed the deer stand out of the trailer until
the legs on the stand touched the driveway. He left the stand resting at a 30–degree angle against
the trailer. He then attached a come-along 2 to a fence post and to the stand and attempted to raise
the stand upright. Realizing he could not accomplish the task alone, he requested assistance from
his neighbor, Rodriguez.

Rodriguez and Woodling decided to lift the stand manually by walking forward out of the trailer
and onto the driveway. They began in the trailer, each using both hands to push the stand upward.
Then they stepped onto the driveway and took “one or two” more steps. When the stand was no
longer touching the trailer, Woodling realized it was too heavy and yelled, “Juan, I can't hold it.
Jump.” Woodling then jumped away, leaving Rodriguez alone to hold the stand, which weighed
approximately 350 pounds. The stand fell, and Rodriguez was injured.

The liability provisions of the Farmers homeowners policy contain the following exclusion for
bodily injury claims: “arising out of the ownership, maintenance, operation, use, loading or
unloading of ... trailers [or] semi-trailers” except for “trailers or semitrailers while not being towed
by or carried on a motor vehicle.”

Rodriguez's Allstate automobile policy included UIM coverage for damages Rodriguez was
“legally entitled to recover from the owner ... of an uninsured [or underinsured] motor vehicle
[including any type of trailer] because of bodily injury sustained by [Rodriguez and] caused by an
accident.” Under the Allstate policy, the uninsured or underinsured owner's liability must “arise
out of the ownership, maintenance or use of the uninsured motor vehicle.” (Emphasis added.)



                                             Procedural History

Rodriguez filed suit against Woodling and Allstate on June 2, 2008, asserting a negligence claim
against Woodling and a claim against Allstate for UIM coverage. Rodriguez amended his petition
on September 16, 2008, adding Farmers as a defendant and seeking declarations that the exclusion
from liability coverage in the Farmers policy did not apply or, alternatively, that Rodriguez's
damages arose from the use of a trailer covered by the Allstate policy.

Farmers filed a motion to sever, contending Rodriguez's joinder of Farmers was improper. 3
Rodriguez moved for partial summary judgment against Farmers, seeking a declaration that
Farmers had a contractual obligation to indemnify Woodling. Farmers moved for summary
judgment based on improper joinder, lack of ripeness, and applicability of its “trailers or semi-


             © 2015 Thomson Reuters. No claim to original U.S. Government Works.                      3
Farmers Ins. Exchange v. Rodriguez, 366 S.W.3d 216 (2012)



trailers” exclusion. Allstate moved for summary judgment, asserting that the accident did not arise
out of the use of an uninsured motor vehicle so that the Allstate policy did not apply. The trial
court granted Rodriguez's motion and denied motions filed by Allstate and Farmers. In a combined
plea to the jurisdiction and motion to vacate the court's order granting partial summary judgment,
Farmers reasserted its jurisdictional arguments *221 before trial of the underlying personal injury
claim. The court denied the combined motion.

Before trial, Allstate, while contesting coverage under its policy, stipulated to be bound by the
jury's findings on negligence and damages. The jury found Woodling 100% negligent and awarded
damages to Rodriguez totaling $233,123.71. Rodriguez subsequently filed a motion for summary
judgment against Allstate, seeking a declaration that his injuries were covered under the Allstate
policy, which the trial court granted. After reducing the jury award based on the amount of
Rodriguez's incurred medical expenses, the trial court entered judgment awarding Rodriguez
$211,618.42, plus interest and costs, and declaring that Rodriguez's injuries were covered under
both the Farmers and Allstate policies.



                                            Standards of Review

Traditional Summary Judgment.
To prevail on a traditional Rule 166a(c) summary-judgment motion, a movant must prove that
there is no genuine issue regarding any material fact and that it is entitled to judgment as a matter
of law. See Tex.R. Civ. P. 166a(c); Little v. Tex. Dep't of Criminal Justice, 148 S.W.3d 374, 381
(Tex.2004). A plaintiff moving for a traditional summary judgment must conclusively prove all
essential elements of its claim. See Rhone–Poulenc, Inc. v. Steel, 997 S.W.2d 217, 223 (Tex.1999).

A defendant may prevail by traditional summary judgment if it conclusively negates at least one
essential element of a plaintiff's cause of action. See IHS Cedars Treatment Ctr. of DeSoto, Tex.,
Inc. v. Mason, 143 S.W.3d 794, 798 (Tex.2004). A movant seeking traditional summary judgment
on an affirmative defense has the initial burden of establishing entitlement to judgment as a matter
of law by conclusively establishing each element of his affirmative defense. See Chau v. Riddle,
254 S.W.3d 453, 455 (Tex.2008); see also Tex.R. Civ. P. 166a(b)-(c). A matter is conclusively
established if reasonable people could not differ as to the conclusion to be drawn from the evidence.
See City of Keller v. Wilson, 168 S.W.3d 802, 816 (Tex.2005).

If the movant meets its burden, the burden then shifts to the nonmovant to raise a genuine issue of
material fact precluding summary judgment. See Centeq Realty, Inc. v. Siegler, 899 S.W.2d 195,
197 (Tex.1995). The evidence raises a genuine issue of fact if reasonable and fair-minded jurors
could differ in their conclusions in light of all of the summary-judgment evidence. Goodyear Tire
& Rubber Co. v. Mayes, 236 S.W.3d 754, 755 (Tex.2007).


             © 2015 Thomson Reuters. No claim to original U.S. Government Works.                   4
Farmers Ins. Exchange v. Rodriguez, 366 S.W.3d 216 (2012)




On appeal, we review de novo a trial court's summary judgment ruling. See Mann Frankfort Stein
& Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex.2009). In our review, we consider
all the evidence in the light most favorable to the nonmovant, crediting evidence favorable to
the nonmovant if reasonable jurors could, and disregarding contrary evidence unless reasonable
jurors could not. See Mack Trucks, Inc. v. Tamez, 206 S.W.3d 572, 582 (Tex.2006). When, as
here, the parties file competing motions for summary judgment and the trial court grants one
motion and denies the other, this court should review both parties' summary-judgment evidence
and determine all questions presented. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661
(Tex.2005); English v. B.G.P. Int'l, Inc., 174 S.W.3d 366, 370 (Tex.App.-Houston [14th Dist.]
2005, no pet.).


Subject-matter jurisdiction.
 [1] [2] [3] The absence of subject-matter jurisdiction may be raised by a plea to the *222
jurisdiction or another procedural vehicle such as a motion for summary judgment. Bland Indep.
Sch. Dist. v. Blue, 34 S.W.3d 547, 554 (Tex.2000). 4 When a plea to the jurisdiction challenges
jurisdictional facts, as here, we consider the evidence submitted by the parties. Stinson v. Ins. Co.
of Penn., 286 S.W.3d 77, 83 (Tex.App.-Houston [14th Dist.] 2009, pet. denied). The standard of
review for a jurisdictional plea based on evidence generally mirrors that of a traditional motion
for summary judgment. Id.


Declaratory judgment.
 [4] [5] In reviewing a declaratory judgment, we refer to the procedure for resolution of the issue
at trial to determine the applicable standard of review on appeal. Tex. Civ. Prac. & Rem.Code
§ 37.010; English, 174 S.W.3d at 370; see also Gen. Agents Ins. Co. of Am. v. El Naggar, 340
S.W.3d 552, 557 (Tex.App.-Houston [14th Dist.] 2011, pet. denied). Here, because the trial court
implicitly resolved the declaratory judgment issues by ruling on motions for summary judgment,
we review the propriety of the trial court's grant of the declaratory judgments under the same
standards applicable for review of summary judgments. English, 174 S.W.3d at 370. Therefore, we
must determine whether the trial court properly granted Rodriguez's declaratory judgment requests
and, if not, enter the judgment which should have been entered by the trial court. Id.



                                Jurisdiction over Claim against Farmers

 [6] In its third issue, Fanners contends Rodriguez lacked standing to sue Farmers and Rodriguez's
claim against Farmers was not ripe, depriving the trial court of subject-matter jurisdiction. We
agree with Farmers that Rodriguez's claim was not ripe. 5


             © 2015 Thomson Reuters. No claim to original U.S. Government Works.                   5
Farmers Ins. Exchange v. Rodriguez, 366 S.W.3d 216 (2012)




 [7] [8] [9] [10] [11] Ripeness is a threshold issue that implicates subject-matter jurisdiction.
Robinson v. Parker, 353 S.W.3d 753, 755 (Tex.2011). In evaluating ripeness, courts consider
“whether, at the time a lawsuit is filed, the facts are sufficiently developed ‘so that an injury has
occurred or is likely to occur, rather than being contingent or remote.’ ” Id. (emphasis in orig.)
(citation omitted). Although a claim is not required to be ripe at the time of filing, if a party cannot
demonstrate a reasonable likelihood that the claim will soon ripen, the case must be dismissed. Id.
A case is not ripe when resolution depends on contingent or hypothetical facts, or upon events that
have not yet come to pass. Id. at 756 (citing Waco Indep. Sch. Dist. v. Gibson, 22 S.W.3d 849, 852
(Tex.2000)). “[T]he essence of the ripeness doctrine is to avoid premature adjudication ... [and] to
hold otherwise would be the essence of an advisory opinion, advising what the law would be on
a hypothetical set of facts.” Id. (citing Patterson v. Planned Parenthood of Houston and Se. Tex.,
971 S.W.2d 439, 444 (Tex.1998)) (second alteration in original).

*223 [12]       [13] A tort claimant has no direct claim against the tortfeasor's liability insurer until
the insured tortfeasor is adjudged liable to the tort claimant. 6 Angus Chem. Co. v. IMC Fertilizer,
Inc., 939 S.W.2d 138, 138 (Tex.1997) (per curiam); State Farm Cnty. Mut. Ins. Co. of Tex. v. Ollis,
768 S.W.2d 722, 723 (Tex.1989) (per curiam); Great Am. Ins. Co. v. Murray, 437 S.W.2d 264,
265 (Tex.1969). A party injured by the insured is a third-party beneficiary of a liability insurance
policy, but he cannot enforce the policy directly against the insurer until it has been established,
by final judgment or agreement, that the insured has a legal obligation to pay damages to the
injured party. Ollis, 768 S.W.2d at 723. It is undisputed that when the trial court granted Rodriguez
summary judgment against Farmers, Woodling's obligation to pay damages to Rodriguez had not
been established by final judgment or by agreement. Therefore, Rodriguez's claim against Farmer's
was not ripe when the trial court granted summary judgment. See Certain Underwriters at Lloyds,
London v. Four J's Cmty. Living Ctr., Inc., No. H–11–0713, 2011 WL 6026689, at *1–2 (S.D.Tex.
Dec. 2, 2011) (holding that, under Texas law, tort plaintiff did not yet have claim under tort
defendant's insurance policy because final judgment had not yet been rendered upon jury verdict
in plaintiff's favor); Robinson, 353 S.W.3d at 755–56 (holding that declaratory-judgment claims
were not yet ripe because there was no showing that claimants had suffered a concrete injury);
Gibson, 22 S.W.3d at 853 (noting that to allow premature adjudication of contingent situations
would “eschew the ripeness doctrine” and “create an impermissible advisory opinion.”).

Though a claim is not required to be ripe at the time of filing, if a party cannot demonstrate a
reasonable likelihood that the claim will soon ripen, the case must be dismissed. See Robinson,
353 S.W.3d at 755. The record does not reflect any agreement establishing Woodling's obligation
to pay Rodriguez damages. 7 Therefore, Rodriguez cannot demonstrate a reasonable likelihood
that his claims against Farmers will soon ripen in the case under review, and these claims must be
dismissed for lack of subject-matter jurisdiction. See id.



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Farmers Ins. Exchange v. Rodriguez, 366 S.W.3d 216 (2012)



In Firemen's Insurance Co. v. Burch, the Supreme Court of Texas held that there can be no
justiciable controversy regarding the insurer's duty to indemnify before a judgment has been
rendered against an insured. 442 S.W.2d 331, 332–34 (Tex.1968). The supreme court has
recognized a limited exception to this rule that applies “when the insurer has no duty to defend
and the same reasons that negate the duty to defend likewise negate any possibility the insurer
will ever have a duty to indemnify.” Farmers Tex. Cnty. Mut. Ins. Co. v. Griffin, 955 S.W.2d 81,
84 (Tex.1997) (emphasis in original); see also D.R. Horton–Tex., Ltd. v. Markel Int'l Ins. Co., 300
S.W.3d 740, 744 (Tex.2009).

Rodriguez sued Farmers seeking payment based on Farmers' purported duty to indemnify
Woodling. While generally acknowledging that a third party may not *224 sue an insurance
company for payment under its policy without a judgment against the insured, Rodriguez argues
the exception recognized in Griffin should be applied here because “undisputed facts pertaining
to the duty to indemnify ... were included in the summary judgment record [and] are consistent
with the factual record at trial and the fact-finder's disposition of the personal injury lawsuit.” We
find no merit in this argument.

 [14] [15] [16] The holding in Griffin pertained to an underlying tort suit for injuries sustained in
a drive-by shooting. D.R Horton–Tex., Ltd., 300 S.W.3d at 744–45 (citing Griffin, 955 S.W.2d at
84). The policy in that case excluded coverage for intentional torts. Griffin, 955 S.W.2d at 83. The
Griffin court thus concluded no “conceivable set of facts” could be developed in the underlying
case that would transform the intentional shooting into an auto accident covered by the policy.
D.R. Horton–Tex., Ltd., 300 S.W.3d at 745. The court held that the duty to indemnify may be
adjudicated before judgment is entered on the claim against the insured, when the facts negate both
the duty to defend and the duty to indemnify. 8 Griffin, 955 S.W.2d at 84. Here, the duty to defend
is not at issue. 9 More importantly, even though the parties do not dispute the underlying accident
facts, the jury was required to decide and apportion liability before judgment could be entered.
Thus, when the lawsuit was filed, coverage of Rodriguez's injury under the Farmers policy was
contingent on the jury's future liability finding, if any, including apportionment between Woodling
and Rodriguez. The Griffin exception is inapplicable. See D.R. Horton–Tex., Ltd., 300 S.W.3d at
743–45 (distinguishing Griffin ); Burlington Northern and Santa Fe Ry. Co. v. Nat'l Union Fire
Ins. Co. of Pittsburgh, PA., 334 S.W.3d 217, 219–20 (Tex.2011) (same). We hold that Rodriguez's
claims against Farmers were not ripe and that the trial court lacked jurisdiction to grant summary
judgment against Farmers declaring coverage under the Farmers policy. The trial court erred in
denying Farmers' plea to the jurisdiction, and the proper remedy is to reverse the trial court's
judgment as to Rodriguez's claims against Farmers and render judgment dismissing these claims
for lack of subject matter jurisdiction.

We sustain Farmers' third issue.



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Farmers Ins. Exchange v. Rodriguez, 366 S.W.3d 216 (2012)




                        Coverage of Rodriguez's Injury by the Allstate Policy

 [17] In two issues, Allstate argues the trial court erred by denying its summary judgment motion
against Rodriguez, granting summary judgment in favor of Rodriguez, and declaring that UIM
language in his automobile policy provide coverage for his injury. In reference to the “use”
exclusion, Allstate contends that “loading and unloading” a trailer is not use as contemplated under
the Allstate policy, and even if it were, there is no coverage because Rodriguez's injury did not
“arise out of” the use of the trailer. We are not persuaded by these arguments.

The Allstate policy specifies that liability of the owner of an uninsured or underinsured vehicle
“must arise out of the ownership, *225 maintenance, or use of the uninsured motor vehicle.” 10
(Emphasis added.) The term “use” is not defined in the policy. Allstate urges us to hold that
“loading and unloading” is excluded because the “use” clause omits these activities as a matter
of law. We decline to do so.

 [18] [19] Automobile insurers in Texas are required to provide UIM coverage in all policies.
The quoted language from the Allstate policy mirrors statutory requirements. See Tex. Ins.Code
§ 1952.101(a). The purpose of UIM coverage is to protect conscientious drivers from financial
loss caused by irresponsible parties, and courts liberally construe the UIM statutes. Tex. Farm
Bureau Mut. Ins. Co. v. Sturrock, 146 S.W.3d 123, 128 (Tex.2004); Stracener v. United Servs.
Auto. Ass'n, 777 S.W.2d 378, 382 (Tex.1989). Texas state and federal courts applying Texas law
have concluded that automobile liability policies may cover loading and unloading of a vehicle
even when those terms are not specifically included in the policy. See, e.g., EMCASCO Ins. Co.
v. Am. Int'l Specialty Lines Ins. Co., 438 F.3d 519, 525 (5th Cir.2006); Panhandle Steel Prods.
Co. v. Fidelity Union Cas. Co., 23 S.W.2d 799, 801 (Tex.Civ.App.-Fort Worth 1929, no writ)
(holding injury of passerby that occurred after iron beam was unloaded from truck and was being
carried across sidewalk was result of use of truck). The parties have not cited, and research has
not revealed, any Texas cases construing UIM policies that have held the term “use” without a
“loading and unloading” clause excludes coverage for loading and unloading.

 [20] Allstate cites Liberty Mutual Insurance Co. v. American Employers Insurance Co., 556
S.W.2d 242 (Tex.1977) for the proposition that the inclusion of a “loading and unloading”
endorsement in an insurance policy expands coverage from the coverage afforded by the phrase
“ownership, maintenance, or use.” Id. at 244. But the court in Liberty Mutual did not construe UIM
coverage or the “ownership, maintenance, or use” clause. 11 It analyzed whether injured workers
were “borrowers” of the automobile to determine if they were insured persons under the policy. 12
Id. Liberty Mutual does not hold that the “use” of a vehicle may never include “loading and
unloading” merely because the policy does not include those terms. See id. Moreover, the intent to


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Farmers Ins. Exchange v. Rodriguez, 366 S.W.3d 216 (2012)



exclude coverage must be expressed in clear and unambiguous *226 language. Nat'l Union Fire
Ins. Co. of Pittsburgh, Pa. v. Hudson Energy Co., 811 S.W.2d 552, 555 (Tex.1991). If Allstate
intended to exclude loading and unloading from the scope of coverage, then it was incumbent
upon it to expressly and clearly state the exclusion in the policy. See Nat'l Auto. & Cas. Ins. Co. v.
Glens Falls Ins. Co., 493 S.W.2d 909, 911–12 (Tex.Civ.App.-Tyler 1973, no writ) (holding clause
expressly excluding “loading and unloading” of vehicle was effective). Having failed to do so,
Allstate may not now complain. 13 See Nat'l Union Fire Ins. Co., 811 S.W.2d at 555.

 [21] [22] [23] Allstate further argues that Rodriguez's injuries did not “arise out of” any use
of the trailer. We disagree. Texas courts broadly define “use” of a motor vehicle in the context of
insurance policies. Mid–Continent Cas. Co. v. Global Enercom Mgmt., Inc., 323 S.W.3d 151, 156
(Tex.2010). It is a “general catchall ..., designed and construed to include all proper uses of the
vehicle.” Lyons v. State Farm Lloyds & Nat'l Cas. Co., 41 S.W.3d 201, 205 (Tex.App.-Houston
[14th Dist.] 2001, pet. denied) (citing State Farm Mut. Auto. Ins. Co. v. Pan Am. Ins. Co., 437
S.W.2d 542, 545 (Tex.1969)). “Use” means “to put into action or service; to employ for or apply to
a given purpose.” Id. (citing LeLeaux v. Hamshire–Fannett I.S.D., 835 S.W.2d 49, 51 (Tex.1992)).
In Mid–Century Ins. Co. of Tex. v. Lindsey, 997 S.W.2d 153 (Tex.1999), the court employed the
following factors suggested in two insurance treatises 14 to help determine when a motor vehicle
has been in “use” under a similar UIM insuring provision:


  For an injury to fall within the “use” coverage of an automobile policy (1) the accident must
  have arisen out of the inherent nature of the automobile, as such; (2) the accident must have
  arisen within the natural territorial limits of an automobile, and the actual use must not have
  terminated; (3) the automobile must not merely contribute to cause the condition which produces
  the injury, but must itself produce the injury. 15
Id. at 157. 16

Using the factors elucidated in Lindsey as a framework, and taking into consideration the broad
definition of “use” recognized in Texas jurisprudence, we conclude that Rodriguez's injury resulted
from use of the trailer as a matter of law.

 *227 Inherent nature. It is in the inherent nature of a trailer that it will be used to haul and tow
materials. Cf. Mid–Continent Cas. Co., 323 S.W.3d at 155 (“[I]t is in the inherent nature of a 2000
Ford F–250 Super Duty pickup truck on a cell tower job site that it will be used to haul and tow
materials.”); Panhandle Steel Prods. Co., 23 S.W.2d at 801 (holding, when delivery of material
was main purpose of haul, “loading and unloading were as necessary to accomplish that purpose
as was the driving of the truck from plaintiff's place of business to the point of delivery”). That
process includes not only the immediate action of loading and unloading materials from the trailer



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Farmers Ins. Exchange v. Rodriguez, 366 S.W.3d 216 (2012)



but also moving them from their starting point to their destination. 17 See Liberty Mut. Ins. Co.,
556 S.W.2d at 244; Travelers Ins. Co. v. Emp'r's Cas. Co., 380 S.W.2d 610, 612 (Tex.1964);
Panhandle Steel Prods. Co., 23 S.W.2d at 801. Using a trailer in this manner is “not an unexpected
or unnatural use of the vehicle.” See Mid–Continent Cas. Co., 323 S.W.3d at 155 (citing Lindsey,
997 S.W.2d at 158); Commercial Standard Ins. Co., 455 S.W.2d at 717.

Natural territorial limits. The accident was within the “natural territorial limits” of the trailer,
even though Woodling and Rodriguez had taken a few steps out of the trailer. In Mid–Continent
Casualty Company and Lindsey, this factor was satisfied even though both accidents occurred
outside the insured vehicles. See Mid–Continent Cas. Co., 323 S.W.3d at 155 (holding injuries
sustained when rope that was anchored on one end to the truck broke arose from use of truck);
Lindsey, 997 S.W.2d at 160 (holding injury arose out of use of truck when child entered through
sliding rear window and accidentally discharged loaded shotgun mounted over rear window,
injuring person in nearby vehicle, because child did not stray from purpose of entering truck by
playing with gun or trying to shoot it).

 [24] [25] The Supreme Court has adopted the complete operation doctrine, which defines the
terms “loading and unloading” in the context of an insurance policy. “ ‘[L]oading and unloading’
embraces not only the immediate transference of the goods to or from the vehicle, but also the
complete operation of transporting the goods between the vehicle and the place from or to which
they are being delivered.” Liberty Mut. Ins. Co., 556 S.W.2d at 244; Travelers Ins. Co., 380
S.W.2d at 612. 18 Any activities involved in moving the goods to their final physical destination
are themselves included in the term “unloading” and thus qualify as a use of the vehicle for
insurance purposes. See Travelers Ins. Co., 380 S.W.2d at 613–14. The court noted, “[w]hen a
vehicle is being unloaded it is being used to the same extent as if it were being driven, and the
person doing the unloading is entitled to the same protection as the owner or operator.” Id. at
614; see also Commercial *228 Standard Ins. Co. v. Am. Gen. Ins. Co., 455 S.W.2d 714, 716–17
(Tex.1970) (quoting Travelers Ins. Co.). We conclude under these circumstances that Woodling
and Rodriguez were using the trailer when the accident occurred.

 [26] Cause. The third factor is whether the vehicle produced the injury. Lindsey, 997 S.W.2d at
157. The Supreme Court of Texas has stated that the causation inquiry in this context involves
“but for” causation. Mid–Continent Cas. Co., 323 S.W.3d at 156. A but for cause is “one without
which the event would not have occurred.” Transcon. Ins. Co. v. Crump, 330 S.W.3d 211, 223
(Tex.2010).

Rodriguez's accident would not have occurred if Rodriguez had not been assisting Woodling in
unloading the deer stand from the trailer. See Mid–Continent Cas. Co., 323 S.W.3d at 156 (holding
rope would not have broken causing injuries if truck had not been used to hoist headache ball).
The accident did not merely happen near the trailer: Woodling and Rodriguez could not have


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Farmers Ins. Exchange v. Rodriguez, 366 S.W.3d 216 (2012)



accomplished the same result without the presence of the trailer, and, as we have noted, the use of
a trailer includes unloading materials. See id.; Panhandle Steel Prods. Co., 23 S.W.2d at 802. 19
The trial court properly found the “use” clause in Allstate's policy covered Rodriguez's injury.

This case is not controlled by the cases cited by Allstate in support of its argument that the accident
was not caused by the use of a trailer as such. The cases cited by Allstate regarding UIM policies
involved intentional shootings from one vehicle into another that were held to be incidental to the
use of the vehicles. See, e.g., State Farm Mut. Auto. Ins. Co. v. Whitehead, 988 S.W.2d 744, 745
(Tex.1999); Collier v. Emp'rs Nat'l Ins. Co., 861 S.W.2d 286, 289 (Tex.App.-Houston [14th Dist.]
1993, writ denied). Here, as we have held, Rodriguez was injured while he was unloading the
trailer—which was a proper use—so his injury was not merely incidental to the use of the trailer.

 [27] [28] National Union Fire Insurance Co. v. Merchants Fast Motor Lines, Inc., 939 S.W.2d
139 (Tex.1997) involved a duty to defend. An insurer's duty to defend is determined from the four
corners of the pleadings and the language of the insurance policy. Id. at 141. In such cases, if the
petition does not allege facts within the scope of coverage, the insurer is not required to defend a
suit against its insured. Id. The petition in National Union alleged only that a driver was operating
the insured's truck when he negligently discharged a firearm injuring the plaintiff. Id. at 142. The
insurance policy only covered claims where the injury was caused by an accident resulting from
the use of a covered auto. Id. Accordingly, the allegations did not give rise to a duty to defend by
the insurer. Id.; see also Mid–Continent Cas. Co., 323 S.W.3d at 156. Here, we are not dealing
with the duty to defend; thus, the same pleading standard does not apply. 20

 *229 [29] The other two cases cited by Allstate were not insurance coverage cases, but instead
involved claims under the Texas Torts Claims Act (TTCA). The TTCA waives governmental
immunity for “property damage, personal injury, or death aris[ing] from the operation or use
of a motor driven vehicle.” 21 LeLeaux, 835 S.W.2d at 51 (citing Tex. Civ. Prac. & Rem.Code
§ 101.021(1)(A)). The required “operation or use” under the TTCA is by the governmental
employee. Id. LeLeaux involved a school bus that was not in operation when a student jumped up
from where she had been sitting in the open rear doorway of the empty school bus and hit her head
on the door frame. 835 S.W.2d at 51. The court held that the injury did not arise from the use of the
bus because the driver was not aboard when the injury occurred—in other words, the injury did
not arise from the school district's or its driver's operation or use of the bus—and immunity was
not waived. Id. at 52. Brown v. Houston Independent School District, 123 S.W.3d 618 (Tex.App.-
Houston [14th Dist.] 2003, pet. denied), involved an officer who pulled over a woman in his patrol
car and sexually assaulted her in her own vehicle. Id. at 619. Thus, the assault did not occur in
the patrol car, but in a vehicle which was not operated by the officer. Id. at 622; see also Mid–
Continent Cas. Co., 323 S.W.3d at 156. Here, by contrast, the use of the vehicle covered by the
Allstate policy was not similarly limited to a particular user. Moreover, Rodriguez's injury arose



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Farmers Ins. Exchange v. Rodriguez, 366 S.W.3d 216 (2012)



from using the trailer as a trailer while he was unloading it. See Mid–Continent Cas. Co., 323
S.W.3d at 155; Lindsey, 997 S.W.2d at 160.

We hold that the trial court did not err by rendering summary judgment against Allstate in favor of
Rodriguez and by declaring that Woodling's liability arose from the use of the trailer. We overrule
Allstate's first and second issues.



                                                              Conclusion

We hold that Rodriguez's claims against Farmers were not ripe and thus the trial court did not have
jurisdiction to enter a judgment against Farmers. Therefore, as to the claims against Farmers, we
reverse the trial court's judgment and render judgment that these claims be dismissed for lack of
subject-matter jurisdiction.

We further hold that the trial court did not err by entering summary judgment and declaratory
judgment in favor of Rodriguez against Allstate. We affirm that portion of the declaratory
judgment finding Woodling's liability arose from “use” of the trailer and finding coverage over
Rodriguez's injury under the Allstate policy.



Footnotes
1    Woodling is not a party to this appeal.

2    A come-along is a tool used for moving heavy loads or for tightening wire. COLLINS ENGLISH DICTIONARY (2003 ed.).

3    The record does not show whether the trial court ruled on that motion.

4    Thus, it was appropriate for Farmers to assert in its summary-judgment motion that the trial court lacked subject-matter jurisdiction.
        See Blue, 34 S.W.3d at 554. Farmers subsequently filed a plea to the jurisdiction on the same jurisdictional grounds.
5       Accordingly, we do not reach the other issues presented by Farmers regarding whether Rodriguez's injury was covered by the Farmers
        policy, whether Rodriguez filed an impermissible direct action against Farmers without first satisfying conditions precedent in the
        policy, or whether Rodriguez had standing to bring his claim against Farmers. We likewise do not reach two of Allstate's issues
        asserting that Rodriguez's injuries are covered under the Farmers policy (issues three and four).
6       This principle applies where the insurance policy contains a so-called “no action” provision. See Struna v. Concord Ins. Servs., Inc.,
        11 S.W.3d 355, 359 (Tex.App.-Houston [1st Dist.] 2000, no pet.). Section I, ¶ 11 of the Farmers policy is a “no action” provision.
7       Rodriguez cannot obtain a final judgment against Woodling until Rodriguez's claim against Farmers is adjudicated because Farmers
        and Woodling are both parties. But Rodriguez's claim is not ripe and cannot be adjudicated until after Rodriguez obtains a final
        judgment against Woodling.
8       The duty to indemnify requires payment of all covered claims and judgments against an insured, whereas the duty to defend requires
        tender of a defense in any lawsuit brought against the insured that seeks damages for an event potentially covered by the policy. D.R.
        Horton–Tex., Ltd., 300 S.W.3d at 743. An insurer's duty to defend is justiciable before the entry of judgment on a claim against the
        insured. See English, 174 S.W.3d at 371.
9       Rodriguez's injury, moreover, did not arise from an intentional tort.

10      The policy defines “uninsured motor vehicle” to include underinsured motor vehicles.

11      The commercial policy in Liberty Mutual included “loading and unloading.”




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Farmers Ins. Exchange v. Rodriguez, 366 S.W.3d 216 (2012)



12    Liberty Mutual involved competing automobile and general liability policies. Id. at 243. The automobile policy excluded
      nonemployees of the insured unless they were “borrowers” of vehicles owned by the insured. Id. A “borrower” was defined by the
      court as “someone who has, with permission of the owner, temporary possession and use of the property of another for his own
      purposes.” Id. at 244. Before the addition of the loading and unloading endorsement to the standard automobile liability policy, neither
      the automobile policy nor the standard liability policy defined which insurer had liability coverage for injuries sustained upon the
      premises of one who was insured under a general liability policy during the loading and unloading of a vehicle not owned or hired
      by the general liability insured. Id. The court concluded the policy exclusion for persons who were unloaders but not “borrowers”
      of the vehicle was intended to limit the insurer's liability for injuries of nonemployees who were not borrowers of the vehicle. Id. at
      245. By contrast, the Allstate policy covers injuries to Rodriguez caused by the owner or operator of an uninsured or underinsured
      motor vehicle, including “trailer[s] of any type.” It does not expressly limit Allstate's liability based on whether an injured party is
      a “borrower” of a vehicle.
13    Allstate also cites an unreported federal district court's opinion that held a “use” clause (without “loading and unloading” language)
      would not cover injuries sustained by a patient who travelled in an ambulance to the hospital. See St. Paul Fire & Marine Ins. Co. v.
      Am. Int'l Surplus Lines Ins. Co., No. 3:95–CV–0790–D, 1997 WL 160192, at *3–4 (N.D.Tex. Mar. 31, 1997). The court held that “the
      acts of providing emergency medical care and of carrying a person from some location to an ambulance are ... a necessary incident to
      the operation of an ambulance service, but are not fairly described as the use of an ambulance.” Id. at *3. The inclusion of a loading
      and unloading clause would not alter the court's reasoning or result.
14    See 6B JOHN A. APPLEMAN, INSURANCE LAW AND PRACTICE § 4317, at 367–69 (Buckley ed. 1979); 8A COUCH ON
      INSURANCE 3d § 119:37, at 119–56 (2005).
15    The Lindsey court noted this is not an “absolute test,” but the factors are helpful in focusing the analysis. 997 S.W.2d at 157–58; see
      also Mid–Continent Cas. Co., 323 S.W.3d at 155 n. 4. The test is only a conceptual framework to analyze the inclusion or exclusion
      at issue. Mid–Continent Cas. Co., 323 S.W.3d at 155 n. 4
16    The court acknowledged that the third factor may be difficult to define because it is not always clear how the vehicle, as opposed to
      other things, contributed to an accident. Lindsey, 997 S.W.2d at 157; see also Mid–Continent Cas. Co., 323 S.W.3d at 156.
17    Here, the parties do not dispute that the deer stand did not reach its final destination.

18    The cited cases that apply the complete operation doctrine involved third party claims arising from liability provisions of standard
      automobile insurance policies, whereas this case involves a liability claim arising under a UIM provision. Liberty Mutual and
      Travelers Insurance Company, however, both construe language in standard automobile policies that is identical to the language
      in the Allstate UIM provision providing coverage for injuries “aris[ing] out of the ownership, maintenance, or use” of the insured
      vehicle. See Liberty Mut. Ins. Co., 556 S.W.2d at 243 n. 1; Travelers Ins. Co., 380 S.W.2d at 612. The UIM policy, moreover,
      expressly covers as an “[u]ninsured motor vehicle” “a land motor vehicle or trailer of any type.” (Emphasis added.) Thus, the same
      principles apply here.
19    [S]ince the act of unloading was one of the natural and necessary steps to the undertaking to deliver the [truck's contents], and followed
      in natural sequence the use of the truck to that end, which use was specifically contemplated and covered by the policy, we believe
      that the conclusion is unavoidable that the use of the truck was the primary and efficient cause of the injury, even though it should
      not be held to be the proximate cause.
         Panhandle Steel Prods. Co., 23 S.W.2d at 802.
20    Lindsey, by contrast to National Union, was not a duty-to-defend case, but involved an action to recover UIM benefits, as in this
      case. See 997 S.W.2d at 154. Thus, the allegations in the petition were not at issue. The plaintiff proved the vehicle was in use at
      the time of the accident because the child's “sole purpose was to gain entry into the truck” through the back window and he did not
      stray from that purpose. Lindsey, 997 S.W.2d at 158. He did not play with the gun or try to shoot it. Id.; see also Mid–Continent
      Cas. Co., 323 S.W.3d at 154–55.
21    Waivers of sovereign immunity must be construed narrowly. LeLeaux, 835 S.W.2d at 51.


End of Document                                                           © 2015 Thomson Reuters. No claim to original U.S. Government Works.




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Farmers Ins. Exchange v. Rodriguez, 366 S.W.3d 216



   History (1)

   Direct History (1)
       1. Farmers Ins. Exchange v. Rodriguez
    366 S.W.3d 216 , Tex.App.-Hous. (14 Dist.) , Feb. 16, 2012 , rehearing overruled
    ( May 09, 2012 ) , review denied ( Apr 19, 2013 )




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Federal Deposit Ins. Corp. v. Lenk, 361 S.W.3d 602 (2012)
77 UCC Rep.Serv.2d 50, 55 Tex. Sup. Ct. J. 409




                                              361 S.W.3d 602
                                          Supreme Court of Texas.

 FEDERAL DEPOSIT INSURANCE CORP. as Receiver for Guaranty Bank, Petitioner,
                                          v.
 Christa C. LENK, Administrator of the Estate of John Albert Thompson, Respondent.

                                     No. 08–0908.           |   March 9, 2012.

Synopsis
Background: Administrator of intestate account holder's estate brought action against bank
for breach of deposit agreement after bank, which had closed account after imposter who had
presented false letters of administration to bank gained access to account and depleted funds. The
Probate Court No. 1, Bexar County, Polly Jackson Spencer, J., denied administrator's motion for
partial summary judgment and granted bank's motion. Administrator appealed. The San Antonio
Court of Appeals, 360 S.W.3d 511, reversed in favor of administrator. Review was granted.



Holdings: The Supreme Court, Guzman, J., held that:

[1] bank breached deposit agreement when it refused administrator's demand for payment of funds
in account;

[2] statute requiring bank to provide account statements to account holder did not authorize bank to
provide statements to imposter who presented false letters of administration upon account holder's
death;

[3] sixty-day contractual statute of repose on claim for breach of deposit agreement began to run
when administrator was appointed and account statements were made available to administrator;

[4] order denying administrator's motion for partial summary judgment was final, appealable order;
and

[5] administrator failed to preserve for appellate review cross-petition for attorney fees.


Affirmed.

Hecht, J., filed dissenting opinion in which Green, J., joined.


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Federal Deposit Ins. Corp. v. Lenk, 361 S.W.3d 602 (2012)
77 UCC Rep.Serv.2d 50, 55 Tex. Sup. Ct. J. 409



See also, 323 S.W.3d 199.


Attorneys and Law Firms

*604 Michael L. Dinnin, Tricia Robinson DeLeon, Bracewell & Giuliani LLP, Dallas, TX, J.
Brett Busby, Bracewell & Giuliani, LLP, Houston, TX, for Federal Deposit Insurance Corporation.

Don Krause, Bayne Snell & Krause, S. Mark Murray, S. Mark Murray, Inc., San Antonio, TX,
for Christa C. Lenk.

Karen Sue Neeley, Cox Smith Matthews Incorporated, Austin, TX, for Amicus Curiae
Independent Bankers Association of Texas.

B. Scott Daugherty, Texas Bankers Association, Austin, TX, for Amicus Curiae The Texas
Bankers Association.

Ellen B. Mitchell, Cox Smith Matthews Inc., San Antonio, TX, for Amicus Curiae Jefferson State
Bank.

Opinion

Justice GUZMAN delivered the opinion of the Court, in which Chief Justice JEFFERSON,
Justice WAINWRIGHT, Justice MEDINA, Justice JOHNSON, Justice WILLETT, and Justice
LEHRMANN joined.

When a party fails to preserve error in the trial court or waives an argument on appeal, an appellate
court may not consider the unpreserved or waived issue. In this suit for an alleged breach of a
deposit agreement, we review a court of appeals judgment in favor of an estate administrator, as
well as the estate administrator's cross-petition concerning attorney's fees. Because many of the
arguments raised by the parties invoke issues of error preservation or waiver, we decline to grant
either party the relief it seeks.

 *605 Petitioner Guaranty Bank 1 asks us to review the court of appeals' judgment in favor of
respondent Christa Lenk, and, in a cross-petition, Lenk seeks a remand to the trial court for a
determination of attorney's fees. The facts of this case closely mirror those of Jefferson State
Bank v. Lenk, 323 S.W.3d 146 (Tex.2010). In both cases, bank customers died intestate. Shortly
thereafter, Melvyn Spillman, a former Bexar County probate clerk and former employee of the
county medical examiner, presented false letters of administration to both banks and gained
access to both deceased customers' accounts. Spillman subsequently used both accounts to make
several transactions, ultimately withdrawing most of the accounts' funds. 2 Unlike Jefferson State


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Federal Deposit Ins. Corp. v. Lenk, 361 S.W.3d 602 (2012)
77 UCC Rep.Serv.2d 50, 55 Tex. Sup. Ct. J. 409

Bank, Guaranty Bank closed the decedent's account in 2001 when the balance was depleted
due to Spillman's withdrawals and bank service charges. Spillman was eventually arrested for
perpetuating these frauds.

In September 2003, the probate court appointed Lenk administrator of both decedents' estates.
Though aware of Spillman's fraudulent activities when she was appointed, Lenk made no attempt
to recover funds from either bank until June 2005, when she demanded that each bank return the
full amounts withdrawn by Spillman. Both banks refused to comply, and, on June 27, 2005, Lenk
filed identical causes of action against the banks. In each pleading, she claimed the bank breached
the deposit agreement by refusing her payment demand. Lenk also argued that she was entitled to
all sums in each account since the time of the decedent's death. 3

In each suit, the bank and Lenk moved for summary judgment, and the trial court granted each
bank's motion and denied Lenk's. The court of appeals reversed in favor of Lenk in both matters.
See Lenk v. Jefferson State Bank, 323 S.W.3d 199, 203 (Tex.App.-San Antonio 2009), rev'd, 323
S.W.3d 146 (Tex.2010); 360 S.W.3d 511, 514 (Tex.App.–San Antonio 2008). This Court granted
review of Jefferson State Bank's petition and reversed the court of appeals' judgment, holding that
the statute of repose set forth in Texas Business and Commerce Code section 4.406 barred Lenk's
claims because she failed to notify Jefferson State Bank of the unauthorized transactions within
sixty days of her appointment as estate administrator. 4 Jefferson State Bank, 323 S.W.3d at 149–
50.

Because Lenk filed the exact same cause of action against both banks, the only material distinction
between this case and Jefferson State Bank is the theories and *606 defenses asserted by the
banks. The resolution of both appeals, however, turns on this distinction. Jefferson State Bank
raised numerous defenses in the trial court, including the statute of repose under section 4.406, a
theory on which it prevailed in this Court. See id. Conversely, Guaranty Bank chose not to raise a
statute of repose defense in the trial court. Instead, Guaranty Bank decided to argue that (1) it did
not breach the deposit agreement because Thompson's account was closed when Lenk filed her
suit, and (2) it did not substantially cause Lenk's injuries.

In this Court, Guaranty Bank's arguments relate solely to its central contention that it did not breach
the account agreement. Specifically, Guaranty Bank claims that it did not breach the agreement
because (1) the account was closed prior to Lenk's payment demand, (2) Lenk acquiesced in
Spillman's unauthorized withdrawals by waiting almost two years after her appointment to dispute
them, and (3) the bank was entitled to rely on Spillman's forged letters of administration. Guaranty
Bank also argues that the court of appeals improperly reviewed the denial of Lenk's motion for
partial summary judgment. In a cross-petition, Lenk contends we should remand the case to the
trial court for a determination of attorney's fees. Because we conclude Guaranty Bank breached the
deposit agreement, but failed to raise any affirmative defenses compelling a judgment in its favor,


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Federal Deposit Ins. Corp. v. Lenk, 361 S.W.3d 602 (2012)
77 UCC Rep.Serv.2d 50, 55 Tex. Sup. Ct. J. 409

we affirm the court of appeals' judgment. We additionally deny Lenk's cross-petition because Lenk
failed to properly raise the issue of attorney's fees in the court of appeals.



                                         I. Accrual of Breach Action

 [1] Guaranty Bank argues it did not breach the deposit agreement when Lenk demanded payment
in 2005 because the agreement terminated when the account was closed in 2001. Guaranty Bank
further asserts that any cause of action for a breach of the deposit agreement would have accrued in
2000 and early 2001 when the bank denied liability by providing statements to Spillman. Guaranty
Bank maintains that Lenk filed a demand-based claim simply as a way to evade the applicable
statutes of limitations or repose, which would have barred alternative claims, such as a wrongful
payment claim, Lenk chose not to pursue. We disagree.

 [2] [3] It is well-settled that a general deposit, such as that at issue here, creates a debtor-creditor
relationship between a bank and its customer. Sears v. Cont'l Bank & Trust Co., 562 S.W.2d
843, 844 (Tex.1977); Upper Valley Aviation, Inc. v. Mercantile Nat'l Bank, 656 S.W.2d 952, 955
(Tex.App.-Dallas 1983, writ ref'd n.r.e.); Meador v. Rudolph, 218 S.W. 520, 526 (Tex.Civ.App.-
Amarillo 1919, writ dism'd w.o.j.) (describing the “well-recognized principle of law that the
deposit is a debt owing by the bank to the party in whose name the deposit is made”). Given this
relationship, a bank may only pay out money in accordance with a customer's order, and also bears
the burden of demonstrating proper payment. Sears, 562 S.W.2d at 844 (“The bank must justify
its withdrawal from the depositor's account when the depositor proves the balance in his account
and sues the bank for that amount.”); Mesquite State Bank v. Prof'l Inv. Corp., 488 S.W.2d 73,
75 (Tex.1972) (observing that “the burden of proving payment under authority from the depositor
is on the bank” (citing L.G. Balfour Co. v. State Trust & Sav. Bank of Dallas, 120 S.W.2d 477,
479 (Tex.Civ.App.-Waco 1938, no writ))); *607 Peavy–Moore Lumber Co. v. First Nat'l Bank
of Beaumont, 133 Tex. 467, 128 S.W.2d 1158, 1162 (Tex.Comm'n App.1939) (noting that when
a person makes a deposit in the name of another, “the bank becomes the debtor of the person for
whom and in whose name the deposit is made, and the money cannot be withdrawn by him who
made the deposit unless it is proven that he, rather than the person in whose name the deposit was
made, is the true owner”). While a bank's wrongful payment of a general deposit does not breach
the deposit agreement, a bank's refusal to pay such funds to the rightful account holder will. Hodge
v. N. Trust Bank of Tex., N.A., 54 S.W.3d 518, 525–26 (Tex.App.-Eastland 2001, pet. denied).

 [4] Here, the bank refused to pay general deposit funds to the rightful account holder (Lenk), and
so the bank breached the deposit agreement. Even if Lenk could have sued separately for wrongful
payment, she was also entitled to sue for breach when the bank refused her demand for payment.
See id.; see also Upper Valley Aviation, 656 S.W.2d at 955 (observing that a bank deposit creates
a debtor/creditor relationship, and thus a person must sue for breach of the depository contract to


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Federal Deposit Ins. Corp. v. Lenk, 361 S.W.3d 602 (2012)
77 UCC Rep.Serv.2d 50, 55 Tex. Sup. Ct. J. 409

recover the deposit); Canyon Lake Bank v. New Braunfels Utils., 638 S.W.2d 944, 949 (Tex.App.-
Austin 1982, no writ) (discussing demand-based claim); Hinds v. Sw. Sav. Ass'n of Houston,
562 S.W.2d 4, 4–5 (Tex.Civ.App.-Beaumont 1977, writ ref'd n.r.e.) (same); First State Bank of
Seminole v. Shannon, 159 S.W. 398, 401 (Tex.Civ.App.-Amarillo 1913, writ ref'd) (same). Given
the debtor-creditor relationship between a bank and a customer and the corresponding requirement
that the bank must repay any deposits to the customer, see Sears, 562 S.W.2d at 844, a breach
action for such a refusal includes funds that were wrongfully paid out by a bank. A customer, after
all, will always seek the funds that should be on deposit in an account. See Mesquite State Bank,
488 S.W.2d at 75 (“In suits against a bank to recover deposits, the burden of proving payment
under authority from the depositor is on the bank.”). Indeed, Lenk sued for all funds on deposit
since Thompson's death (i.e., those funds wrongfully paid out by the bank), not merely for those
nonexistent funds in the closed account at the time she made her demand. Thus, Lenk's claim for
breach of the deposit agreement fairly encompasses any wrongful payment claim she may have
had. See id.

 [5] Because there was a breach, we must next determine when the breach accrued. “A cause of
action for denial of deposit liability on a deposit contract ... does not accrue until the bank has
denied liability and given notice of the denial [by providing an account statement] to the account
holder.” TEX. FIN.CODE § 34.301(b). Thus, as a general matter, a bank's refusal to pay funds
on a customer's demand commences the accrual of a demand-based cause of action. See Hodge,
54 S.W.3d at 525–26. But, importantly, section 34.301(b) goes on to state: “A bank that provides
an account statement ... to the account holder is considered to have denied liability and given the
notice as to any amount not shown on the statement....” TEX. FIN.CODE § 34.301(b). Guaranty
Bank urges us to hold that any cause of action for breach of the deposit agreement thus accrued
when it denied liability by sending account statements to Spillman in 2000.

Jefferson State Bank precludes this holding. In that case, we unconditionally rejected Jefferson
State Bank's contention that it satisfied its burden of sending or making available statements when
it sent them to the imposter Spillman. Jefferson State Bank, 323 S.W.3d at 149 (concluding that
“sending Spillman the statements could not fulfill the Bank's obligation to *608 provide account
statements ‘to a customer’ ” (citing TEX. BUS. & COM.CODE § 4.406(a))). While Jefferson State
Bank concerned the statute of repose under section 4.406 of the Business and Commerce Code,
the rationale and logic of that opinion apply equally here. As we observed in Jefferson State Bank,
any reliance Jefferson State Bank may have had on Spillman's fraudulent letters of administration
would not have altered the fact that Spillman was not the bank's customer. See id.; see also TEX.
BUS. & COM.CODE § 4.406(a), (f) (precluding a bank customer “from asserting against the bank
[an] unauthorized signature” if the customer does not timely “discover and report the customer's
unauthorized signature” after the bank “sends or makes available to a customer a statement of
account”).




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Federal Deposit Ins. Corp. v. Lenk, 361 S.W.3d 602 (2012)
77 UCC Rep.Serv.2d 50, 55 Tex. Sup. Ct. J. 409

Similarly, a bank may not deny liability by providing account statements to an imposter estate
administrator when section 34.301(b) of the Finance Code specifically provides that a bank must
provide account statements “to the account holder.” TEX. FIN.CODE § 34.301(b). Spillman, an
imposter administrator, was not the account holder. Under Guaranty Bank's reasoning, Lenk's
demand-based cause of action would have accrued when Guaranty Bank began sending statements
to Spillman in 2000, three years before Lenk—the legitimate estate administrator—was even
appointed. In Jefferson State Bank, we held that in the event of a customer's death, a bank satisfies
its section 4.406 burden of making an account statement available by retaining statements at a
bank, but that the customer's burden to report unauthorized signatures does not arise until an estate
representative is appointed. Jefferson State Bank, 323 S.W.3d at 149–50. The same logic should
apply when determining when a bank denies liability in the face of a demand-based claim. We thus
conclude that Guaranty Bank denied liability once Lenk was appointed administrator in 2003. See
id. 5 At that point, Lenk would have had the opportunity to review any statements for the account
prior to its closing and bring a timely demand-based claim.

 [6] Guaranty Bank's speculative argument that Lenk sued for breach of the deposit agreement
in order to circumvent the applicable statute of repose under section 4.406 is also devoid of any
merit. As mentioned previously, Lenk filed the exact same cause of action—on the same day—
in this case as she did in Jefferson State Bank. In Jefferson State Bank, we held that the statute of
repose barred Lenk's claim. Jefferson State Bank, 323 S.W.3d at 150.

 [7] [8] The statute of repose requires a person to report unauthorized transactions to a bank within
one year of account statements being made available. See TEX. BUS. & COM.CODE § 4.406(f).
If a person fails to report the unauthorized transaction, the *609 person is barred from bringing
a claim for payment. See id. The statute of repose demands that a person report unauthorized
transactions as a condition precedent to bringing suit. See, e.g., Am. Airlines Emps. Fed. Credit
Union v. Martin, 29 S.W.3d 86, 95 (Tex.2000) (observing that section 4.406 places a duty on bank
customers to discover and report account irregularities and is similar to a condition precedent);
Nat'l Title Ins. Corp. Agency v. First Union Nat'l Bank, 263 Va. 355, 559 S.E.2d 668, 671 (2002)
(observing that the statute of repose constitutes a condition precedent to a customer's right to file
claims against a bank). Unlike a statute of limitations, the statute of repose is an absolute bar to suit
and “runs from a specific date without regard to the accrual of a cause of action.” Jefferson State
Bank, 323 S.W.3d at 147 n. 2 (emphasis added) (citing Holubec v. Brandenberger, 111 S.W.3d
32, 37 (Tex.2003) and Trinity River Auth. v. URS Consultants, Inc.-Tex., 889 S.W.2d 259, 261
(Tex.1994)); see Sandoe v. Lefta Assocs., 559 A.2d 732, 736 n. 5 (D.C.1989) (stating that “[a]
statute of repose ... establishes an absolute time period within which legal proceedings must be
initiated, regardless of when a cause of action accrues ” (emphasis added)). “A statute of repose
is therefore a substantive definition of rights, rather than a procedural limitation.” Jefferson State
Bank, 323 S.W.3d at 147 n. 2 (quoting Trinity River Auth., 889 S.W.2d at 261). As in Jefferson
State Bank, the repose time period began to run when Lenk was appointed in 2003, regardless of


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Federal Deposit Ins. Corp. v. Lenk, 361 S.W.3d 602 (2012)
77 UCC Rep.Serv.2d 50, 55 Tex. Sup. Ct. J. 409

the accrual date of her cause of action. 6 Lenk had one year from the date of her appointment to
report the unauthorized transactions to the bank, and she failed to do so. See id. at 147.

 [9] [10] [11] But Guaranty Bank failed to raise the statute of repose as an affirmative defense
in the trial court, and, in this Court, the bank expressly disclaims reliance on the statutes of repose
and limitations as independent grounds for summary judgment. It is settled that “[a] court cannot
grant summary judgment on grounds that were not presented.” Johnson v. Brewer & Pritchard,
P.C., 73 S.W.3d 193, 204 (Tex.2002) (citing Sci. Spectrum, Inc. v. Martinez, 941 S.W.2d 910,
912 (Tex.1997)). 7 Moreover, as an affirmative defense, the statute of repose is only available to
parties that properly raise it in the trial court. See TEX.R. CIV. P. 94. “When a defendant moves for
summary judgment based on an affirmative defense, such as the statute of repose, the defendant,
as movant, bears the burden of proving each essential element of that defense.” Ryland Group,
Inc. v. Hood, 924 S.W.2d 120, 121 (Tex.1996) (per curiam); see also Jefferson State Bank, 323
S.W.3d at 148–50 (explaining that, when raised as a defense, the statute of repose begins to run
when an administrator is appointed). Thus, we will not analyze Guaranty Bank's petition in light of
any such defenses. See *610 TEX.R. CIV. P. 166a(c) (“Issues not expressly presented to the trial
court by written motion, answer or other response shall not be considered on appeal as grounds
for reversal.”).

The dissent agrees that under section 34.301(b) of the Finance Code, Lenk's cause of action
began to accrue in 2003. See 361 S.W.3d at 613 (Hecht, J., dissenting) (“Lenk was appointed
the representative of Thompson's estate in September 2003. Under Section 34.301(b), her action
against the bank accrued then, not in June 2005.”). The dissent parts company by believing that
demand-based claims do not exist. Id. at 614 (“The problem with the claim Lenk asserts is not that
it is time-barred; the problem is that under Section 34.301(b), the claim does not exist, and for good
reason.”). This statement either ignores the fact that we have consistently recognized demand-
based claims since 1913, see Shannon, 159 S.W. at 401, or that section 34.301(b) changed only
when those demand-based claims begin to accrue for limitations purposes. Section 34.301(b) limits
when demand-based claims may be brought but it does not eliminate them. Unlike limitations,
repose does not depend on when a cause begins to accrue. Jefferson State Bank, 323 S.W.3d at
147 n. 2. Repose here required Lenk to sue within one year of being appointed administrator in
2003, TEX. BUS. & COM.CODE § 4.406(f); Jefferson State Bank, 323 S.W.3d at 147, rather than
the limitations requirement of suing within four years of being appointed administrator in 2003,
TEX. FIN.CODE § 34.301(b) (defining accrual as when bank denies liability by making account
statements available); TEX. CIV. PRAC. & REM.CODE § 16.051 (establishing residual four-year
limitations period). Because Lenk sued two years after being appointed administrator, limitations
would not bar her claim and is not at issue in this case. TEX. FIN.CODE § 34.301(b); TEX. CIV.
PRAC. & REM.CODE § 16.051. The dissent relies on a statute that is not relevant to Lenk's claim
to attempt to explain that the claim never existed in the first place.



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Federal Deposit Ins. Corp. v. Lenk, 361 S.W.3d 602 (2012)
77 UCC Rep.Serv.2d 50, 55 Tex. Sup. Ct. J. 409

The dissent also believes that our decision “will be significant to the entire financial industry in
Texas” and will result in a windfall to the estate here. 361 S.W.3d at 614 (Hecht, J., dissenting).
Banks have been on notice since at least 1913 that demand-based claims exist. Shannon, 159 S.W.
at 401. And they also have the protection of various defenses. Our decision today gives full effect
to these claims and defenses. Further, there is no evidence in the record identifying the source
of the additional funds and there is certainly no evidence to suggest they came from somewhere
other than the estate.

Lenk's cause of action for breach of the deposit agreement began to accrue when she was appointed
in 2003, and thus was able to access the estate's account statements for the first time. However,
Guaranty Bank did not raise a viable defense that compels judgment in its favor. Accordingly, we
hold that Guaranty Bank breached the deposit agreement and that it raised no defense that negates
its liability.



                                        II. Estoppel by Acquiescence

 [12] Guaranty Bank argues that Lenk acquiesced to any unauthorized withdrawals by failing to
dispute them for nearly two years after her appointment. In doing so, Guaranty Bank relies on
L.G. Balfour Co., a 1938 court of appeals decision. We reject this argument. L.G. Balfour merely
states the statute of repose rule later codified in section 4.406 of the Business and Commerce
Code. Thus, the theory of estoppel by acquiescence is not distinct from the affirmative defense of
section 4.406 which, as previously mentioned, Guaranty *611 Bank did not rely on in the trial
court or at this Court. Compare, e.g., Oak Cliff Bank & Trust Co. v. Aetna Cas. & Sur. Co., 436
S.W.2d 165, 169 (Tex.Civ.App.-Dallas 1969, no writ) (explaining that a bank customer has a duty
to examine bank statements and notify a bank of forged signatures within a reasonable time, or else
the customer “may be said to have acquiesced in the correctness of the statement[s]”), with TEX.
BUS. & COM. CODE § 4.406(c)–(d) (stating that a customer may be precluded from asserting a
claim for unauthorized signature or alteration if a bank proves the customer failed to reasonably
examine a statement and alert the bank of any irregularities).

Even assuming estoppel by acquiescence is a distinct theory, Guaranty Bank did not preserve that
argument in the trial court because it did not raise it as an affirmative defense. 8 See TEX.R. CIV.
P. 94 (requiring parties to plead estoppel, statute of frauds, statute of limitations, waiver, “and any
other matter constituting an avoidance or affirmative defense”). 9 Accordingly, Guaranty Bank
failed to preserve error on its acquiescence argument. See TEX.R. CIV. P. 166a(c).




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Federal Deposit Ins. Corp. v. Lenk, 361 S.W.3d 602 (2012)
77 UCC Rep.Serv.2d 50, 55 Tex. Sup. Ct. J. 409




                           III. Reliance on Forged Letters of Administration

 [13] Guaranty Bank next claims that, under Texas Probate Code section 186, it was entitled to
rely on Spillman's apparently valid letters of administration when it allowed Spillman to access
Thompson's account. In Jefferson State Bank, we did not reach this issue because Lenk's claim
was barred by the statute of repose. 323 S.W.3d at 147 n. 3. We decline to consider the section
186 argument here because Guaranty bank did not raise this issue at the trial court, and therefore
failed to preserve error. See TEX.R. CIV. P. 166a(c).



                        IV. Review of Motion for Partial Summary Judgment

 [14] [15] Guaranty Bank argues the court of appeals erred in reviewing the trial court's denial
of Lenk's motion for partial summary judgment. It contends that, because Lenk failed to move for
summary judgment on her request for attorney's fees, the trial court's order denying her motion is
not a final order subject to appellate court review. But, Lenk correctly responds that:

            When both parties move for partial summary judgment on the same issues and
            the trial court grants one motion and denies the other, as here, the reviewing court
            considers the summary judgment evidence presented by both sides, determines
            all questions presented, and if the reviewing court determines that the trial court
            erred, renders the judgment the trial court should have rendered.

Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex.2005) (citing FM Props. Operating
Co. v. City of Austin, 22 S.W.3d 868, 872 (Tex.2000)). Here, the parties moved for summary
judgment on the same issues, and the trial court granted Guaranty Bank's motion, denied Lenk's,
 *612 and stated that all relief not granted was denied. As Guaranty Bank correctly points out,
the only other pending issue not raised in the motions was Lenk's claim for attorney's fees, and,
as we discuss below, Lenk waived this issue on appeal. Moreover, the trial court's order disposed
of all issues in the case not only by virtue of the language of the order, but also because Lenk's
attorney's fees claim was necessarily disposed of when the trial court ruled in Guaranty Bank's
favor. Accordingly, the court of appeals' review of the summary judgment motions was proper.



                                   V. Cross–Petition for Attorney's Fees

 [16] Lenk filed a cross-petition seeking a remand to the trial court to determine an award of
attorney's fees. Lenk claims that, because this issue was not addressed in her motion for partial
summary judgment, it should now be reviewed by the trial court. Guaranty Bank responds that


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Federal Deposit Ins. Corp. v. Lenk, 361 S.W.3d 602 (2012)
77 UCC Rep.Serv.2d 50, 55 Tex. Sup. Ct. J. 409

Lenk waived this argument by not briefing it at the court of appeals. The bank argues that both
parties chose to narrow their appellate arguments, and should be limited to the issues briefed and
the relief requested below. We agree with Guaranty Bank.

In her motion for partial summary judgment, Lenk sought damages for Guaranty Bank's breach
and asked that the sole remaining issue for determination in the case be her request for attorney's
fees. The trial court issued a final judgment denying Lenk's motion. On appeal, Lenk focused on
her breach claim, and asked the court of appeals to reverse and render in her favor, which the court
did. Later, Lenk raised the issue of attorney's fees in a motion for rehearing, which the court of
appeals denied. We decline to address Lenk's claim for attorney's fees because she did not properly
raise the issue at the court of appeals. See, e.g., TEX.R.APP. P. 53.2(f) (explaining that, when a
party files a petition for review in the Supreme Court, “[i]f the matter complained of originated
in the trial court, it should have been ... assigned as error in the court of appeals”). Thus, we deny
Lenk's cross-petition.



                                                 VI. Conclusion

Lenk's claim for breach of the deposit agreement began to accrue in 2003, when Lenk was
appointed as estate administrator. Because the bank breached the deposit agreement, yet failed to
raise viable affirmative defenses against Lenk's breach claim, we will not render judgment in its
favor. Lenk's cross-petition for attorney's fees was not properly raised in the court of appeals, and
thus we reject this claim as well. Accordingly, we grant Guaranty Bank's petition for review and,
without hearing oral argument, TEX.R.APP. P. 59.1, affirm the court of appeals' judgment.



Justice HECHT filed a dissenting opinion, in which Justice GREEN joined.

Justice HECHT, joined by Justice GREEN, dissenting.
John Albert Thompson died in January 2000 with about $3,000 on deposit in a Guaranty Bank
checking account. A few weeks later, Mel Spillman falsely represented to the Bank that he was
Thompson's nephew and estate administrator, and directed that he be named on Thompson's
account. The Bank complied. Spillman then deposited around $167,000 to the account, and over
the next several months proceeded to withdraw all but a small amount that was eaten up in service
charges. The Bank closed the account on September 13, 2001.

Spillman was a fraud. He forged letters of administration in dozens of estates like *613
Thompson's. In June 2002, he was sentenced to ten years in prison.




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Federal Deposit Ins. Corp. v. Lenk, 361 S.W.3d 602 (2012)
77 UCC Rep.Serv.2d 50, 55 Tex. Sup. Ct. J. 409

In September 2003, Christa Lenk was appointed administrator of Thompson's estate and several
others Spillman had defrauded. In June 2005, Lenk demanded that the Bank repay the funds
Spillman had withdrawn from Thompson's account years earlier. The Bank refused, and Lenk sued.
The trial court granted summary judgment for the Bank; the court of appeals reversed, holding
that summary judgment should have been granted for Lenk. 1

The first sentence of Section 34.301(b) of the Texas Finance Code states: “A cause of action for
denial of deposit liability on a deposit contract without a maturity date does not accrue until the
bank has denied liability and given notice of the denial to the account holder.” 2 Lenk contends
that her action against the Bank for allowing unauthorized withdrawals from Thompson's checking
account until January 2001 accrued in June 2005, when she demanded that the Bank return the
money, and the Bank refused. The Court agrees that this is Lenk's contention—“[Lenk] claimed
the bank breached the deposit agreement by refusing her payment demand” 3 —and that it is correct
—“the bank refused to pay general deposit funds to the rightful account holder (Lenk), and so ...
breached the deposit agreement.” 4

But Lenk's claim ignores the second sentence of Section 34.301(b): “A bank that provides an
account statement or passbook to the account holder is considered to have denied liability and
given the notice as to any amount not shown on the statement or passbook.” 5 In Jefferson
State Bank v. Lenk, we held that a bank that makes account statements available at its offices
is considered to have denied liability for, and given notice of, unauthorized withdrawals from
a deceased customer's checking account when a representative is appointed for the decedent's
estate. 6 Lenk was appointed the representative of Thompson's estate in September 2003. Under
Section 34.301(b), her action against the Bank accrued then, not in June 2005.

The Court observes that suit based on a claim that accrued in September 2003 would be
timebarred 7 and faults the Bank *614 for not making that argument. But the Bank argues, and
the Court specifically acknowledges, that Lenk's claim is for the Bank's refusal of her June 2005
demand. Lenk pleaded in her petition:


 On June 4, 2005, [Lenk] made demand upon [the Bank] for the payment of [unauthorized
 withdrawals] from the account, and [the Bank] has failed and refused to pay over to [Lenk] the
 sums due and owing from the account.
***

   Under the terms of the depositor's agreement with [Thompson] and applicable law, [the Bank]
   was required to pay sums on deposit to [Lenk] on demand or to her order to such persons as she
   may direct. [The Bank] failed and refused to pay to [Lenk] the sums deposited upon her demand.


              © 2015 Thomson Reuters. No claim to original U.S. Government Works.               11
Federal Deposit Ins. Corp. v. Lenk, 361 S.W.3d 602 (2012)
77 UCC Rep.Serv.2d 50, 55 Tex. Sup. Ct. J. 409

   Accordingly, [Lenk] is entitled to judgment in the amount of all sums which were deposited in
   the name of [Thompson] or his representative since the date of his death.

She asserted in her motion for summary judgment:

   On June 4, 2005, [Lenk] made written demand upon [the Bank] for the sums deposited into
   [Thompson's] account, and [the Bank] has failed and refused to pay the sums deposited into
   the account to [Lenk].

   [The Bank's] failure and refusal to pay to [Lenk] the sums deposited into the account of
   [Thompson] breached the terms of the depositor's agreement. Accordingly, [Lenk] is entitled
   to judgment....

She argued to the court of appeals:

            In Plaintiff's Original Petition, [Lenk] stated that [her] cause of action is based
            upon the requirements of the depositors agreement and [the Bank's] refusal to
            pay [Lenk] the sums deposited into Mr. Thompson's account after her demand.

Lenk could not have been clearer. She alleged that her June 2005 demand triggered her claim. She
sued the Bank days later. An assertion by the Bank that her claim for its refusal of her demand
was time-barred would have been frivolous.

The problem with the claim Lenk asserts is not that it is time-barred; the problem is that, under
Section 34.301(b), the claim does not exist, and for good reason. Allowing a bank customer to
create a cause of action merely by writing a demand letter, as Lenk contends, would circumvent
all time limitations on claims for unauthorized withdrawals. That is what the Court has done in
this case.

It bears comment that the Court hands Lenk a windfall. Not only does she recover the $3,000
Spillman stole from Thompson's account, Lenk recovers about $145,000 of the money that
Spillman laundered through the account, using letters of administration the Bank had no reason
to know were forged, on a claim filed nearly four years after the account was closed and nearly
two years after she was on notice of all the transactions. But the consequences of the Court's
misapplication of Section 34.301(b), in this case decided without argument, will be significant to
the entire financial industry in Texas.

I respectfully dissent.




              © 2015 Thomson Reuters. No claim to original U.S. Government Works.                 12
Federal Deposit Ins. Corp. v. Lenk, 361 S.W.3d 602 (2012)
77 UCC Rep.Serv.2d 50, 55 Tex. Sup. Ct. J. 409


Parallel Citations

77 UCC Rep.Serv.2d 50, 55 Tex. Sup. Ct. J. 409


Footnotes
1    The Federal Deposit Insurance Corporation (FDIC) was substituted as a party for Guaranty Bank on October 2, 2009. For ease of
       reference, we refer to the FDIC as Guaranty Bank throughout this opinion.
2      In this case, Spillman gained access to an account belonging to John Albert Thompson, who died on January 30, 2000. After Spillman
       deposited and withdrew various amounts from the account, Lenk alleged that he stole $148,430.28 from Thompson's estate.
3      Lenk specifically asserted in each petition:
             Under the terms of the depositor's agreement with Decedent and applicable law, Defendant was required to pay sums on deposit
             to Plaintiff on demand or to her order to such persons as she may direct. Defendant failed and refused to pay to Plaintiff the
             sums deposited upon her demand. Accordingly, Plaintiff is entitled to judgment in the amount of all sums which were deposited
             in the name of Decedent or his representative since the date of his death.
4      The statute sets a one-year period of repose, which was contractually shortened to sixty days in that case.

5      The fact that the account was closed when Lenk demanded payment does not change our analysis. Under the bank's rationale, a bank
       could wrongfully pay out an account's entire balance to an imposter, as happened here, then unilaterally close the account to avoid
       liability to the account holder or proper estate administrator. Further, as discussed above, in a situation such as this where the bank
       has paid out sums to an imposter, a plaintiff in Lenk's position will naturally seek to withdraw the amount of funds that should be on
       deposit, not the actual account balance after the wrongful withdrawals. Given the debtor-creditor relationship between a bank and its
       customer and the requirement that a bank must repay any deposits to a customer on her order, it follows that a person is entitled to
       demand payment for amounts that should be on deposit, not the amount actually in the account after wrongful withdrawals, even if
       the bank has unilaterally closed the account. See Mesquite State Bank, 488 S.W.2d at 75.
6      As explained supra, section 34.301(b) of the Finance Code indicates that Lenk's cause of action began to accrue in 2003 when Lenk
       was appointed administrator.
7      See also TEX.R. CIV. P. 166a(c) (instructing that a “motion for summary judgment shall state the specific grounds therefor”);
       McConnell v. Southside Indep. Sch. Dist., 858 S.W.2d 337, 341 (Tex.1993) (“[A] motion for summary judgment must itself expressly
       present the grounds upon which it is made. A motion must stand or fall on the grounds expressly presented in the motion.”);
       Westchester Fire Ins. Co. v. Alvarez, 576 S.W.2d 771, 772–73 (Tex.1978), overruled on other grounds by City of Houston v. Clear
       Creek Basin Auth., 589 S.W.2d 671, 678 (Tex.1979)) (“The purpose of [Rule 166a(c) ] is to provide the opposing party with adequate
       information for opposing the motion, and to define the issues for the purpose of summary judgment.”).
8      Guaranty Bank devoted two sentences concerning acquiescence in its final post-hearing filing in the trial court. However, in those
       sentences, Guaranty Bank did not assert it as a defense. Instead, the bank argued Spillman was the cause of Lenk's damages.
9      See also Curtis & Windham Architects, Inc. v. Williams, 315 S.W.3d 102, 104 (Tex.App.-Houston [1st Dist.] 2010, no pet.) (stating
       that acquiescence is an affirmative defense); Calkins v. Goette, No. 05–03–01022–CV, 2004 WL 1950366, at *1 (Tex.App.-Dallas
       Sept. 23, 2004, no pet.) (same); Chase v. Watling, No. 05–99–00265–CV, 2000 WL 10301, at *4 (Tex.App.-Dallas Jan. 7, 2000, pet.
       denied) (same); Green v. Parrack, 974 S.W.2d 200, 202–03 (Tex.App.-San Antonio 1998, no pet.) (same).
1      360 S.W.3d 511 (Tex.App.-San Antonio 2008).

2      TEX. FIN.CODE § 34.301(b).

3      Ante at 605.

4      Ante at 607.

5      TEX. FIN.CODE § 34.301(b). Lenk relies heavily on a sentence in Hodge v. Northern Trust Bank of Texas, 54 S.W.3d 518, 526
       (Tex.App.-Eastland 2001, pet. denied): “It is when the bank refuses a demand for payment of the general deposit that the bank
       breaches its relationship with the depositor.” But the court was only speaking generally and not construing Section 34.301(b), which
       it noted did not apply because the case involved a certificate of deposit with a maturity date. Id. at 524.
6      323 S.W.3d 146, 149–150 (Tex.2010) (“Accordingly, we conclude that in the event of a customer's death, banks can satisfy their
       [statutory] burden [to make account statements available to a customer] by retaining statements at the bank, but the customer's burden
       to report unauthorized signatures does not arise until an estate representative is appointed.”).




               © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                                       13
Federal Deposit Ins. Corp. v. Lenk, 361 S.W.3d 602 (2012)
77 UCC Rep.Serv.2d 50, 55 Tex. Sup. Ct. J. 409

7      UCC Section 4.406(f) provides that “[w]ithout regard to care or lack of care of either the customer or the bank, a customer who does
       not within one year after the statement or items are made available to the customer ... discover and report the customer's unauthorized
       signature on or any alteration on the item is precluded from asserting against the bank the unauthorized signature or alteration.” TEX.
       BUS. & COM.CODE § 4.406(f). In American Airlines Employees Federal Credit Union v. Martin, 29 S.W.3d 86, 89 (Tex.2000),
       we held that this one-year repose period could be shortened by agreement to sixty days.


End of Document                                                           © 2015 Thomson Reuters. No claim to original U.S. Government Works.




               © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                                       14
Federal Deposit Ins. Corp. v. Lenk, 361 S.W.3d 602



    History (2)

    Direct History (2)
    1. Lenk v. Guaranty Bank
    360 S.W.3d 511 , Tex.App.-San Antonio , July 02, 2008 , rehearing overruled ( Sep 15,
    2008 )


      Review Granted, Judgment Affirmed by

        2. Federal Deposit Ins. Corp. v. Lenk
      361 S.W.3d 602 , Tex. , Mar. 09, 2012




            © 2015 Thomson Reuters. No claim to original U.S. Government Works.             15
GPA Holding, Inc. v. Baylor Health Care System, 344 S.W.3d 467 (2011)




                                              344 S.W.3d 467
                                          Court of Appeals of Texas,
                                                    Dallas.

                                   GPA HOLDING, INC., Appellant,
                                              v.
                          BAYLOR HEALTH CARE SYSTEM 1 , Appellee.

    No. 05–09–00586–CV.               |    May 18, 2011.       |   Rehearing Overruled Aug. 9, 2011.

Synopsis
Background: Health care services provider brought action against third party administrator that
provided claims handling services and administrative support to health plans for failure to pay for
health care services it provided to members of certain health care plans that were administered by
administrator. The 298th Judicial District Court, Dallas County, Emily Tobolowsky, J., entered
summary judgment in favor of provider. Administrator appealed.



Holdings: The Court of Appeals, Moseley, J., held that:

[1] administrator was a payor under, and, thus, bound by, hospital services agreement (HSA)
between provider and operator of preferred provider organization (PPO);

[2] administrator did not meet its burden of establishing that damages clause was an unenforceable
penalty; and

[3] administrator's obligation did not change when subscriber acknowledgment form was
amended.


Affirmed.


Attorneys and Law Firms

*470 David Michael Walsh, IV, Chamblee & Ryan, P.C., Dallas, TX, for Appellant.

Ben Taylor, Jeff Cody, Melissa A. Davis, Tate A. Seideman, Fulbright & Jaworski L.L.P., Dallas,
TX, for Appellee.



             © 2015 Thomson Reuters. No claim to original U.S. Government Works.                       1
GPA Holding, Inc. v. Baylor Health Care System, 344 S.W.3d 467 (2011)




Before Justices MORRIS, MOSELEY, and MYERS.



                                                   OPINION

Opinion By Justice MOSELEY.

In this breach of contract case, appellant GPA Holding, Inc. challenges the trial court's summary
judgment awarding damages to appellee Baylor Health Care System based on GPA's obligation to
pay certain health care claims. Because we conclude the trial judge correctly interpreted the three
written contracts governing the parties' relationship, we affirm the trial court's judgment.



                                             I. BACKGROUND

Baylor provides health care services to individual patients. Many of Baylor's patients are members
of health plans. Baylor has many contracts with health benefit entities, including insurance
companies and preferred provider organizations (PPOs), through which individual patients gain
access to Baylor's hospitals and services at discounted rates.

Private Healthcare Systems, Inc. (PHCS) operates a network of PPOs. PHCS enters into contracts
known as preferred provider agreements with health care providers (such as Baylor) to negotiate
discounts from the providers' full charges for health care services. PHCS also enters into contracts
known as subscriber services agreements with insurance companies, employer health plans,
managed care organizations, and third-party administrators, to provide them and their members
access to health care services at the discounted rates established by the preferred provider
agreements.

GPA is a third-party administrator; its customers are self-funded health plans. Third-party
administrators provide claims handling services and administrative support to health plans. By
contracting with various PPO networks, such as PHCS, GPA also offers its customers—and their
members—access to medical services from a network of providers (e.g. Baylor) at discounted
rates.

Baylor sued GPA for failure to pay for health care services Baylor provided to members of certain
health care plans administered by GPA. GPA in turn filed a third-party action against PHCS.
Both Baylor and GPA moved for summary judgment; Baylor in fact filed several motions for
partial summary judgment. The trial judge granted Baylor's motions and denied GPA's motion.
The parties then entered into an agreed final judgment and severance, by which GPA's third-


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GPA Holding, Inc. v. Baylor Health Care System, 344 S.W.3d 467 (2011)



party claims against PHCS were severed into a separate cause, and final judgment was entered for
Baylor. GPA appeals the judgment in favor of Baylor. PHCS is not a party to this appeal.



                                      II. STANDARD OF REVIEW

 [1] [2] The standards for reviewing summary judgments are well-established, *471 and we
follow them in reviewing this appeal. See Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548–
49 (Tex.1985) (summary judgment standards of review). When both parties move for summary
judgment, each party bears the burden of establishing that it is entitled to judgment as a matter
of law. City of Garland v. Dallas Morning News, 22 S.W.3d 351, 356 (Tex.2000). When the trial
court grants one motion and denies the other, we review the summary judgment evidence presented
by both parties and determine all questions presented. Id. The reviewing court should render the
judgment that the trial court should have rendered or reverse and remand if neither party has met
its summary judgment burden. Id.

 [3] [4] If a defendant moves for summary judgment on an affirmative defense, it must
conclusively establish each essential element of the affirmative defense. Selz v. Friendly Chevrolet,
Ltd., 152 S.W.3d 833, 836 (Tex.App.-Dallas 2005, no pet.) (“To prevail on summary judgment,
a defendant as movant must either disprove at least one element of each of the plaintiff's theories
of recovery or plead and conclusively establish each essential element of an affirmative defense,
thereby rebutting the plaintiff's cause of action.”). Similarly, if a party seeks to avoid summary
judgment by way of an affirmative defense, it must come forward with summary judgment
evidence sufficient to raise a fact issue on each element of its affirmative defense. See Brownlee v.
Brownlee, 665 S.W.2d 111, 112 (Tex.1984). Whether a contractual provision is an unenforceable
penalty and not a liquidated damage clause is an affirmative defense. See TEX.R. CIV. P.
94; Phillips v. Phillips, 820 S.W.2d 785, 789 (Tex.1991) (“Although penalty is not among the
affirmative defenses enumerated in Rule 94, TEX.R. CIV. P., the listing in that rule is not
exclusive. Penalty is, in the language of the rule, a ‘matter constituting an avoidance or affirmative
defense’ [citations omitted].”)

 [5] [6] [7] [8] [9] [10] The interpretation of an unambiguous contract is a question of law
for the court. MCI Telecomms. Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 650–51 (Tex.1999).
The court's primary concern in interpreting a written contract is to determine the mutual intent of
the parties as manifested in the contract. Coker v. Coker, 650 S.W.2d 391, 393 (Tex.1983). The
parties' intent must be taken from the agreement, and the agreement must be enforced as written.
Wells Fargo Bank, Minn., N.A. v. N. Cent. Plaza I, L.L.P., 194 S.W.3d 723, 726 (Tex.App.-Dallas
2006, pet. denied). We favor an interpretation that affords some consequences to each part of the
agreement so that none of the provisions will be rendered meaningless. Coker, 650 S.W.2d at
394. Unless the agreement shows that the parties used a term in a technical or different sense,


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GPA Holding, Inc. v. Baylor Health Care System, 344 S.W.3d 467 (2011)



we give the terms their plain, ordinary, and generally accepted meaning. Heritage Res., Inc. v.
NationsBank, 939 S.W.2d 118, 121 (Tex.1996). Under generally accepted principles of contract
interpretation, all writings that pertain to the same transaction will be considered together, even if
they were executed at different times and do not expressly refer to one another. DeWitt Cnty. Elec.
Co-op., Inc. v. Parks, 1 S.W.3d 96, 102 (Tex.1999). This rule, however, is a device for ascertaining
and giving effect to the intention of the parties and cannot be applied arbitrarily. Id.



                                              III. DISCUSSION

A. The Contracts
Baylor relies on three written contracts to establish its claim against GPA. First, Baylor
relies on a Subscriber Services Agreement between PHCS and GPA dated April 17, 1998,
amended by an Amendment, *472 Assignment, and Assumption of the Subscriber Services
Agreement with effective dates of September 1, 2002 and January 1, 2003. Under the Subscriber
Services Agreement, GPA 2 became a subscriber to PHCS's “comprehensive medical management
system.” 3 As a subscriber to PHCS's network, GPA could offer its customers access to PHCS's
network of medical care providers at the discount rates negotiated by PHCS.

Second, Baylor relies on a Hospital Services Agreement (HSA) between Baylor and PHCS dated
January 1, 2002. Under the HSA, Baylor became a “Preferred Provider” in PHCS's network. It
agreed to provide—at discounted rates 4 —health care services (“Covered Services”) to persons
(“Members”) covered by “Health Plans” (including PPOs) created or sponsored by a “Payor” (a
defined term in the HSA). As part of the HSA, PHCS warranted that its contracts with each Payor
obligate the “Payor (or its designee) to comply with the duties and obligations of [the HSA],
including, but not limited to, paying for Covered Services rendered to Members in accordance
with the provisions of Article IV of [the HSA].”

Third, Baylor relies on a Subscriber Acknowledgment between GPA and PHCS effective January
1, 2003. The Subscriber Acknowledgment refers to both the Subscriber Services Agreement and
the HSA, reciting that GPA and PHCS have entered into the Subscriber Services Agreement and
that PHCS has entered into contracts with health care providers for participation in its network. The
Subscriber Acknowledgment requires GPA “to pay or arrange to pay PHCS Preferred Providers
[which would include Baylor] in accordance with the PHCS Preferred Provider Agreement for
such Preferred Provider, for the markets and the networks for which [GPA] has purchased provider
network Services from PHCS.” (First brackets added.)


B. Is GPA a “Payor”?



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GPA Holding, Inc. v. Baylor Health Care System, 344 S.W.3d 467 (2011)



In its first issue, GPA contends the trial court erred in granting Baylor's motion for summary
judgment because GPA is not a “payor” under the HSA. At the outset, GPA makes a procedural
argument that summary judgment was improper because Baylor did not move for summary
judgment on this issue. We disagree.

 *473 Baylor filed four motions for partial summary judgment. In its first motion, Baylor requested
that the trial court interpret the three contracts at issue and “find, as a matter of law, that GPA is
bound by the terms and conditions of the HSA with respect to the health care claims at issue in this
case, including the requirements of Section 4.4(a).” In its own motion for summary judgment, GPA
argued, “GPA is not a ‘Payor’ obligated to pay under the terms of the Baylor/PHCS Agreement,”
and Baylor filed a summary judgment response again arguing that GPA was bound by the terms
of the agreement.

 [11] The trial court granted Baylor's motion and denied GPA's, necessarily deciding that GPA
was a “Payor” bound by the provisions of the HSA, including section 4.4(a). We reject GPA's
argument that the issue was not presented to and decided by the trial court.

Turning to GPA's substantive argument, GPA asserts the HSA defines “Payor” very narrowly.
It argues the evidence established that GPA's clients—and not itself—were “Payors” under the
HSA. It contends that as a third party administrator, it did not actually pay claims but only offered
administrative services to facilitate payment of claims by the employer-funded health plans that
were GPA's clients. Because the HSA's payment provisions apply only to “Payors” and GPA is
not a Payor, GPA contends it is not responsible to pay for Baylor's services, and thus that the trial
court erred in entering summary judgment in favor of Baylor.

The HSA defines a “Payor” as

            an insurance company, employer health plans, Taft–Hartley fund, plan sponsors
            or other similarly situated entities or organizations which are obligated (directly
            or through its designee) to pay for Covered Services for Members in accordance
            with such Health Plans.

GPA offered the affidavits of Kathy Enochs, the chief operating officer of GPA, and Madalyn
Straughn, the vice president of operations for GPA, to establish that GPA is not an insurance
company, employer health plan, Taft–Hartley fund, or plan sponsor. Enochs also testified that
GPA was not a “payor” under the definition in the contract.

GPA does not dispute it is a party to the Subscriber Services Agreement and the Subscriber
Acknowledgment. In fact, Enochs testified GPA could not access PHCS's preferred providers at
a discount without the Subscriber Services Agreement and the Subscriber Acknowledgment. She



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GPA Holding, Inc. v. Baylor Health Care System, 344 S.W.3d 467 (2011)



testified GPA entered into the agreement with PHCS “to market their network to our plans that
we administer.”

In Exhibit J to the Subscriber Services Agreement, under “Duties of the Subscriber,” paragraph
2(b) provides, “The Subscriber [i.e. GPA] shall abide by the terms of any agreement with a
Participating Provider [e.g. Baylor] entered into by PHCS on behalf of the Subscriber with regard
to the provision of PPO services.” (Brackets added.) In the Subscriber Acknowledgment, GPA
“agrees to pay or arrange to pay PHCS Preferred Providers in accordance with the PHCS Preferred
Provider Agreement for each such Preferred provider, for the markets and the networks for which
Subscriber has purchased provider network Services from PHCS.”

The discounts offered to GPA's customers were the result of the relationships among the parties
to all three agreements. If PHCS did not contract with Baylor under the HSA, there would be no
discount to PHCS's subscribers on the fees for Baylor's services. If GPA did not in turn contract
with PHCS to take advantage of the discounts offered in the HSA, those *474 discounts would
not have been available to GPA's customers.

 [12] In Baylor University Medical Center v. Epoch Group, L.C., 340 F.Supp.2d 749, 755
(N.D.Tex.2004), similar contracts were held to “constitute a single, unified contract” requiring
a claims supervisor to timely pay Baylor's clean claims. While we are not bound by a decision
of a federal district court, we may consider federal precedent when it is well-reasoned and
helpful. See Davenport v. Garcia, 834 S.W.2d 4, 20 (Tex.1992) (“With a strongly independent
state judiciary, Texas should borrow from well-reasoned and persuasive federal procedural and
substantive precedent when this is deemed helpful, but should never feel compelled to parrot the
federal judiciary.”).

As here, there were three contracts in Epoch Group: a HSA between PHCS and Baylor, a
subscriber services agreement between PHCS and Epoch, and a payor acknowledgment between
PHCS and Epoch. Epoch Group, 340 F.Supp.2d at 752. Discussing its conclusion that the three
documents constituted a single, unified contract, the court reasoned:

            Indeed, all three instruments were required to complete the relationship between
            the parties. The Subscriber Services Agreement, which provided discounts from
            PHCS to Payors, could not operate effectively without PHCS contracting with
            providers through hospital services agreements. The very foundation of the
            discounts offered in [the] Subscriber Services Agreement appears to be the
            agreements between PHCS and providers such as Baylor. Moreover, Payor
            Acknowledgments serve no apparent purpose other than to commit Payors to
            comply with the terms and conditions of the provider agreements.

Id. at 755 (citation omitted).


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GPA Holding, Inc. v. Baylor Health Care System, 344 S.W.3d 467 (2011)




GPA distinguishes Epoch Group, arguing the court did not decide the question whether Epoch
was a “payor” under the HSA. Perhaps because Epoch signed a document called “payor
acknowledgment” instead of “subscriber acknowledgment,” the issue whether Epoch was a
“payor” for purposes of the agreements was not presented to the Epoch Group court. Regardless
of the titles of the two agreements, however, their substance was the same: to commit the payor or
subscriber “to comply with the terms and conditions of the provider agreements,” so that provider
discounts set forth in hospital services agreements could be extended to the subscriber's customers.
See id. at 755.

 [13] We conclude, as did the trial court, that GPA is bound by the HSA. Reading the three
agreements together, GPA committed to abide by the terms of the HSA and to pay or arrange to
pay Baylor in accordance with the HSA. Even though the summary judgment evidence showed
that GPA was not an “insurance company, employer health plan[ ], Taft–Hartley fund, [or] plan
sponsor[ ],” we conclude the evidence (i.e. the three contracts) proves as a matter of law that
GPA falls within the contractual definition of “other similarly situated entities or organizations
which are obligated (directly or through its designee) to pay for Covered Services for Members in
accordance with such Health Plans.” We overrule GPA's first issue.


B. “Liquidated Damages” or “Penalty”?
The HSA also contains terms regarding payment of claims:

  4.4 Claim Processing

  (a) Payor (or its designee) shall pay all Clean Claims for Covered Services *475 within forty-
     five (45) calendar days of receipt of a Clean Claim containing the information set out in
     Section 4.3 from Hospital in accordance with the applicable reimbursement rates attached on
     Schedule 1. ... If Payor (directly or through its designee) does not pay within forty-five (45)
     days of receipt of a Clean Claim, Payor shall no longer be eligible for the rates set forth on
     Schedule 1 and shall be obligated to pay Hospital at Hospital's Normal Billed Charges and
     hospital may elect to terminate this Agreement....

In its second issue, GPA contends the trial court erred in denying its motion for summary
judgment because the amount of damages awarded against it under this provision constituted an
unenforceable liquidated damages penalty.

GPA complains that the above section, by requiring payors to pay the hospital's “Normal Billed
Charges” unless the payor pays a Clean Claim within 45 days, “fixes compensation for breach in
advance of the breach,” and is thus an impermissible penalty.



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GPA Holding, Inc. v. Baylor Health Care System, 344 S.W.3d 467 (2011)



 [14] [15] “The term ‘liquidated damages' ordinarily refers to an acceptable measure of damages
that parties stipulate in advance will be assessed in the event of a contract breach.” Flores v.
Millennium Interests, Ltd., 185 S.W.3d 427, 431 (Tex.2005); see also Valence Operating Co.
v. Dorsett, 164 S.W.3d 656, 664 (Tex.2005) (“[l]iquidated damages clauses fix in advance the
compensation to a party accruing from the failure to perform specified contractual obligations”).
Whether a contract term is a liquidated damages clause is a question of law for the court. Valence
Operating Co., 164 S.W.3d at 664.

 [16] [17] If a court determines that a contract term is a liquidated damages clause, the court may
then determine whether the clause is enforceable, or whether it is an unenforceable penalty. The
policy underlying the prohibition against penalties is to ensure that a party to a contract receives
“just compensation,” that is, “neither more nor less than his actual damages.” Phillips, 820 S.W.2d
at 788 (quoting Stewart v. Basey, 150 Tex. 666, 245 S.W.2d 484, 485–86 (1952)). In order to
enforce a liquidated damages provision and determine the provision is not a penalty, “the court
must find: (1) that the harm caused by the breach is incapable or difficult of estimation, and (2)
that the amount of liquidated damages called for is a reasonable forecast of just compensation.”
Phillips, 820 S.W.2d at 788 (quoting Rio Grande Valley Sugar Growers, Inc. v. Campesi, 592
S.W.2d 340, 342 n. 2 (Tex.1979)).

Baylor argues that section 4.4 is neither a liquidated damages provision nor a penalty. Baylor
asserts that section 4.4 “does not fix in advance compensation for GPA's failure to perform,”
but rather “provides a two-tiered pricing structure that grants GPA discounts (often substantial)
if claims are paid within forty-five days.” Baylor further contends that even if section 4.4 is a
liquidated damages provision, it is enforceable under Texas law and is not a penalty because
damages are difficult or impossible to estimate, and Baylor's normal billed charge is a reasonable
forecast of just compensation.

For purposes of this opinion, we will assume without deciding that section 4.4(a) of the HSA is
a liquidated damages provision, and examine whether the clause is also an unenforceable penalty
under the factors set forth in Phillips.

 [18] [19] The party asserting that a liquidated damages clause is an unenforceable penalty (here,
GPA) bears the burden of proof. Urban Television Network Corp. *476 v. Liquidity Solutions,
L.P., 277 S.W.3d 917, 919 (Tex.App.-Dallas 2009, no pet.) (citing Murphy v. Cintas Corp., 923
S.W.2d 663, 665–66 (Tex.App.-Tyler 1996, writ denied)). GPA moved for summary judgment
on the issue whether section 4.4(a) of the HSA is an unenforceable penalty. To obtain summary
judgment on the affirmative defense of penalty, GPA must prove each element of the defense. See
Brownlee, 665 S.W.2d at 112; Selz, 152 S.W.3d at 836; see also Phillips, 820 S.W.2d at 789. GPA
argues the payment of “Normal Billed Charges” is not a reasonable forecast of just compensation,
and the harm caused by late payment is not incapable or difficult of estimation. See Phillips, 820


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GPA Holding, Inc. v. Baylor Health Care System, 344 S.W.3d 467 (2011)



S.W.2d at 788. In support of its motion for summary judgment, GPA offered evidence comparing
the discounted rates to the hospital's normal billed rates for the charges at issue. GPA offered a
chart attached to the affidavit of Madalyn Straughn that showed the percentage difference between
the discounted rate and the normal billed charge for each of the charges at issue. GPA notes “the
overwhelming majority of the percentage charges are 33% or more.”

In response to GPA's motion for summary judgment, Baylor offered evidence regarding the
difficulty of estimation and the reasonableness of the charges. Baylor offered the affidavit of Janda
Edwards to explain that Baylor's normal billed charge “is the amount Baylor charges for services
and supplies to entities or individuals who do not have access to a discount through a contract with
Baylor.” Edwards explained Baylor's normal billed charge “is established by each facility and is
based upon an analysis of many factors including the service provided, the amount of personnel
time needed to provide the service, the amount of capital equipment needed to provide the service,
the amount of routine equipment needed to provide the service, the overhead, and market value.”
Edwards also testified that Baylor's normal billed charge is a reasonable amount for the health care
services and supplies provided in the charges at issue in this case.

 [20] [21] GPA quotes from Edwards's affidavit and argues, “Baylor offered no justification
attempting to show how the changed billing rate was a reasonable estimate of the cost associated
with payments being untimely.” GPA posits that a “more reasonable” calculation would be “a $30
service fee and 18% annual interest,” and argues, “our society routinely deals with late payments
by a modest service fee and interest, and thus Baylor's damages were calculable.” GPA does
not offer evidence to support these arguments, however. The difficulty (or lack of difficulty) in
estimation as well as the unreasonableness of the damages estimate were GPA's to prove. Urban
Television Network Corp., 277 S.W.3d at 919. General statements about a “more reasonable” or
“modest” rate are not evidence that the harm from late payment is difficult to estimate, or that the
normal billed charges were an unreasonable forecast of the loss actually sustained. See Phillips,
820 S.W.2d at 788. GPA also emphasized that Baylor itself referred to the normal billed charge as
a “penalty.” The substance of the provision controls, however. See Arthur's Garage, Inc. v. Racal–
Chubb Security Systems, Inc., 997 S.W.2d 803, 810 (Tex.App.-Dallas 1999, no pet.) (provision
entitled “liquidated damages” was actually a limitation of liability provision, so penalty analysis
was not appropriate). Because GPA did not meet its burden of establishing that the clause requiring
payment of normal billed charges after 45 days was an unenforceable penalty, the trial judge did
not err in denying GPA's motion for summary judgment on this issue. We overrule GPA's second
issue.


 *477 C. Claims arising before 2003
In its third issue, GPA argues the trial judge erred by awarding damages for the period of
time before GPA signed the Subscriber Acknowledgment Form. While GPA admits signing the
Subscriber Services Agreement in 1998, it argues that it did not agree to “pay or arrange to pay”

             © 2015 Thomson Reuters. No claim to original U.S. Government Works.                   9
GPA Holding, Inc. v. Baylor Health Care System, 344 S.W.3d 467 (2011)



until the 2003 amendments set forth in the Subscriber Acknowledgment. Therefore, GPA argues,
any claims arising in 2002 or before were included improperly in the trial court's judgment.

Baylor counters that GPA's obligations were set forth in the Subscriber Services Agreement,
including the agreement to abide by any agreement between PHCS and a hospital, and those
obligations did not change in 2003. Because GPA accepted the benefits of the agreements before
2003, Baylor argues, it must also accept the obligations.

 [22] We agree with Baylor that GPA's obligation to abide by the HSA did not change in 2003.
While the “pay or arrange to pay” language does not appear in the Subscriber Services Agreement,
GPA did agree at that time to abide by the provisions of the HSA, and, as noted in Epoch
Group, “the very foundation” of the discounts offered to GPA's customers are “the agreements
between PHCS and providers such as Baylor.” Epoch Group, 340 F.Supp.2d at 755. The Epoch
Group court commented that the payor acknowledgments “serve no apparent purpose other than
to commit Payors to comply with the terms and conditions of the provider agreements.” Id.
The contractual relationship among the parties was established when GPA signed the Subscriber
Services Agreement and began to take advantage of the discounted rates offered under the HSA.
The trial court did not err in awarding damages for the period of time before GPA signed the
Subscriber Acknowledgment. We overrule GPA's third issue.



                                                         CONCLUSION

We overrule GPA's issues and affirm the trial court's judgment.



Footnotes
1    The trial court's judgment recites that the full name of the plaintiff is “Baylor Health Care System, on behalf of Baylor All Saints
        Medical Center, Baylor Heart and Vascular Hospital, Baylor Specialty Hospital, Baylor Institute for Rehabilitation, Baylor University
        Medical Center, Baylor Medical Center at Garland, Baylor Regional Medical Center at Grapevine, Baylor Medical Center at Irving,
        Our Children's House at Baylor, Baylor Regional Medical Center at Plano, and Baylor Medical Center Ellis County.”
2       The Subscriber Services Agreement was actually between PHCS and a Texas corporation named “Group & Pension Administrators,
        Inc.” The parties entered into a Rule 11 agreement that “[f]or purposes of this case, G & P Administrators, Inc, and GPA Holding,
        Inc. agree that they can be treated as one entity for the purpose of discovery and liability.” In accordance with this agreement, in
        this opinion we will refer only to GPA.
3       The Subscriber Services Agreement recites its purpose:
           A. PHCS is in the business of providing provider networks and a comprehensive medical management system, including utilization
              review, quality assurance, and other cost containment related services throughout the United States.
           B. Plans offered and managed by Subscriber [GPA] provide health benefits and/or services to eligible participants under health
              benefit plans.
           C. Plans offered and managed by Subscriber generally include financial incentives to encourage eligible participants to choose
              treatment from providers who have contracted with entities, such as preferred provider organizations and exclusive provider
              organizations, who are in the business of offering provider discounts and other managed medical benefits.




                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                                     10
GPA Holding, Inc. v. Baylor Health Care System, 344 S.W.3d 467 (2011)


        D. Subscriber is interested in and intent upon becoming a subscriber for services of PHCS, thus availing itself of the PHCS
          comprehensive medical management system.
4     Except as discussed herein.


End of Document                                                     © 2015 Thomson Reuters. No claim to original U.S. Government Works.




              © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                                  11
GPA Holding, Inc. v. Baylor Health Care System, 344 S.W.3d 467



    History (9)

    Direct History (2)
    1. Baylor Health Care System v. GPA Holding, Inc.
    2009 WL 1489945 , Tex.Dist. , Apr. 23, 2009


      Affirmed by

      2. GPA Holding, Inc. v. Baylor Health Care System
      344 S.W.3d 467 , Tex.App.-Dallas , May 18, 2011 , rehearing overruled ( Aug 09,
      2011 ) , review denied ( Dec 14, 2012 ) , rehearing of petition for review denied ( Mar
      01, 2013 )



    Related References (7)
    3. Baylor Health Care System v. GPA Holding, Inc.
    2006 WL 6267271 , Tex.Dist. , Dec. 27, 2006


    4. Baylor Health Care System v. GPA Holding, Inc.
    2008 WL 6150217 , Tex.Dist. , Dec. 17, 2008


    5. Baylor Health Care System v. GPA Holding, Inc.
    2009 WL 1489941 , Tex.Dist. , Jan. 12, 2009


    6. Baylor Health Care System v. GPA Holding, Inc.
    2009 WL 1489943 , Tex.Dist. , Apr. 03, 2009


    7. Baylor Health Care System v. GPA Holding, Inc.
    2009 WL 1489944 , Tex.Dist. , Apr. 23, 2009


    8. Baylor Health Care System v. GPA Holding, Inc.
    2010 WL 7086831 , Tex.Dist. , Oct. 05, 2010




           © 2015 Thomson Reuters. No claim to original U.S. Government Works.                  12
GPA Holding, Inc. v. Baylor Health Care System, 344 S.W.3d 467



    9. Baylor Health Care System v. AssureCare Claims
    2011 WL 3022149 , Tex.Dist. , Feb. 08, 2011




           © 2015 Thomson Reuters. No claim to original U.S. Government Works.   13
Healix Infusion Therapy, Inc. v. Bellos, Not Reported in S.W.3d (2003)
2003 WL 22411873




                                        2003 WL 22411873
                           Only the Westlaw citation is currently available.

     SEE TX R RAP RULE 47.2 FOR DESIGNATION AND SIGNING OF OPINIONS.

                               Memorandum Opinion
              Not designated for publication. SeeTEX.R.APP.P. 47.2(a) .
                               Court of Appeals of Texas,
                                       Eastland.

                          HEALIX INFUSION THERAPY, INC., Appellant,
                                              v.
                            Nicholaos C. BELLOS, M.D., P.A., Appellee.

                               No. 11–02–00346–CV.                |      Oct. 23, 2003.

Doctor brought action against corporation for breach of settlement agreement. The trial court,
Dallas County granted summary judgment in favor of doctor. Corporation appealed. The Court of
Appeals, Jim R. Wright, J., held that doctor was entitled to liquidated damages from corporation
for breach of confidentiality in settlement agreement.

Affirmed.


Appeal from Dallas County.

Attorneys and Law Firms

Murphy Klasing, Kenneth Moursund Jr., for Healix Infusion Therapy, Inc.

Cathy Hendrickson, Kevin A. Kinnan, Jeffrey Hellberg Jr., Ryan Downton, Bruce Howell, for
Nicholaos C. Bellos, M.D.

Panel consists of ARNOT, C.J., and WRIGHT, J., and McCALL, J.



                                            Memorandum Opinion

JIM R. WRIGHT, Justice.




              © 2015 Thomson Reuters. No claim to original U.S. Government Works.             1
Healix Infusion Therapy, Inc. v. Bellos, Not Reported in S.W.3d (2003)
2003 WL 22411873

 *1 The trial court granted a motion for summary judgment filed by Nicholaos C. Bellos, M.D.,
P.A. and enforced a contractual liquidated damages clause against Healix Infusion Therapy, Inc.
The trial court awarded Dr. Bellos $10,000.00 in his suit against Healix. The trial court also
awarded attorney's fees to Dr. Bellos. In two issues on appeal, Healix argues that the liquidated
damages clause is an unenforceable penalty and that there are genuine issues of material fact
regarding damages. 1 We affirm.

Dr. Bellos sued Healix in another lawsuit; the parties reached a settlement in that suit. Both
parties agreed not to disclose the nature of the settlement agreement. The agreement provided for
$10,000.00 in liquidated damages in the event of a breach by either party. After the settlement
agreement was signed, Methodist Hospitals of Dallas (Methodist), where Dr. Bellos practiced,
sent $6,385.13, which it owed to Dr. Bellos, because it mistakenly believed that Healix held a lien
against Dr. Bellos. Healix sent a letter and a copy of the settlement agreement to Methodist to show
that there was no lien. Dr. Bellos claimed that Healix breached the settlement agreement when
Healix furnished the agreement to Methodist, and he sued Healix to recover under the liquidated
damages provision of the agreement.

A trial court must grant a motion for summary judgment if the moving party establishes that no
genuine issue of material fact exists and that the moving party is entitled to judgment as a matter of
law. TEX.R.CIV.P. 166a(c); Lear Siegler, Inc. v. Perez, 819 S.W.2d 470, 471 (Tex.1991). Once
the movant establishes a right to a summary judgment, the non-movant must come forward with
evidence or law that precludes summary judgment. City of Houston v. Clear Creek Basin Authority,
589 S.W.2d 671, 678–79 (Tex.1979). When reviewing a summary judgment, the appellate court
takes as true evidence favorable to the non-movant. Every reasonable inference must be indulged
in favor of the non-movant and any doubts resolved in its favor. American Tobacco Company,
Inc. v. Grinnell, 951 S.W.2d 420, 425 (Tex.1997); Nixon v. Mr. Property Management Company,
Inc., 690 S.W.2d 546, 548–49 (Tex.1985). In order to succeed on an affirmative defense in
a summary judgment proceeding, a defendant must establish every element of the affirmative
defense. American Tobacco Company, Inc. v. Grinnell, supra.

Courts will enforce liquidated damages provisions in contracts when the court finds that the harm
resulting from a breach of the contract is incapable or difficult to estimate and when it also finds
that the amount provided as liquidated damages is a reasonable forecast of just compensation.
Rio Grande Valley Sugar Growers, Inc. v. Campesi, 592 S.W.2d 340, 342 n. 2 (Tex.1979). The
“difficulty of estimation” and “reasonable forecast” questions must be determined from evidence
of the circumstances which existed at the time the parties executed the agreement. Baker v.
International Record Syndicate, Inc., 812 S.W.2d 53 (Tex.App.-Dallas 1991, no writ). Courts will
not enforce liquidated damages clauses which do not meet those criteria because the clauses would
constitute unenforceable penalties. Phillips v. Phillips, 820 S.W.2d 785 (Tex.1991). Determining



              © 2015 Thomson Reuters. No claim to original U.S. Government Works.                   2
Healix Infusion Therapy, Inc. v. Bellos, Not Reported in S.W.3d (2003)
2003 WL 22411873

whether a liquidated damages clause is enforceable or whether it is an unenforceable penalty is a
question of law. Phillips v. Phillips, supra.

 *2 In this case, the initial burden was on the movant. However, when a party raises the affirmative
defense of penalty, that party assumes the burden to conclusively establish the defense. Baker v.
International Record Syndicate, Inc., supra.Therefore, the burden was upon Healix to prove that
the contractual liquidated damages was an unenforceable penalty.

The settlement agreement offered as summary judgment evidence by Dr. Bellos showed that the
parties agreed to keep the nature of the settlement agreement confidential. The parties further
agreed that a breach of the confidentiality clause would result in imminent and irreparable harm
and that the damages for a breach of confidentiality would be $10,000.00. Healix admitted in its
response to Dr. Bellos's request for admissions that it agreed to the confidentiality of the agreement
and that it agreed to the $10,000.00 liquidated damages clause. Dr. Bellos's affidavit reflected that
he agreed to the confidential nature of the agreement and that he had performed all acts required of
him under the settlement agreement. His affidavit further showed that Methodist subjected him to
a re-credentialing process every two years. He was unaware of how the disclosure of the agreement
would affect the re-credentialing process, but states that he has been harmed in a manner that is
“incapable of or difficult of estimation.”

As part of its proof, Healix attached the affidavit of Heather Hughes–Glass, the corporate risk
manager for Healix. In her affidavit, Heather Hughes–Glass stated that, as soon as she became
aware of the confidentiality provision of the agreement that was sent to Methodist, she contacted
Dean Matthys, the corporate risk manager for Methodist, to have him destroy the agreement. She
further stated that Matthys indicated that only he and his assistant were aware of the settlement
agreement. Also included in the summary judgment evidence was an affidavit given by Matthys as
well as a letter from Matthys to Healix. These documents indicated that the copy of the settlement
agreement was destroyed soon after it was received by Methodist and that the only two people to
see the agreement, Matthys and his assistant Lisa Irby, were not involved with the re-credentialing
process at Methodist. Finally, Healix offered as summary judgment evidence Dr. Bellos's response
to a request for disclosure that any economic damages suffered by Dr. Bellos were difficult to
estimate.

This evidence does not meet the burden Healix must bear: that at the time the agreement was made
damages could be easily ascertained and that the amount of the liquidated damages award was not
a reasonable forecast of just compensation. Healix contends that the award of liquidated damages
is disproportionate to the actual damages suffered by Dr. Bellos because Dr. Bellos did not have
any actual damages. To emphasize this point, Healix relies on Baker.“If the liquidated damages are
shown to be disproportionate to the actual damages, then the liquidated damages can be declared a
penalty and recovery limited to actual damages proven.”Baker v. International Record Syndicate,


              © 2015 Thomson Reuters. No claim to original U.S. Government Works.                   3
Healix Infusion Therapy, Inc. v. Bellos, Not Reported in S.W.3d (2003)
2003 WL 22411873

Inc., supra at 55.Healix still must show that, at the time the agreement was made, the amount of
the liquidated damages was not a reasonable forecast. To prove this defense, Healix must prove
actual damages, if any, to show that the actual loss was not an approximation of the stipulated
sum.Baker v. International Record Syndicate, Inc., supra.That damages are not yet ascertainable
is not tantamount to evidence of “zero” damages.

 *3 The summary judgment evidence establishes that there was an agreement between Healix and
Dr. Bellos that prohibited the disclosure of the nature of the settlement agreement and that Dr.
Bellos performed all the required acts under the agreement. Healix breached the agreement by
sending a copy of the agreement to Methodist. Because we find that Healix failed to meet its burden
of proof on the penalty issue and because Healix failed to raise a genuine issue of material fact,
we hold that the trial court did not err when it granted Dr. Bellos's motion for summary judgment.
Healix's issues on appeal are overruled.

The judgment of the trial court is affirmed.



Footnotes
1    The award of attorney's fees is not contested in this appeal.


End of Document                                                      © 2015 Thomson Reuters. No claim to original U.S. Government Works.




                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                                   4
In re Kasschau, 11 S.W.3d 305 (1999)




                                                 11 S.W.3d 305
                                           Court of Appeals of Texas,
                                             Houston (14th Dist.).

                              In re Richard Allen KASSCHAU, Relator.

   No. 14–99–00737–CV.                 |    Dec. 16, 1999.   |   Rehearing Overruled Feb. 14, 2000.

Wife brought divorce action against husband, requesting dissolution, conservatorship of two
children, and division of community estate. Before judgment was entered on court-approved
mediated settlement agreement, wife nonsuited divorce petition. Unaware of nonsuit, husband
filed counter-petition for divorce, seeking enforcement of settlement, denying paternity of second
child, and asserting various tort claims. Wife filed new petition for divorce. Ultimately, the
312th District Court, Harris County, James D. Squier, J., denied husband's motion to reinstate
counter-petition and set aside settlement agreement. Husband filed petition for writ of mandamus.
The Court of Appeals, Frost, J., held that: (1) by failing to explain why trial court's refusal to
reinstate his counter-petition for divorce, which was originally filed after wife nonsuited her
divorce petition, could not be remedied by an appeal, petitioner failed to establish justification
for mandamus relief; (2) trial court that approved mediated settlement agreement at divorce, but
never rendered judgment on the agreement, had no ministerial duty to enter judgment, and thus did
not violate a duty imposed by law, such that mandamus relief was available; and (3) trial court's
setting aside of entire mediated settlement agreement at divorce on grounds of illegality, rather
than just severing illegal portion, was not an abuse of discretion.

Writ denied.


Attorneys and Law Firms

*308 Linda Marshall, Houston, for relator.

Shawn Russel Casey, Houston, for respondent.

Panel consists of Justices YATES, FOWLER and FROST.



                                           OPINION ON REHEARING

KEM THOMPSON FROST, Justice.




              © 2015 Thomson Reuters. No claim to original U.S. Government Works.                 1
In re Kasschau, 11 S.W.3d 305 (1999)



Relator's motion for rehearing is overruled. The court's opinion of November 10, 1999, is
withdrawn and this opinion is substituted in its place.

In this original proceeding, relator seeks a writ of mandamus directing the trial court to vacate two
orders in the underlying divorce case: (1) denying reinstatement of an “original counter petition”
for divorce, and (2) setting aside a mediated settlement agreement. Because the first order is not
reviewable by mandamus and the second order was not a clear abuse of discretion, we deny the
writ.



                                              Background

Luckmi Kasschau (“Luckmi”), the real party in interest, sued relator, Richard Allan Kasschau
(“Richard”), for divorce in the 312th District Court of Harris County. In her petition, Luckmi
sought not only dissolution of the marriage, but also conservatorship and support of their two
children and division of the community estate. Richard answered the suit with a general denial, a
plea for confirmation of his separate property, and a request for reimbursement, attorney's fees, and
expenses. The parties subsequently agreed to mediation. The parties settled all issues at mediation
and the court approved the settlement. 1

Before the court entered judgment, however, Luckmi nonsuited her divorce petition. Unaware
of the nonsuit, Richard filed an “original counter-petition” for divorce. In his counter-petition,
Richard sought enforcement of the mediated settlement agreement, denied paternity of the second
child born during the marriage, and asserted various tort claims against Luckmi and Shivi Kumar
Pawa (“Shivi”), the alleged father of the second child. Luckmi subsequently filed in the same court
a new petition for divorce, seeking the same relief sought in her first suit. Luckmi also denied
Richard's paternity of the second child and sought various temporary orders.

Meanwhile, back in the first suit, Richard filed a motion to reinstate his counter-petition for
divorce and to consolidate the two divorce actions. He also asked the court to enter judgment
on the mediated settlement agreement. Luckmi opposed the motion for judgment, asserting that:
(1) certain conditions precedent to judgment had not been satisfied; namely, Shivi had not
filed an intervention as contemplated *309 by the settlement agreement, and (2) the settlement
agreement was void because it required Richard to turn over certain audiotape recordings of
Luckmi for destruction by the parties' attorneys, an act Luckmi claimed would be illegal. See TEX.
PEN.CODE ANN. §§ 16.02(b)(1), 37.09(a)(1) (Vernon 1994).

At a hearing on these motions, the trial court granted the motion to consolidate the two divorce
actions based on its conclusion that Luckmi's nonsuit did not defeat the mediated settlement
agreement. The court, however, denied Richard's motion to reinstate the counter-petition, finding


              © 2015 Thomson Reuters. No claim to original U.S. Government Works.                  2
In re Kasschau, 11 S.W.3d 305 (1999)



that only Richard's claim for attorney's fees survived the nonsuit. The court withdrew its approval
of the mediated settlement agreement, finding the agreement void and unenforceable because it
required performance of an illegal act. The court put its first two rulings in writing by order signed
the same day as the hearing.

After the hearing, Richard filed a request to enforce the terms of the mediated settlement
agreement, except for the allegedly illegal provision. In the meantime, Shivi filed an intervention
seeking to establish paternity, conservatorship and support of the second child. After the trial court
signed an order setting aside the entire mediated settlement agreement, Richard filed this petition
for writ of mandamus. 2



                                               Mandamus

 [1] Mandamus relief is available if the trial court violates a duty imposed by law or clearly
abuses its discretion, either in resolving factual issues or in determining legal issues when there
is no adequate remedy at law. See Walker v. Packer, 827 S.W.2d 833, 839–40 (Tex.1992). A
trial court clearly abuses its discretion by making an arbitrary and unreasonable decision that
amounts to a clear and prejudicial error of law. See Johnson v. Fourth Court of Appeals, 700
S.W.2d 916, 917 (Tex.1985). Richard complains the trial court violated a duty imposed by law
by refusing to reinstate his counter-petition and declining to enter judgment on the mediated
settlement agreement. We address each of these complaints and the question of whether Richard
has an adequate remedy by appeal.



                                 Reinstatement of the Counter–Petition

 [2] [3] [4] Richard first contends the trial court violated a ministerial duty by refusing to
reinstate his “original counter-petition,” even though it was filed after Luckmi's nonsuit. Under
Texas Rule of Civil Procedure 162, a plaintiff has an absolute, unqualified right to take a nonsuit
before she introduces all her evidence, as long as the defendant has not made a claim for affirmative
relief. See BHP Petroleum Co., Inc. v. Millard, 800 S.W.2d 838, 840 (Tex.1990); General Land
Office v. OXY U.S.A., Inc., 789 S.W.2d 569, 570 (Tex.1990); Greenberg v. Brookshire, 640 S.W.2d
870, 871 (Tex.1982) (per curiam). The trial court's refusal to grant a nonsuit in the absence of
a defendant's claim for affirmative relief violates a ministerial duty and can be corrected by
mandamus. See Quanto Int'l Co., Inc. v. Lloyd, 897 S.W.2d 482, 485 (Tex.App.—Houston [1st
Dist.] 1995, orig. proceeding). Similarly, the trial court's reinstatement of a case after the court has
lost jurisdiction because of a nonsuit may also be reviewed by *310 mandamus. See id. (citing
Johnson v. Harless, 651 S.W.2d 259, 260 (Tex.1983). Neither of these situations is present here.


              © 2015 Thomson Reuters. No claim to original U.S. Government Works.                   3
In re Kasschau, 11 S.W.3d 305 (1999)




 [5] [6] [7] [8] [9] The trial court did not refuse to grant a nonsuit nor did it attempt to reinstate
the case without jurisdiction to do so. Instead, the court merely refused to consider Richard's
counter-petition for divorce. We can see no reason to remedy the court's ruling by mandamus
rather than by an appeal. The requirement that a person seeking mandamus relief establish the lack
of an appellate remedy is a “fundamental tenet” of mandamus practice. See In re Masonite Corp.,
997 S.W.2d 194, 199–201 (Tex. 1999) (J. Baker dissenting) (and cases cited therein). An appellate
remedy is not inadequate merely because it may involve more expense or delay than obtaining
mandamus. See id. Although, on rare occasions, exceptional circumstances may justify mandamus
relief despite the presence of a generally adequate appellate remedy, such circumstances do not
exist when a trial court's ruling is merely incidental to the trial process and does not permanently
deprive a party of substantial rights. See id. at 199–201. Furthermore, the mere fact that a trial
court's erroneous order will result in an eventual reversal on appeal does not mean that trial will be
a “waste of judicial resources.” See id. Rather, mandamus should issue only in situations involving
manifest and urgent necessity and not for grievances to which other remedies may apply. See id.
at 198–99. Because Richard neglects to explain why the court's ruling on his motion to reinstate
cannot be remedied by an appeal, we decline to address the court's ruling by mandamus.



                          Judgment on the Mediated Settlement Agreement

Richard also contends the trial court violated a ministerial duty by refusing to enter judgment on
the mediated settlement agreement. Sections 6.602(b) and 153.0071(d) of the Family Code state
that “a mediated settlement agreement is binding on the parties if the agreement: (1) provides in
a separate paragraph that the agreement is not subject to revocation; (2) is signed by each party
to the agreement; and (3) is signed by the parties' attorney, if any, who is present at the time
the agreement is signed.” Section 157.0071(d) adds the requirement of “an underlined statement
that the agreement is not subject to revocation.” Finally, subsections (c) and (e) of these statutes
provide that “a party is entitled to judgment” on a mediated settlement agreement that meets the
above requirements “notwithstanding Rule 11 ... or another rule of law.”

 [10] It is undisputed that the mediated settlement agreement in the underlying case meets the
requirements of sections 6.602(b) and 153.0071(d). Relying on these Family Code provisions,
Richard argues that Luckmi could not revoke her consent to the agreement by nonsuiting her
divorce action and that the trial court violated a ministerial duty by refusing to enter judgment on
the agreement. Citing the noted arbitration case, Jack B. Anglin v. Tipps, 842 S.W.2d 266, 271–73
(Tex.1992), Richard also argues that without mandamus relief, he will be deprived of the rapid,
inexpensive alternative to litigation provided by the Family Code. We need not compare mediated
settlement agreements under the Family Code to arbitration agreements. Instead, we conclude that
Richard lacks an adequate remedy from the trial court's ruling because he will be deprived of the


              © 2015 Thomson Reuters. No claim to original U.S. Government Works.                 4
In re Kasschau, 11 S.W.3d 305 (1999)



settlement's benefits if forced to expend further time and resources litigating a suit that may have
been settled. See, e.g., Mantas v. Fifth Court of Appeals, 925 S.W.2d 656, 659 (Tex.1996) (holding
that relator who settled case on appeal lacked adequate remedy for appellate court's refusal to
abate appeal pending suit to enforce settlement agreement); see also Harris County Appraisal Dist.
v. Johnson, 889 S.W.2d 531, 533–34 (Tex.App.—Houston [14th Dist.] 1994, orig. proceeding)
(mandamus *311 is appropriate to compel a district judge to proceed to trial and judgment).

 [11] While we find the court's refusal to enter judgment on the mediated settlement agreement is
a proper subject for mandamus, we conclude that the trial court did not violate a ministerial duty in
this case. One of the two reported cases addressing section 153.0071 of the Family Code holds that
subsection (e) requires the trial court to enter judgment on a mediated settlement agreement that
meets the requirements of subsection (d). See Alvarez v. Reiser, 958 S.W.2d 232, 234 (Tex.App.
—Eastland 1997, writ denied). 3 In Alvarez, the husband sued the wife for divorce. 958 S.W.2d
at 233. The wife answered and filed a cross-petition for divorce. See id. At mediation, the parties
reached a settlement agreement that complied with the requirements of section 153.071(d). See
id. The trial court entered judgment on the mediated settlement agreement even though the wife
had withdrawn her consent to the agreement. See id. The wife appealed and the appellate court
affirmed, concluding that: (1) a party's unilateral withdrawal of consent does not negate the
enforceability of a mediated settlement agreement that complies with section 153.0071(d), and (2)
“a separate suit for enforcement of a contract [i]s not necessary.” Id. at 234.

Here, the issue is not whether Luckmi could revoke her consent to the mediated settlement
agreement, but whether the agreement itself was valid and enforceable. Notably, the lower court
did not rule that Luckmi had revoked her consent to the mediated settlement agreement by taking
a nonsuit. To the contrary, in consolidating the two divorce actions, the court expressly stated that
Luckmi's nonsuit did not defeat the agreement. Instead of immediately entering judgment on the
mediated settlement agreement, however, the trial court reviewed the agreement and concluded
it was void.

 [12] [13] [14] Neither the plain language of the Family Code nor the holding in Alvarez
foreclose the court's action. First, as noted, sections 6.602 and 153.0071 of the Family Code
provide that “a party is entitled to judgment” on a mediated settlement agreement if certain
requirements of those statutes are met. Where, as here, the legislature has not defined the terms
in the statute, we must apply their ordinary meaning. See In re Clark, 977 S.W.2d 152, 156
(Tex.App.—Houston [14th Dist.] 1998, orig. proceeding). “Entitle” means in part “to grant a legal
right to or qualify for.” See BLACK'S LAW DICTIONARY 553 (7th ed.1999). That a party
has a “right to” judgment, or “qualifies for” judgment on a mediated settlement agreement does
not deprive the court of discretion to review an agreement before entering judgment. Second,
while Alvarez precludes a party from revoking consent to a mediated settlement agreement that
complies with section 153.0071, it does not hold that the court's duty to enter judgment on such


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In re Kasschau, 11 S.W.3d 305 (1999)



an agreement is ministerial. A court's duty to enter judgment on a settlement agreement becomes
ministerial only after it has first rendered judgment on that agreement. See In re Bland, 960
S.W.2d 123, 124 (Tex.App. Houston [1st Dist.] 1997, orig. proceeding) (J. O' Connor dissenting)
(citing Dunn v. Dunn, 439 S.W.2d 830, 832 (Tex.1969)); see also In the Marriage of Beavers,
648 S.W.2d 729, 732 (Tex.App.—Amarillo 1983, no writ). Here, the trial court approved the
settlement agreement, but never rendered judgment on the agreement. See, e.g., S & A Restaurant
Corp. v. Leal, 892 S.W.2d 855, 857–58 (Tex.1995) (holding that approval of a settlement does not
necessarily constitute a rendition of judgment in the absence of a clear intent to render judgment).
As a *312 result, the court had no ministerial duty to enter judgment and thus, did not violate
such a duty.

Notwithstanding this legal conclusion, the facts of the underlying case demonstrate that the
parties did not intend for the court to immediately enter judgment on the settlement agreement.
Specifically, the mediated settlement agreement expressly contemplates certain contingencies in
connection with Shivi's intervention. It states that the court would likely require an intervention
to resolve certain issues regarding the second child and that entry of a decree would be delayed,
and agreed temporary orders entered while these issues were resolved. Thus, the facts of this
case establish the trial court's discretion to review the agreement before entering judgment.
Accordingly, we hold that the trial court did not violate a ministerial duty by refusing to enter
judgment on the mediated settlement agreement.



                           Legality of the Mediated Settlement Agreement

 [15] [16] [17] [18] Finally, Richard contends the trial court clearly abused its discretion by
setting aside the entire mediated settlement agreement on grounds of illegality. “A contract to do
a thing which cannot be performed without violation of the law” violates public policy and is
void. See Lewis v. Davis, 145 Tex. 468, 199 S.W.2d 146, 148–49 (1947); see also Montgomery v.
Browder, 930 S.W.2d 772, 778 (Tex.App.—Amarillo 1996, writ denied). The rationale behind the
rule is not to protect or punish either party to the contract, but to benefit and protect the public. See
Montgomery, 930 S.W.2d at 778; see also Plumlee v. Paddock, 832 S.W.2d 757, 759 (Tex.App.-
Fort Worth 1992, writ denied). Because of the presumption in Texas that contracting parties are
knowledgeable of the law and contract accordingly, courts will generally leave the parties as they
find them. See id. Thus, “where the illegality does not appear on the face of the contract, it will not
be held void unless facts showing its illegality are before the court.” See Lewis, 199 S.W.2d at 149.
Here, the trial court concluded from the facts before it that the settlement agreement called for the
performance of an illegal act. See TEX. PEN.CODE ANN. § 16.02(a)(1) (Vernon 1994) (“ a person
commits an offense if he intentionally intercepts ... a wire, oral, or electronic communication”).




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In re Kasschau, 11 S.W.3d 305 (1999)



At the hearing on Richard's motions, the court heard uncontroverted testimony that Richard
secretly tape recorded Luckmi's phone conversations with various third persons. 4 Aware of these
tape recordings at the time of mediation, the parties put the following provision in their settlement
agreement:


   Husband ordered to deliver all tape recordings of Wife and transcripts and all copies thereof
   to Linda Marshall [husband's attorney] by 5:00 p.m., five days after entry of decree. Attorneys
   to meet, inspect, and destroy all of same. Parties enjoined from disseminating or distributing a
   copy of tapes or transcripts.
 [19] [20] Taking into account that Shivi and others might urge authorities to bring criminal
charges against Richard, the court concluded that this provision illegally required the parties to
destroy evidence in a potential criminal proceeding brought at the instance of non-parties to the
settlement agreement. 5 *313 Section 37.09(d)(1) of the Penal Code states that “a person commits
an offense if the person knowing that an offense has been committed, alters, destroys, or conceals
any record, document or thing with intent to impair its verity, legibility or availability as evidence
in any subsequent investigation or official proceeding.” TEX. PEN.CODE ANN. § 37.09(d)(1)
(Vernon Supp.1999) (emphasis added). This statute makes it a crime to alter or destroy evidence of
a crime even before the commencement of a criminal proceeding. Richard argues the provision in
question is legal because it does not require immediate destruction of the tapes and correspondingly
prohibits dissemination of them. The Penal Code does not provide a time after which a person,
knowing that an offense has been committed, may legally destroy evidence. Richard contends,
however, that “if they waited until the statute of limitations expired ... the agreement would be
fully and lawfully performed.” We reject the notion that once the statute of limitations on the state
wire tap law runs, destruction of the tapes would no longer violate § 37.09(d)(1), and, therefore,
could not be characterized as an illegal act. 6 Richard's argument incorrectly assumes that the mere
passage of time transforms an illegal act into a legal one. The statute of limitations is an affirmative
defense; it does not bar prosecution for violation of a statute. See Proctor v. State, 967 S.W.2d
840, 844 (Tex.Crim.App.1998) (defense created by statute of limitations is forfeited if not asserted
before the guilt/innocence stage of trial). An act prohibited by § 37.09(d)(1) does not magically
become legal upon the expiration of the statute of limitations. While the running of the limitations
period provides the accused with a potential defense to any prosecution for violation of the statute,
it does not change the nature or character of the act. For this reason, we are unable to find that the
trial court committed a clear and prejudicial error of law by declaring the settlement agreement
illegal and unenforceable based on its finding that the agreement, on its face, called for a violation
of § 37.09(d)(1).

 [21] [22] [23] Nevertheless, Richard argues the court abused its discretion in refusing to
eliminate any illegal provision and enforce the remainder of the settlement agreement. As a general
rule, where part of the consideration for an agreement is illegal, the entire agreement is void if the


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In re Kasschau, 11 S.W.3d 305 (1999)



contract is entire and indivisible. See Montgomery, 930 S.W.2d at 778. The doctrine of severability
is an exception that applies in circumstances in which the original consideration for the contract is
legal, but incidental promises within the contract are found to be illegal. See id. In such a case, the
court may sever the invalid provision and uphold the valid portion, provided the invalid provision
does not constitute the main or essential purpose of the agreement. See Rogers v. Wolfson, 763
S.W.2d 922, 925 (Tex.App.—Dallas 1989, writ denied). Severability of the contract is determined
by the intent of the parties as evidenced by the language in the contract. See Montgomery, 930
S.W.2d at 778–79; see also McFarland v. Haby, 589 S.W.2d 521, 524 (Tex.App.—Austin 1979,
writ ref'd n.r.e.). The issue is whether the parties would have entered into the agreement absent the
illegal parts. See Rogers, 763 S.W.2d at 925; see also McFarland, 589 S.W.2d at 524. Therefore,
we must determine the central and essential purpose of the settlement agreement.

Richard argues that the resolution of the various issues related to divorce, not the destruction of the
tapes, was the essential purpose of the settlement agreement. In contrast, Luckmi argues that the
destruction *314 of the tapes was the consideration for her release of claims against Richard and,
thus, was an essential purpose of the agreement. Given the structure of the settlement agreement
and its interrelated terms and provisions, we cannot say that the trial court acted without reference
to guiding rules and principles in concluding that the agreement is entire and indivisible. Because
the court found part of the consideration for the settlement agreement illegal, it was justified in
finding the entire agreement void and unenforceable. Therefore, we find the trial court did not
abuse its discretion by declaring the entire agreement void and refusing to enforce it.

 [24] [25] Lastly, Richard argues that Luckmi is estopped from questioning the agreement's
validity because she accepted a $1000 cash payment under its terms. A void contract cannot be
rendered enforceable by estoppel. See Reyes v. Storage & Processors, Inc., 995 S.W.2d 722, 725
n. 3 (Tex.App.—San Antonio 1999, pet. filed) (holding that employee who accepted benefits of
void agreement limiting worker's compensation benefits was not estopped from complaining about
agreement). Thus, Luckmi is not estopped from questioning the agreement's validity. Therefore,
we find no clear abuse of discretion by the trial court in setting aside the entire agreement.



                                               Conclusion

In conclusion, we recognize that there are competing public policy interests at stake here.
On the one hand, courts are responsible for carrying out this state's policy of encouraging
the peaceable resolution of disputes involving the parent-child relationship through voluntary
settlement procedures. See TEX. CIV. PRAC. & REM.CODE ANN. §§ 154.002, 154.003 (Vernon
1997). On the other hand, public policy prohibits courts from enforcing illegal contracts. See Lewis,
199 S.W.2d at 151; see also Montgomery, 930 S.W.2d at 778. Here, we are unable to find the
trial court violated the public policy encouraging settlements by refusing to enforce a settlement


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In re Kasschau, 11 S.W.3d 305 (1999)



agreement that it found contained an illegal provision. Accordingly, because the trial court neither
violated a duty imposed by law nor clearly abused its discretion by refusing to enter judgment on
the mediated settlement agreement, we deny mandamus relief.



Footnotes
1    The copy of the mediated settlement agreement provided by Richard is neither file-stamped nor signed by the court. Nevertheless,
       the reporter's record from a later hearing establishes that the court signed and approved the agreement.
2      Luckmi objects to the documents included in the appendix to the petition. These were the only documents provided in support of
       mandamus relief. A petition for writ of mandamus must contain an appendix, which must include “a certified or sworn copy of any
       order complained of, or any other document showing the matter complained of.” See TEX.R.APP. P.2.3(j). The orders of which
       Richard complains are included in the appendix and appear to be signed by the trial court, but are not file-stamped. The verification
       of Richard's counsel states only “that the pleadings contained in the appendix are true and correct copies.” While the verification
       makes no mention of “orders, motions or other documents,” we construe “pleadings” in this instance to include all the documents
       in the appendix.
3      Spinks v. Spinks, 939 S.W.2d 229 (Tex.App.—Houston [1st Dist.] 1997, no writ) is the only other reported case addressing section
       153.0071. In that case, the court held that a party could revoke a mediated settlement agreement that did not comply with section
       153.071(d). See id. at 230.
4      Luckmi testified that after filing for divorce, she discovered a recording device attached to a phone in the garage of the house where
       she and Richard lived. She testified that the device also contained a tape of her conversations with others including, her mother,
       Shivi, and friends. Luckmi testified that she was unaware of the recording device or the tape and that she did not give permission to
       anyone to record her conversations. Luckmi also testified that when she confronted Richard, he acknowledged installing the device
       and making the recordings. When Richard was questioned on this topic, his counsel invoked the Fifth Amendment on Richard's
       behalf and instructed him not to answer.
5      These non-parties include Shivi. Under the settlement agreement, Richard agreed to release Shivi of all claims, except for child
       support. However, the release was conditioned on Shivi releasing claims against Richard.
6      We note that § 37.09(d)(1) applies to the destruction of evidence that might be used in “any subsequent investigation or official
       proceeding” and is not limited to a violation of the state wire tap laws.


End of Document                                                          © 2015 Thomson Reuters. No claim to original U.S. Government Works.




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In re Kasschau, 11 S.W.3d 305



    History (2)

    Direct History (2)
      1. In re Kasshau
    1999 WL 1015703 , Tex.App.-Hous. (14 Dist.) , Nov. 10, 1999


      Opinion Withdrawn and Superseded on Overruling of Rehearing by

        2. In re Kasschau
      11 S.W.3d 305 , Tex.App.-Hous. (14 Dist.) , Dec. 16, 1999 , rehearing overruled ( Feb
      14, 2000 )




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In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237




                                               262 S.W.3d 337
                                           Supreme Court of Texas.

                       In re POLY–AMERICA, L.P., Ind. and d/b/a Pol–Tex
                       International, and Poly–America GP, L.L.C., Relators.

                                      No. 04–1049.          |   Aug. 29, 2008.

Synopsis
Background: Former employee sought mandamus relief from order of the 344th District Court,
Chambers County, Carroll E. Wilborn, Jr., J., granting employer's motion to compel arbitration and
to stay employee's action for wrongful discharge and retaliation for filing a workers' compensation
claim. The Houston Court of Appeals, First District, 175 S.W.3d 315, conditionally granted a writ.
Review was granted.



Holdings: The Supreme Court, Harriet O'Neill, J., held that:

[1] provisions of arbitration agreement, eliminating two types of remedies available under anti-
retaliation provisions of Texas Workers' Compensation Act, were substantively unconscionable;

[2] fee-splitting provision of arbitration agreement was not substantively unconscionable;

[3] as a matter of first impression, discovery limits in arbitration agreement were not substantively
unconscionable; and

[4] substantively unconscionable provisions of arbitration agreement were severable.


Writ conditionally granted.

Scott Brister, J., filed a dissenting opinion.


Attorneys and Law Firms

*343 Erica W. Harris, Susman Godfrey L.L.P., Houston, Craig T. Enoch, Winstead PC, Austin,
Adam Brian Ross, Poly–America, LP, Grand Prairie, TX, for Relator.

Scott Fiddler, Law Office of G. Scott Fiddler, P.C., Houston TX, for Real Party in Interest.


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In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237


Jeffrey C. Londa, Ogletree Deakins Nash Smoak & Stewart, P.C., Houston, Audrey Elaine Mross,
Davis Munck Butrus, P.C., Kirk L. Pittard, Durham & Pattard, LLP, Dallas, Peter M. Kelly, Law
Office Of Peter M. Kelly, P.C., Houston TX, for Amicus Curiae.

Justice O'NEILL delivered the opinion of the Court, in which Chief Justice JEFFERSON, Justice
HECHT, Justice WAINWRIGHT, Justice MEDINA, Justice GREEN, and Justice JOHNSON
joined.

Opinion

*344 HARRIET O'NEILL, Justice.

In this retaliatory-discharge case, the employee's employment contract contains an arbitration
agreement that requires the employee to split arbitration costs up to a capped amount, limits
discovery, eliminates punitive damages and reinstatement remedies available under the Workers'
Compensation Act, and imposes other conditions on the arbitration process. We must decide
whether any or all of these provisions are unconscionable and, if they are, whether the contract's
severability clause preserves the arbitration right. We hold that the trial court did not abuse its
discretion in allowing the arbitrator to assess the unconscionability of the agreement's fee-splitting
and discovery-limitation provisions as applied in the course of arbitration. We further hold that
the arbitration agreement's provisions precluding remedies under the Workers' Compensation Act
are substantively unconscionable and void under Texas law. However, those provisions are not
integral to the parties' overall intended purpose to arbitrate their disputes and, pursuant to the
agreement's severability clause, are severable from the remainder of the arbitration agreement,
which we conclude is otherwise enforceable. Accordingly, we conditionally grant the petition for
mandamus.



                                                       I. Facts

Johnny Luna began his employment with Pol–Tex International, d/b/a Poly–America, L.P., in
October 1998. Upon his hiring, Luna signed an agreement to submit “all claims or disputes” to
arbitration. Approximately four years later, Luna signed an amended agreement to arbitrate that
contained substantially the same provisions. Both the 1998 and 2002 agreements provide that
they are governed by the Federal Arbitration Act (FAA). 9 U.S.C. §§ 1–14. Additionally, both
agreements contain a series of requirements for the arbitration between the parties. All claims
must be asserted within a maximum of one year from the occurrence of the event from which
the claim arises. Fees associated with arbitration—including but not limited to mediation fees, the
arbitrators' fees, court reporter fees, and fees to secure a place for a hearing—are to be split between
the parties, with the employee's share capped at “the gross compensation earned by the Employee


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In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

in Employee's highest earning month in the twelve months prior to the time the arbitrator issues his
award.” Each side is permitted limited forms of discovery: twenty-five interrogatories (including
sub-parts), twenty-five requests for production or inspection of documents or tangible things, and
one oral deposition of no more than six hours. Parties may not use written depositions or requests
for admission; the agreement prohibits discovery of either party's financial information except
for the employee's earnings if the employee seeks lost wages, back pay, and/or front pay; and all
aspects of the arbitration are deemed confidential. Finally, the arbitrator is stripped of authority to
award punitive, exemplary, or liquidated damages, or to order reinstatement of employment.

In December 2002, Luna suffered a work-related neck injury when he accidentally hit his head on
a pipe. Poly–America's company doctor examined Luna and diagnosed him with an acute cervical
spine flexion injury. Luna subsequently filed a workers' compensation claim and began receiving
physical therapy. Approximately two weeks later, Luna returned to work on a release for light
duty; however, Luna continued to suffer pain and utilized previously scheduled vacation time to
recover from his injury. After being warned by the company doctor that he needed to return to
work and get off of workers' compensation if he wanted to keep his job, *345 Luna returned to
work without restrictions on January 10, 2003. Upon his return, Luna noticed that another person
was already being trained for his position, and he claims that his supervisor began to harass him.
One month later, Luna told his supervisor that his neck continued to bother him and that he needed
to return to the company doctor; the next day that Luna was scheduled to work, he was fired.

Luna filed this suit asserting claims for unlawful retaliatory discharge under section 451.001 of the
Labor Code (“the Workers' Compensation Act”). TEX. LAB.CODE § 451.001–.003. Claiming
that Poly–America acted with malice, ill will, spite, or specific intent to cause injury, Luna sought
both reinstatement and the imposition of punitive damages. He additionally sought a declaratory
judgment that the arbitration agreement was unenforceable because, among other reasons, its
provisions violated public policy and were unconscionable. Luna submitted two affidavits—his
own, and that of an expert witness—in support of his claims. Poly–America responded with a
motion to compel arbitration which, after a hearing, the trial court granted.

Luna sought a writ of mandamus in the court of appeals, reasserting his argument that provisions
of the arbitration agreement were substantively unconscionable. The court of appeals held that,
in light of the fee-splitting provisions and limitations on remedies, the arbitration agreement as a
whole was substantively unconscionable. 175 S.W.3d 315, 318. Poly–America sought review in
this Court. We hold that the arbitration agreement's provision that eliminates available remedies
under the Workers' Compensation Act is unenforceable, but we find that provision severable from
the arbitration agreement as a whole and conditionally grant Poly–America's writ of mandamus.




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In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237




                                             II. Standard of Review

 [1] [2] Mandamus is the proper means by which to seek review of an order compelling arbitration
under the FAA. In re Am. Homestar of Lancaster, Inc., 50 S.W.3d 480, 483 (Tex.2001). In In
re Palacios, we recognized that it is “important for federal and state law to be as consistent
as possible” in enforcement and review of provisions under the FAA. 221 S.W.3d 564, 565
(Tex.2006) (per curiam) (quoting In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 739
(Tex.2005)). Federal courts may not review orders compelling arbitration and staying litigation
(“compel-and-stay orders”) by interlocutory appeal. See 9 U.S.C. § 16(b)(1) (“[A]n appeal may not
be taken from an interlocutory order ... granting a stay of any action under Section 3 of this title.”).
Accordingly, as we noted in Palacios, it would be inappropriate to exercise our own mandamus
power in a manner inconsistent with the federal courts' practice. See Palacios, 221 S.W.3d at
565. Although mandamus review is generally available in federal courts to review non-appealable
interlocutory rulings, mandamus is granted only in exceptional cases. See generally Gulfstream
Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271, 288–90 & n. 13, 108 S.Ct. 1133, 99 L.Ed.2d
296 (1988) (holding that, where a particular order is not appealable, mandamus is available and
“will be appropriate in exceptional cases”). As we acknowledged in Palacios, federal courts have
applied this template to orders that cannot be appealed under the FAA, although they almost
never grant mandamus relief. 221 S.W.3d at 565–66 (“Even after Green Tree [Financial Corp.—
Alabama v. Randolph, 531 U.S. 79, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000)], the Fifth Circuit has
held that federal mandamus review of an order staying a case for arbitration may still be available if
a party can meet a ‘particularly *346 heavy’ mandamus burden to show ‘clearly and indisputably
that the district court did not have the discretion to stay the proceedings pending arbitration.’ ”)
(quoting Apache Bohai Corp. v. Texaco China, B.V., 330 F.3d 307, 310–11 (5th Cir.2003)). This
general rule has been broadly applied to unappealable ancillary interlocutory orders in proceedings
under the FAA, see, e.g., Georgiou v. Mobil Exploration & Prod. Servs., Inc. U.S., 190 F.3d 538,
1999 WL 642871 at *3 (5th Cir. July 27, 1999) (dismissing appeal of order staying litigation
in favor of arbitration proceeding in foreign forum, and denying mandamus because plaintiffs
failed to carry the “particularly heavy burden” to warrant mandamus relief from such an order);
Cofab Inc. v. Phila. Joint Bd., Amalgamated Clothing & Textile Workers Union, AFL–CIO–CLC,
141 F.3d 105, 110 (3d Cir.1998); and appears to also apply to compel-and-stay orders under
section 16(b)(1), see Douglas v. U.S. Dist. Court, 495 F.3d 1062, 1065 (9th Cir.2007) (granting
mandamus relief from compel-and-stay order); Manion v. Nagin, 255 F.3d 535, 538–40 & n.
4 (8th Cir.2001) (dismissing appeal of various interlocutory orders, including order compelling
arbitration, and denying mandamus because Manion had not made “any showing that he [was]
entitled to such extraordinary relief”); McDermott Int'l, Inc. v. Underwriters at Lloyds Subscribing
to Memorandum of Ins. No. 104207, 981 F.2d 744, 748 (5th Cir.1993) (“This court has recognized
that [mandamus review of an order compelling arbitration] may be available [but] McDermott has
failed to satisfy [the] demanding standard.”). 1


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In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237



 [3] [4] [5] Although federal precedent in this area is not uniformly clear, it appears a
federal court would be permitted—albeit not compelled—to address the merits of the mandamus
arguments in this case. If such review were categorically unavailable and unconscionability
determinations the sole realm of arbitrators, as the dissenting Justice proposes, development of
the law as to this threshold issue would be substantially hindered if not precluded altogether.
Nevertheless, federal precedent counsels against granting relief unless the stringent requirements
for mandamus are met. See Gulfstream, 485 U.S. at 289, 108 S.Ct. 1133. Federal courts grant
mandamus only upon demonstration of a “clear and indisputable” right to issuance of the writ:
“First, the party seeking the issuance of the writ must have no other adequate means to attain
the relief he desires.... Second, the petitioner must satisfy the burden of showing that his right
to issuance of the writ is clear and indisputable. Third ... the issuing court, in the exercise of its
discretion, must be satisfied that the writ is appropriate under the circumstances.” Cheney v. U.S.
Dist. Court, 542 U.S. 367, 380–81, 124 S.Ct. 2576, 159 L.Ed.2d 459 (2004). Our own mandamus
standard is similar, requiring a demonstration that *347 the trial court clearly abused its discretion
by failing to correctly analyze or apply the law and a determination that the benefits of mandamus
outweigh the detriments such that an appellate remedy is inadequate. See In re Prudential Ins.
Co. of Am., 148 S.W.3d 124, 135–36 (Tex.2004). Because arbitration is intended to provide a
lower-cost, expedited means to resolve disputes, mandamus proceedings will often, if not always,
deprive the parties of an arbitration agreement's intended benefits when a compel-and-stay order
is at issue; accordingly, courts should be hesitant to intervene. With these standards in mind, we
turn to the compel-and-stay order in this case.



                        III. Unconscionability and the Federal Arbitration Act

 [6] [7] Poly–America argues that the FAA's “strong presumption” favoring arbitration applies
in this case, and furthermore that the FAA preempts all state public-policy grounds for finding
the agreement to arbitrate unenforceable. See In re R & R Personnel Specialists of Tyler, Inc.,
146 S.W.3d 699, 705 (Tex.App.—Tyler2004) (holding that the FAA preempts “any public policy
underlying the Texas workers' compensation statutes that is contrary to the enforceability of
arbitration agreements”). Because neither this presumption nor federal preemption applies in a
state court's assessment of whether parties have entered into a valid and enforceable agreement to
arbitrate under state contract law, we disagree.

 [8] Section 2 of the FAA provides that arbitration agreements “shall be valid, irrevocable, and
enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”
9 U.S.C. § 2 (emphasis added). Thus, an agreement to arbitrate is valid under the FAA if it meets
the requirements of the general contract law of the applicable state. In re AdvancePCS Health
L.P., 172 S.W.3d 603, 606 (Tex.2005) (citing First Options of Chicago, Inc. v. Kaplan, 514 U.S.


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In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995)). In determining the validity of an agreement
to arbitrate under the FAA, courts must first apply state law governing contract formation. See 9
U.S.C. § 2; First Options, 514 U.S. at 944, 115 S.Ct. 1920.

 [9] [10] The United States Supreme Court has repeatedly emphasized that “state law, whether of
legislative or judicial origin, is applicable [to the determination of the validity of an agreement to
arbitrate] if that law arose to govern issues concerning the validity, revocability, and enforceability
of contracts generally.” Perry v. Thomas, 482 U.S. 483, 493 n. 9, 107 S.Ct. 2520, 96 L.Ed.2d
426 (1987). Thus, courts “may not ... invalidate arbitration agreements under state laws applicable
only to arbitration provisions.” Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct.
1652, 134 L.Ed.2d 902 (1996); see also Perry, 482 U.S. at 493 n. 9, 107 S.Ct. 2520 (“A state-
law principle that takes its meaning precisely from the fact that a contract to arbitrate is at issue
does not comport with [section 2].”).

 [11] [12] However, the purpose and language of the FAA require only that agreements to
arbitrate be placed “upon the same footing as other contracts.” Doctor's Assocs., 517 U.S. at 687,
116 S.Ct. 1652 (quoting Scherk v. Alberto–Culver Co., 417 U.S. 506, 511, 94 S.Ct. 2449, 41
L.Ed.2d 270 (1974)) (emphasis added); see also H.R. REP. NO. 68–96, at 1 (1924) (noting that
by enacting section 2, Congress sought to place agreements to arbitrate “upon the same footing
as other contracts, where [they] belong[ ]”). Perry makes clear that state courts may not fashion
special rules regarding the enforceability *348 of arbitration contracts per se. See Perry, 482 U.S.
at 492 n. 9, 107 S.Ct. 2520. Furthermore, once an enforceable contract to arbitrate is found, there is
a strong federal presumption in favor of arbitration such that myriad doubts—as to waiver, scope,
and other issues not relating to enforceability—must be resolved in favor of arbitration. See, e.g., In
re FirstMerit Bank, 52 S.W.3d 749, 752 (Tex.2001); Prudential Sec. Inc. v. Marshall, 909 S.W.2d
896, 898–99 (Tex.1995). However, a state court must initially determine—through the neutral
application of its own contract law—whether an enforceable agreement exists in the first instance,
and whether “generally applicable contract defenses ... may be applied to invalidate arbitration
agreements without contravening” the policies of the FAA. Doctor's Assocs., 517 U.S. at 687, 116
S.Ct. 1652. Thus, in this case, if a contract limiting damages or restricting other remedies under the
Workers' Compensation Act is generally unenforceable under Texas law, an arbitration contract
with these same limitations will also be unenforceable.

 [13] [14] Nevertheless, under Texas law, as with any other contract, agreements to arbitrate
are valid unless grounds exist at law or in equity for revocation of the agreement. The burden
of proving such a ground—such as fraud, unconscionability or voidness under public policy—
falls on the party opposing the contract. See FirstMerit Bank, 52 S.W.3d at 756. Thus, while
we reject Poly–America's assertions that we must apply a presumption favoring arbitration in
assessing whether the parties entered into an enforceable agreement under Texas law and that
the FAA preempts Texas public policies that may make certain contractual provisions generally


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In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

unenforceable, Luna nevertheless bears the burden to establish that the challenged provisions are
unenforceable.



                      IV. Arbitration and Unconscionability Under Texas Law


                                              A. General Standard

 [15] Agreements to arbitrate disputes between employers and employees are generally
enforceable under Texas law; there is nothing per se unconscionable about an agreement to
arbitrate employment disputes and, in fact, Texas law has historically favored agreements to
resolve such disputes by arbitration. See Advance PCS, 172 S.W.3d at 608; EZ Pawn Corp. v.
Mancias, 934 S.W.2d 87, 90 (Tex.1996); Cantella & Co. v. Goodwin, 924 S.W.2d 943, 944
(Tex.1996).

 [16] [17] [18] [19] Unconscionable contracts, however—whether relating to arbitration or not
—are unenforceable under Texas law. A contract is unenforceable if, “given the parties' general
commercial background and the commercial needs of the particular trade or case, the clause
involved is so one-sided that it is unconscionable under the circumstances existing when the parties
made the contract.” FirstMerit Bank, 52 S.W.3d at 757; see also In re Halliburton Co., 80 S.W.3d
566, 571 (Tex.2002) (“[S]ubstantive unconscionability ... refers to the fairness of the arbitration
provision itself.”). Unconscionability is to be determined in light of a variety of factors, which aim
to prevent oppression and unfair surprise; in general, a contract will be found unconscionable if it
is grossly one-sided. See DAN B. DOBBS, 2 LAW OF REMEDIES 703, 706 (2d ed.1993); see
also RESTATEMENT (SECOND) OF CONTRACTSS § 208, cmt. a (1979) (“The determination
that a contract or term is or is not unconscionable is made in the light of its setting, purpose,
and effect. Relevant factors include weaknesses in the contracting process like those involved in
more specific rules as to contractual capacity, fraud, and other invalidating causes; the policy also
overlaps with rules which render particular *349 bargains or terms unenforceable on grounds
of public policy.”). Although not subject to precise doctrinal definition, see Sw. Bell Tel. Co. v.
DeLanney, 809 S.W.2d 493, 498 (Tex.1991) (GONZALEZ, J., concurring), unconscionability—
as delineated by the above principles—has been recognized and applied by this Court for well
over a century. See, e.g., Flanagan v. Pearson, 61 Tex. 302, 307 (1884); Fowler v. Stoneum, 11
Tex. 478, 493 (1854); Hemming v. Zimmerschitte, 4 Tex. 159, 166 (1849); Luckett v. Townsend,
3 Tex. 119, 131 (1848).

 [20] [21] Whether a contract is contrary to public policy or unconscionable at the time it is
formed is a question of law. Hoover Slovacek LLP v. Walton, 206 S.W.3d 557, 562 (Tex.2006).
Because a trial court has no discretion to determine what the law is or apply the law incorrectly,


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its clear failure to properly analyze or apply the law of unconscionability constitutes an abuse of
discretion. See Walker v. Packer, 827 S.W.2d 833, 840 (Tex.1992).



                                    B. Arbitration and Statutory Rights

 [22] [23] [24] An arbitration agreement covering statutory claims is valid so long as the
arbitration agreement does not waive the substantive rights and remedies the statute affords
and the arbitration procedures are fair, such that the employee may “effectively vindicate his
statutory rights.” In re Halliburton, 80 S.W.3d at 572. Federal courts, analyzing the enforceability
of arbitration provisions relating to federal statutory claims, have noted that such contracts are
not enforceable when a party is forced to “forgo the substantive rights afforded by the statute,”
as opposed to merely “submit[ting] to resolution in an arbitral, rather than a judicial, forum.”
Mitsubishi Motors Corp. v. Soler Chrysler–Plymouth, Inc., 473 U.S. 614, 628, 105 S.Ct. 3346,
87 L.Ed.2d 444 (1985). In the context of federal claims, either an expression of federal intent to
exclude certain categories of claims from arbitration, see Gilmer v. Interstate/Johnson Lane Corp.,
500 U.S. 20, 26, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991), or the excessive waiver of statutory rights,
see Mitsubishi, 473 U.S. at 628, 105 S.Ct. 3346, may render a particular dispute un-arbitrable.
State courts, bound by the FAA under the supremacy clause, have more limited power, as the FAA
preempts state laws that specifically disfavor arbitration. Perry, 482 U.S. at 492 n. 9, 107 S.Ct.
2520; see Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 271 (Tex.1992) (holding that the FAA
preempts state statutes to the extent they are inconsistent with the FAA's purpose to require courts
to compel arbitration when the parties have so provided in their contracts).

 [25] However, where a particular waiver of substantive remedies or other provision of a contract is
unconscionable—independent of the agreement to arbitrate—it will be unenforceable even though
included in an agreement to arbitrate. See Gilmer, 500 U.S. at 33, 111 S.Ct. 1647 (“[A]rbitration
agreements are enforceable, ‘save upon such grounds as exist at law or in equity for the revocation
of any contract.’ ”) (quoting 9 U.S.C. § 2). To determine the permissibility of restrictions on a
particular worker's access to statutory rights, we analyze the provisions of the actual statute at
issue; thus, to analyze the enforceability of the various restrictions and waivers in the employment
contract at issue in this case, we turn to the retaliatory-discharge provisions of the Texas Workers'
Compensation Act, TEX. LAB.CODE §§ 451.001–.003.



                            C. Purpose and Structure of the Texas Workers'
                            Compensation Act's Anti–Retaliation Provisions

[26] [27] [28] The Texas Workers' Compensation Act was enacted to protect Texas *350
workers and employees. Fid. & Cas. Co. of N.Y. v. McLaughlin, 134 Tex. 613, 135 S.W.2d 955,

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956 (1940). The Texas Legislature enacted the original Workers' Compensation Act in 1913 in
response to the needs of workers who, despite a growing incidence of industrial accidents, were
increasingly being denied recovery. Kroger Co. v. Keng, 23 S.W.3d 347, 350 (Tex.2000); Tex.
Workers' Compensation Comm'n v. Garcia, 893 S.W.2d 504, 510 (Tex.1995). In order to ensure
compensation for injured employees while protecting employers from the costs of litigation, the
Legislature provided a mechanism by which workers could recover from subscribing employers
without regard to the workers' own negligence, see Kroger, 23 S.W.3d at 351, while limiting the
employers' exposure to uncertain, possibly high damage awards permitted under the common law,
see Reed Tool Co. v. Copelin, 689 S.W.2d 404, 407 (Tex.1985). In light of the purposes of the
Workers' Compensation Act as a whole, “[i]t is the settled policy of this State to construe liberally
the provisions of the ... [l]aw, in order to effectuate the purposes for which it was enacted.” Huffman
v. S. Underwriters, 133 Tex. 354, 128 S.W.2d 4, 6 (1939) (citations omitted). As we have recently
noted, “[b]ecause we should liberally construe the Workers' Compensation Act in favor of the
injured worker, a strained or narrow construction of [the Act] would be improper. Moreover, it
would be injudicious to construe the statute in a manner that supplies by implication restrictions
on an employee's rights that are not found in ... [the] plain language.” Kroger, 23 S.W.3d at 349.

 [29] [30] The Texas Workers' Compensation Act provides that a subscriber to the workers'
compensation system may not “discharge or in any other manner discriminate against an employee
because the employee has ... filed a workers' compensation claim in good faith.” TEX. LAB.CODE
§ 451.001–.001(1). The Legislature's purpose in enacting section 451.001 was to protect persons
entitled to benefits under the Act and to prevent them from being discharged for seeking to collect
those benefits. See Tex. Steel Co. v. Douglas, 533 S.W.2d 111, 115 (Tex.Civ.App.-Fort Worth
1976, writ ref'd n.r.e.). Since recovery of benefits under the Workers' Compensation Act is the
exclusive remedy available to injured employees of subscribing employers, see TEX. LAB.CODE
§ 408.001(a), the availability of remedies for retaliatory discharge protects employees' exercise of
their statutory rights to compensation under the Act. See Padilla v. Carrier Air Conditioning, 67
F.Supp.2d 650, 664 (E.D.Tex.1999); Mid–South Bottling Co. v. Cigainero, 799 S.W.2d 385, 389
(Tex.App.-Texarkana 1990, writ denied). In accordance with these principles, the anti-retaliation
provisions of the Act must protect employees even before they have actually filed a claim, because
otherwise “the law would be completely useless and would not accomplish the purpose for which
it was enacted.... [A]ll the employer would have to do in order to avoid the consequences of the
statute would be to fire the injured workman before he filed the claim.” Tex. Steel Co., 533 S.W.2d
at 115.

 [31] “The decisions of this State do not look with favor upon contracts waiving rights arising
under the Workmen's Compensation Law.” Huffman, 128 S.W.2d at 6. Such waivers affect not
only the individual employee subject to the waiver, but also the public, which bears the cost of
the workers' compensation program. See Holt v. Cont'l Group, Inc., 708 F.2d 87, 91 (2d Cir.1983)
(“A retaliatory discharge carries with it the distinct risk that other employees may be deterred


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In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

from protecting their rights under the Act.”). Therefore, we *351 have invalidated contracts that
purport to relieve employers of their obligations under the Workers' Compensation Act. See James
v. Vernon Calhoun Packing Co., 498 S.W.2d 160, 162 (Tex.1973) (noting that “[w]e are much
impressed with the idea that there is a large element of public interest in the administration of
[the Workers' Compensation Act]”); Hazelwood v. Mandrell Indus. Co., 596 S.W.2d 204, 206
(Tex.Civ.App.-Houston [1st Dist.] 1990, writ ref'd n.r.e.) (“If ... this balance [established by the
Act] is tipped so that the employee's benefits under the statute are substantially reduced, the
clear intent of the legislature is thwarted.”). We have likewise held unenforceable contracts that
explicitly relieve employers of tort liability, relying either on common law prohibitions against
such contracts, see Barnhart v. Kansas City M. & O. Ry. Co. of Tex., 107 Tex. 638, 184 S.W. 176,
179 (1916), or upon the Workers' Compensation Act, see Petroleum Cas. Co. v. Smith, 274 S.W.2d
150, 151 (Tex.Civ.App.-San Antonio 1954, writ ref'd) (noting that “[t]he right to workmen's
compensation is statutory, and cannot be abridged by private agreements or special applications
for employment”); Clevenger v. Burgess, 31 S.W.2d 675, 678 (Tex.Civ.App.-Beaumont 1930,
writ ref'd); Tex. Employers Ins. Ass'n v. Peppers, 133 S.W.2d 165, 167 (Tex.Civ.App.-Galveston
1939, writ dism'd) (“[T]he courts will not enforce contracts which are either expressly or impliedly
prohibited by the [Workers' Compensation] Act.”).

This case concerns the validity of a subscribing employer's use of an agreement that, in the
course of requiring arbitration between the parties in work-related disputes, imposes a series
of procedural and substantive limits on the employee's rights. We must analyze the challenged
limitations in light of the policies underlying the Workers' Compensation Act, and the purposes of
its anti-retaliation provisions, to determine whether they improperly shift the cost of injury from
a subscribing employer onto its employees in contravention of the Act's provisions. Cf. Lawrence
v. CDB Servs., Inc., 44 S.W.3d 544, 550 (Tex.2001) (noting that the agreements did not “shift
the risk of on-the-job injuries to the employees”); see also Gentry v. Superior Court, 42 Cal.4th
443, 456, 64 Cal.Rptr.3d 773, 782, 165 P.3d 556 (2007), cert. denied 552 U.S. 1296, 128 S.Ct.
1743, 170 L.Ed.2d 541 (2008) (noting that under California law, when an employee is bound
by a predispute arbitration agreement to adjudicate nonwaivable statutory employment rights,
the arbitration agreement may not limit damages, discovery must be sufficient to arbitrate the
claim, there must be a written arbitration decision, and the employer must pay all costs “unique
to arbitration”).



                                V. The Challenged Arbitration Provisions


                                          A. Limitation of Remedies




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156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

 [32] [33] The Workers' Compensation Act specifies that “[a] person who violates section
451.001 is liable for reasonable damages incurred by the employee as a result of the violation,”
and that “[a]n employee discharged in violation of section 451.001 is entitled to reinstatement
in the former position of employment.” TEX. LAB.CODE § 451.002(a)-(b). We have previously
explained that “reasonable damages” are not limited to actual damages, see Azar Nut Co. v.
Caille, 734 S.W.2d 667, 669 (Tex.1987), but may include future damages, as well as exemplary or
punitive damages when it is shown that the employer acted with actual malice in retaliating against
the employee for filing a workers' compensation claim. See Cont'l Coffee Prods. v. Cazarez,
937 S.W.2d 444, 454 (Tex.1996); *352 Carnation Co. v. Borner, 610 S.W.2d 450, 454–55
(Tex.1980). The arbitration agreement in this case eliminates two types of remedies available
under the anti-retaliation provisions of the Workers' Compensation Act, prohibiting the arbitrator
from ordering reinstatement or awarding punitive damages. See TEX. LAB.CODE § 451.002
(providing for reinstatement and an award of reasonable damages). Luna contends these limitations
render the agreement unconscionable and unenforceable because they prevent him from effectively
vindicating his statutory rights in arbitration, thus undercutting the basic assumptions of the FAA.
See Gilmer, 500 U.S. at 28, 111 S.Ct. 1647 (noting that claims under other federal statutes are
appropriate for arbitration so long as the litigant can effectively vindicate any statutory rights).
The court of appeals agreed with Luna. 175 S.W.3d at 323–24. Although it noted other courts'
decisions upholding punitive-damages waivers, id. at 323, and further noted that preclusion of
statutory remedies may not always portend unconscionability, id., the court held that the preclusion
of remedies here interfered with Luna's ability to bring his retaliatory-discharge claim under the
Workers' Compensation Act and thus weighed toward the contract's unconscionability, id.

Poly–America argues that the court of appeals' decision conflicts with Pony Express Courier
Corp. v. Morris, 921 S.W.2d 817, 822 (Tex.App.-San Antonio 1996, no writ), and decisions of
other courts indicating that limitations of remedies are permissible, e.g., Inv. Partners v. Glamour
Shots Licensing, Inc., 298 F.3d 314, 318 n. 1 (5th Cir.2002). Because we view the anti-retaliation
provisions of the Workers' Compensation Act as a non-waivable legislative system for deterrence
necessary to the nondiscriminatory and effective operation of the Texas Workers' Compensation
system as a whole, we agree with Luna that the provisions eliminating key remedies under the
statute are unenforceable.

 [34] An arbitration agreement covering statutory claims is valid so long as “the arbitration
agreement does not waive substantive rights and remedies of the statute and the arbitration
procedures are fair so that the employee may effectively vindicate his statutory rights.” In re
Halliburton, 80 S.W.3d at 572. “ ‘[B]y agreeing to arbitrate a statutory claim, a party does
not forgo the substantive rights afforded by the statute; it only submits to their resolution in
an arbitral, rather than a judicial, forum.’ ” Gilmer, 500 U.S. at 26, 111 S.Ct. 1647 (quoting
Mitsubishi, 473 U.S. at 628, 105 S.Ct. 3346). In this case, Luna contends Poly–America acted
with actual malice in unlawfully discharging him, a claim for which the Workers' Compensation


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156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

Act allows punitive damages. See TEX. LAB.CODE § 451.002; Azar Nut Co., 734 S.W.2d at 668.
Permitting an employer to contractually absolve itself of this statutory remedy would undermine
the deterrent purpose of the Workers' Compensation Act's anti-retaliation provisions. In creating
the Texas Workers' Compensation Act, the Legislature carefully balanced competing interests—
of employees subject to the risk of injury, employers, and insurance carriers—in an attempt to
design a viable compensation system, all within constitutional limitations. See Garcia, 893 S.W.2d
at 521. Were we to endorse Poly–America's position and permit enforcement of these remedy
limitations, a subscribing employer could avoid the Act's penalties by conditioning employment
upon waiver of the very provisions designed to protect employees who have been the subject of
wrongful retaliation.

Our decision in Lawrence, 44 S.W.3d 544, is fully consistent with this view. There, employees
of a non-subscribing employer *353 elected, after they were hired, to participate in an employer
benefit plan that would provide injured employees with specified benefits in lieu of common law
remedies. Id. at 545–46. We refused to void the agreement on public-policy grounds, discerning
“no clear legislative intent to prohibit agreements such as those presented.” Id. at 545. We
emphasized that participation in the workers' compensation program is voluntary for employers in
Texas, and that courts are ill equipped to weigh whether a non-subscribing employer's particular
benefits plan would undermine the purposes of the Workers' Compensation Act. See id. at 551–
53. 2 Our decision was specifically tailored to non-subscribing employers who elected not to
participate in the workers' compensation program. Importantly, we distinguished cases involving
contracts imposed as a condition of employment, emphasizing that “[t]he distinction between an
employment contract that requires a prospective employee, as a condition of the receipt or retention
of employment, to agree to limit the employer's liability ... and a voluntary occupational insurance
program, in which the employee has the option to enroll ... is decisive.” Lawrence, 44 S.W.3d at
550 (quoting Brito v. Intex Aviation Servs., Inc., 879 F.Supp. 650, 654 (N.D.Tex.1995)) (citing
Clevenger, 31 S.W.2d at 678; Barnhart, 184 S.W. at 176)).

This case presents just such a liability-limiting provision, imposed as a condition of employment,
which we suggested in Lawrence would violate public policy. See id. Such waivers would allow
subscribing employers to enjoy the Act's limited-liability benefits while exposing workers to
exactly the sort of costs—of injuries paid for by the employee for fear of retribution for making
a claim—that the Act is specifically designed to shift onto the employer. The balance established
by the Act is thus “tipped so that the employee's benefits under the statute are substantially
reduced, [and] the clear intent of the legislature is thwarted.” Hazelwood, 596 S.W.2d at 206.
As we have previously refused to enforce private agreements that allow subscribing employers
to reap the system's benefits while burdening employees with the cost of injury, so too we
find the provisions of the present contract—which substantively limit Poly–America's liability
for wrongful retaliation and thereby undermine the deterrent regime the Legislature specifically



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156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

designed to protect Texas workers—void under Texas law. See Tex. Steel, 533 S.W.2d at 115;
Holt, 708 F.2d at 91.



                                          B. Fee–Splitting Provision

The arbitration agreements provide that, in the event of a claim, all fees related to arbitration—
including but not limited to mediation fees, the arbitrators' fees, costs of procuring a location for
a hearing, and court reporter fees—will be split equally between the employer and the employee,
with the employee's contribution capped at an amount equal to “the gross compensation earned
by the Employee in Employee's highest earning month in the twelve months prior to the time
the arbitrator issues his award.” The court of appeals held that this provision “weigh[ed] heavily
toward a finding of substantive unconscionability.” 175 S.W.3d at 322. Poly–America argues that
this was clear error: first, because the court of appeals improperly inferred that Luna could not
afford likely arbitration costs based solely on subjective evidence and, second, because it failed
to compare such costs to the *354 expected costs of litigation. 3 Luna responds that it was Poly–
America that failed to present evidence of the comparative cost of litigation and that the evidence
presented was sufficient to allow an objective determination that the likely costs of arbitration
were beyond Luna's financial means. We begin with the evidentiary challenge.



                                           1. Evidentiary Challenge

 [35] [36] Poly–America claims that the court of appeals, by crediting Luna's factual allegations
concerning his financial inability to share arbitration costs, improperly applied a new evidentiary
standard that will require all parties seeking to compel arbitration to engage in expensive discovery
whenever a resisting party submits cursory and subjective evidence that arbitration costs are
“unaffordable.” This evidentiary burden, Poly–America argues, is contrary to Texas law and policy
that supports summary disposition of motions to compel arbitration. In response, Luna contends
the facts upon which the court of appeals relied could have been controverted by affidavit or cross-
examination, which Poly–America failed to do; consequently, the court of appeals based its ruling
on the undisputed facts established by Luna's affidavits. Both parties cite Anglin, 842 S.W.2d at
269, to support their respective positions. There, we defined the proper circumstances under which
a trial court should hold a full evidentiary hearing on a motion to compel arbitration:

            Because the main benefits of arbitration lie in expedited and less expensive
            disposition of a dispute, and the legislature has mandated that a motion to
            compel arbitration be decided summarily, we think it unlikely that the legislature
            intended the issue to be resolved following a full evidentiary hearing in all
            cases. We also envision that the hearing at which a motion to compel arbitration

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            is decided would ordinarily involve application of the terms of the arbitration
            agreement to undisputed facts, amenable to proof by affidavit. With these
            considerations in mind, we hold that the trial court may summarily decide
            whether to compel arbitration on the basis of affidavits, pleadings, discovery,
            and stipulations. However, if the material facts necessary to determine the issue
            are controverted, by an opposing affidavit or otherwise admissible evidence,
            the trial court must conduct an evidentiary hearing to determine the disputed
            material facts.

Id. Because the only facts Luna presented on the motion to compel were uncontroverted under
this standard—Luna's affidavits accompanying his original petition were neither contradicted
nor challenged in Poly–America's response—we believe the court of appeals acted properly in
crediting those facts on appeal.

Luna attached to his original petition his own affidavit and that of an expert witness providing
detailed estimates of the likely cost of arbitration in Luna's case, and Luna's expected share
under the agreement's capped fee-splitting provision based on his monthly salary (approximately
$3,300.00) as a Poly–America supervisor. Luna described his anticipated share of the arbitration
costs as “way more money than I can afford,” and averred that, if he *355 had to pay such an
amount to have his claim determined, he would be unable to pursue his claim against the company
unless he could find an attorney willing to pay those fees. Luna recounted that he had attempted
to retain two attorneys, but they had refused to represent him on a contingent-fee basis because
of the arbitration agreement.

Poly–America did not dispute these facts but asserted legal arguments in its pleadings that the cost
provisions, as written or as applied, were not unconscionable under Texas law. At the hearing on
its motion to compel, Poly–America again asserted only legal arguments in response to Luna's
challenge to the cost-splitting provision. There is no indication in the record that the trial court
discredited or otherwise viewed the facts recited in Luna's affidavits as insufficient; rather, on
the basis of Poly–America's legal arguments, the trial court granted the motion to compel. This
disposition was consistent with our statements in Anglin in which we indicated that motions to
compel should be decided summarily unless disputed issues of fact require a full evidentiary
hearing. See id.

However, the court of appeals clearly differed from the trial court in its view of the law. It held
that the trial court's granting of the motion to compel—in light of Luna's averred inability to afford
his likely arbitration costs and the agreement's other limitations—was an abuse of discretion.
175 S.W.3d at 318–20. In doing so, the court of appeals properly credited the undisputed facts
contained in Luna's affidavits as to the total expected cost of arbitration and Luna's anticipated
share based upon his pre-termination monthly income. Id. at 319–20. Poly–America contends the
court of appeals improperly ruled based on Luna's subjective, and thus practically incontrovertible,

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156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

belief that he could not afford arbitration, which does not satisfy this Court's requirements of
“specific” evidence to support claims of unconscionably expensive arbitration. See In re U.S.
Home Corp., 236 S.W.3d 761, 764 (Tex.2007). However, the court of appeals relied not solely
upon Luna's belief but upon his and his expert's specific monetary estimates, which provided
objective support for Luna's uncontroverted claim that arbitration costs would preclude his pursuit
of the lawsuit. See 175 S.W.3d at 319. The court of appeals did not, therefore, rely solely on
subjective and incontrovertible allegations.



                            2. Unconscionability of Fee–Splitting Provisions

Poly–America alternatively challenges the court of appeals' conclusion that the agreement's cost-
allocation provisions favor a finding of unconscionability because the court did not consider the
relative costs that Luna would likely incur if the case were litigated in court—costs that, based on
Poly–America's estimates, would greatly exceed the capped cost of arbitration—and Luna failed
to provide any evidence of the actual cost of arbitration that he would bear. Although we have
no doubt that some fee-splitting provisions may operate to discourage employees like Luna from
seeking vindication of their rights under the Workers' Compensation Act, we must agree with
Poly–America that the trial court did not abuse its discretion in ordering arbitration in this case.

Courts across the country have universally condemned the use of fee-splitting agreements in
employment contracts that have the effect of deterring potential litigants from vindicating their
statutory rights in an arbitral forum. See Green Tree, 531 U.S. at 90–91, 121 S.Ct. 513. Some
courts have gone so far as to find fee-sharing agreements unenforceable per se. See, e.g., Cole
v. Burns Int'l Sec. *356 Servs., 105 F.3d 1465, 1483–85 (D.C.Cir.1995), cited in Halliburton,
80 S.W.3d at 572; Shankle v. B–G Maint. Mgmt. of Colo., Inc., 163 F.3d 1230, 1233–35 (10th
Cir.1999); Paladino v. Avnet Computer Techs., Inc., 134 F.3d 1054, 1062 (11th Cir.1998). These
courts reason that “an employee can never be required, as a condition of employment, to pay
an arbitrator's compensation in order to secure the resolution of statutory claims.... [T]his would
surely deter the bringing of arbitration and constitute a de facto forfeiture of statutory rights.”
Cole, 105 F.3d at 1468; accord Shankle, 163 F.3d at 1235 (“Such a result clearly undermines the
remedial and deterrent functions of ... anti-discrimination laws.”).

 [37] [38] We agree that fee-splitting provisions that operate to prohibit an employee from fully
and effectively vindicating statutory rights are not enforceable. See Halliburton, 80 S.W.3d at 572.
However, this Court joins the majority of other courts which—though recognizing the same policy
concerns articulated by courts holding fee-splitting arrangements per se unconscionable—require
some evidence that a complaining party will likely incur arbitration costs in such an amount as to
deter enforcement of statutory rights in the arbitral forum. See U.S. Home Corp., 236 S.W.3d at
764; FirstMerit Bank, 52 S.W.3d at 756–57. As federal courts have likewise recognized:


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156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237


            [I]n some cases, the potential of incurring large arbitration costs and fees will
            deter potential litigants from seeking to vindicate their rights in the arbitral
            forum.... [I]f the fees and costs of the arbitral forum deter potential litigants, then
            that forum is clearly not an effective, or even adequate, substitute for the judicial
            forum.... [T]he burden of demonstrating that incurring such costs is likely under
            a given set of circumstances rests, at least initially, with the party opposing
            arbitration.

Morrison v. Circuit City Stores, Inc., 317 F.3d 646, 659–60 (6th Cir.2003); accord Bradford v.
Rockwell Semiconductor Sys., Inc., 238 F.3d 549, 556 (4th Cir.2001); Rosenberg v. Merrill Lynch,
Pierce, Fenner & Smith, Inc., 170 F.3d 1, 16 (1st Cir.1999).

 [39] Luna contends the magnitude of the fee he could incur under the arbitration agreement, which
he estimates to be as high as $3,300, will prevent him from pursuing his claim. Poly–America
counters that litigation costs would be much higher, and therefore the arbitration agreement's
capped cost-splitting provision benefits the employee and cannot be unconscionable. It is true
that in evaluating the enforceability of fee-splitting provisions, some courts take into account the
relative costs of arbitration versus litigation. See, e.g., Bradford, 238 F.3d at 556 n. 5 (focusing
upon “a claimant's expected or actual arbitration costs and his ability to pay those costs, measured
against a baseline of the claimant's expected costs for litigation and his ability to pay those costs”).
However, at this stage of the proceedings, much of this evidence is necessarily speculative, and
thus counsels against a court's ex ante interference with arbitration.

We do not doubt that arbitration costs might be so high in a given case as to preclude access to the
forum. But “the ‘risk’ that [a claimant] will be saddled with prohibitive costs is too speculative to
justify the invalidation of an arbitration agreement.” Green Tree, 531 U.S. at 91, 121 S.Ct. 513.
Luna has not demonstrated that the ability to pursue his claim in the arbitral forum hinges upon
his payment of the estimated costs; to the contrary, depending upon the circumstances, Luna may
not have to bear any cost at all, and *357 Poly–America has presented some evidence that the
capped cost-splitting arrangement may even benefit Luna. The fee-splitting provision in Luna's
arbitration agreement caps his share of costs at “the gross compensation earned by Employee in
Employee's highest earning month in the twelve months prior to the time the arbitrator issues
his award.” (Emphasis added). Luna, however, presented evidence of his “highest monthly salary
in the year preceding [his] termination from the company,” a period necessarily earlier than that
relevant under the arbitration agreement. The record contains no fact-based estimation of Luna's
wages in the relevant time period and, thus, no evidence of his likely share of arbitration costs.

Just as we allow litigants who demonstrate an inability to pay costs to proceed with their claims in
court, however, we see nothing that would prevent arbitrators from fairly adjusting employee cost
provisions when necessary to allow full vindication of statutory rights in the arbitral forum. See


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156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

TEX.R. CIV. P. 145. The contract presented in this case specifically provides that the arbitrator
may modify unconscionable terms; if the cost provisions precluded Luna's enforcement of his non-
waivable statutory rights, they would surely be unconscionable for the reasons we have explained
and the arbitrator would be free to modify them. The arbitrator is better situated to assess whether
the cost provision in this case will hinder effective vindication of Luna's statutory rights and, if so,
to modify the contract's terms accordingly. See Halliburton, 80 S.W.3d at 572. We conclude the
trial court did not abuse its discretion in refusing to declare the contract's cost-splitting provision
unconscionable and nullify the arbitration agreement.



                                           C. Discovery Limitations

 [40] The 2002 agreement provides that each party may serve on the other a single set of twenty-
five interrogatories (including sub-parts) and one set of twenty-five requests for production or
inspection of documents or tangible things. Additionally, the agreement includes limitations
alleged by Luna to be unconscionable: (1) a limitation of each party to a single, six-hour deposition;
(2) a prohibition on requests for admission; (3) a ban on inquiry into Poly–America's finances; and
(4) a confidentiality provision requiring confidentiality of the parties and their attorneys regarding
all aspects of the arbitration. Luna contends these limitations make it virtually impossible for him
to prove his claim of retaliatory discharge and render the arbitration agreement unconscionable.

Although an issue of first impression in this Court, several courts around the country have analyzed
the enforceability of similar arbitration provisions limiting parties' access to various forms of
discovery. Applying a rule functionally equivalent to that used to analyze fee-splitting provisions,
these courts refuse to enforce such limitations when adequate evidence is presented that a plaintiff's
ability to present his or her claims in an arbitral forum is thereby hindered. See, e.g., Hulett
v. Capitol Auto Group, Inc., No. 07–6151–AA, 2007 WL 3232283, at *4–*5 (D.Or. Oct.29,
2007) (holding discovery restrictions that prohibited requests for admission or interrogatories and
limited parties to three depositions unconscionable because they “serve to unreasonably withhold
information from plaintiff that would otherwise be available through discovery, thus hindering
her ability to present her claims in an arbitration forum”); accord Ostroff v. Alterra Healthcare
Corp., 433 F.Supp.2d 538, 547 (E.D.Pa.2006). Courts upholding arbitration provisions containing
discovery limitations have done so in recognition of the same principle, but determined that a
particular *358 party failed to provide adequate evidence that the provisions “prove insufficient
to allow ... claimants ... a fair opportunity to present their claims.” Gilmer, 500 U.S. at 31, 111
S.Ct. 1647; see, e.g., In re Cotton Yarn Antitrust Litig., 505 F.3d 274, 286–87 (4th Cir.2007);
Amisil Holdings, Ltd. v. Clarium Capital Mgmt., No. C06–05255MJJ, 2007 WL 2768995, at *4
(N.D.Cal. Sept.20, 2007) (“[Claimant] has not adequately demonstrated why arbitration under the
AAA rules would deny it a fair opportunity to present its claims.”).



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In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

 [41] [42] We agree with these courts that, where the underlying substantive right is not waivable,
ex ante limitations on discovery that unreasonably impede effective prosecution of such rights are
likewise unenforceable. However, because the relevant inquiry depends upon the facts presented in
a given case and the particular discovery limitations' effect upon the relevant statutory regime, we
are doubtful that courts—assessing claims and discovery limitations before arbitration begins—are
in the best position to accurately determine which limits on discovery will have such impermissible
effect.

In this case, Luna's expert witness testified that in most employment-discharge cases the employer
only needs to take the plaintiff's deposition, while the plaintiff generally needs testimony from a
number of witnesses to disprove the employer's likely defense that termination was based on poor
performance. Additionally, the expert stated, the employee will likely wish to depose additional
witnesses to show a pattern or practice of discrimination, whereas the employer typically has a
ready pool of available employees and managers to assist in preparing for the arbitration. For these
reasons, the expert concluded, the arbitration agreement's discovery limitations “significantly
reduce the plaintiff's ability to prevail in arbitration, regardless of how strong a plaintiff's case is
on the merits.”

We agree that if the discovery limitations the arbitration agreement imposes operate to prevent
effective presentation of Luna's claim they would be unenforceable. But at this point in the
proceedings, without knowing what the particular claims and defenses—and the evidence needed
to prove them—will be, discerning the discovery limitations' potential preclusive effect is largely
speculative. The assessment of particular discovery needs in a given case and, in turn, the
enforceability of limitations thereon, is a determination we believe best suited to the arbitrator
as the case unfolds. As with cost-sharing, discovery limitations that prevent vindication of non-
waivable rights or “prove insufficient to allow [Luna] a fair opportunity to present [his] claims,”
Gilmer, 500 U.S. at 31, 111 S.Ct. 1647, would be unconscionable and thus not binding on the
arbitrator, as the agreement in this case specifically acknowledges. At this point in the proceedings,
though, we cannot conclude that the evidence presented to the trial court compelled a finding
that the discovery limitations were per se unconscionable. Thus, the trial court did not abuse its
discretion.



                              D. Prohibition on Inquiry into “Good Cause”

 [43] Luna claims the arbitration provision that prohibits the arbitrator's ability “to apply a
‘just cause’ or ‘good cause’ standard to claims relating to Employee's claims concerning his
employment or separation therefrom” is substantively unconscionable because it prohibits, in
a retaliatory-discharge case, inquiry into whether the employer had a valid, nondiscriminatory
reason for firing the employee. Poly–America contends the contract cannot be read as Luna


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In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

claims, and in fact does not *359 prevent such an inquiry. We agree with Poly–America, and
with the court of appeals, that this prohibition does not operate as Luna asserts; rather, the
prohibition simply emphasizes that the contract relates to at-will employment. See Montgomery
County Hosp. Dist. v. Brown, 965 S.W.2d 501, 502 (Tex.1998). Thus, the prohibition prevents the
arbitrator from substituting a “good cause” requirement for the “at will” standard. The provision
does not, however, prohibit inquiry into whether Poly–America improperly terminated Luna in
retaliation for his filing of a workers' compensation claim. Because we read the provision merely
to articulate an accepted rule of employment contracts, and not to restrict a necessary inquiry
into the motivations behind Poly–America's termination of Luna in this case, we agree with the
court of appeals that the provision is not unconscionable. See In re Palm Harbor Homes, Inc.,
195 S.W.3d 672, 678 (Tex.2006) (rejecting a claim that an arbitration provision was substantively
unconscionable where the challenged provision “effectively incorporate[d] established provisions
of contract law”).



                                      E. One–Year Limitations Period

The arbitration agreement includes a clause that requires written notice of a claim to be filed
within a maximum of one year from the events giving rise to an arbitrable claim. Luna contends
this provision unconscionably shortens the two-year statute of limitations applicable to claims
of retaliatory discharge. See Johnson & Johnson Med., Inc. v. Sanchez, 924 S.W.2d 925, 927
(Tex.1996). However, as Luna filed this case well within the one-year period and thus suffered no
prejudice from this provision, it is immaterial to Luna's claims of substantive unconscionability.



                                            F. Lifetime Application

Finally, Luna argues that the arbitration agreement unconscionably applies even to claims that
may arise after Luna's employment with Poly–America has ended and which may have nothing
to do with Luna's employment. While we can imagine circumstances that might present a closer
question, Luna's claims here concern his employment and termination, the central focus of the
agreement. We thus agree with the court of appeals that this provision does not render the
arbitration agreement per se unconscionable. See 175 S.W.3d at 326.



                                                  VI. Severability

 [44] The arbitration agreement in this case contains a severability clause, which provides as
follows:


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156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237


            Should any term of this Agreement be declared illegal, unenforceable, or
            unconscionable, the remaining terms of the Agreement shall remain in full
            force and effect. To the extent possible, both Employee and Company desire
            that the Arbitrator modify the term(s) declared to be illegal, unenforceable, or
            unconscionable in such a way as to retain the intended meaning of the term(s)
            as closely as possible.

Poly–America argues that, even if elements of its arbitration agreement with Luna are
unconscionable, arbitration is nevertheless required because the unconscionable provisions are
severable from the general agreement to arbitrate. 4 Luna *360 contends the unconscionable
provisions are integral to the entire contract and are therefore not severable. The court of appeals
agreed with Luna, stating that the fee-splitting and remedies-limitation provisions “together
deprive Luna of his opportunity to vindicate his claim in the arbitral forum” and concluding that
“those provisions are integral to the purpose of the agreement and cannot be severed.” 175 S.W.3d
at 328. The court of appeals came to this conclusion, it appears, by identifying the fee-splitting
and remedies-limitation provisions as weighing in favor of unconscionability “as a whole,” but the
court did not identify any particular provision that, by itself, would defeat the agreement's purpose.
See id. at 322, 324. We have determined, however, that the remedies-limitation provisions are
individually unconscionable and void, and see no reason why they cannot be easily excised from
the contract without defeating its underlying purpose.

 [45] [46] [47] An illegal or unconscionable provision of a contract may generally be severed
so long as it does not constitute the essential purpose of the agreement. See Williams v.
Williams, 569 S.W.2d 867, 871 (Tex.1978); see also Hoover Slovacek, 206 S.W.3d at 565 (citing
RESTATEMENT (SECOND) OF CONTRACTS § 208 (1981)). Whether or not the invalidity
of a particular provision affects the rest of the contract depends upon whether the remaining
provisions are independent or mutually dependent promises, which courts determine by looking
to the language of the contract itself. See John R. Ray & Sons, Inc. v. Stroman, 923 S.W.2d 80,
86 (Tex.App.-Houston [14th Dist.] 1996, writ denied) (citing Hanks v. GAB Bus. Servs., Inc., 644
S.W.2d 707, 708 (Tex.1982)). The relevant inquiry is whether or not parties would have entered
into the agreement absent the unenforceable provisions. See Patrizi v. McAninch, 153 Tex. 389,
269 S.W.2d 343, 348 (1954); see also City of Beaumont v. Int'l Ass'n of Firefighters, Local Union
No. 399, 241 S.W.3d 208, 215 (Tex.App.-Beaumont 2007, no pet.) (citing Rogers v. Wolfson,
763 S.W.2d 922, 925 (Tex.App.-Dallas 1989, writ denied)); Stroman, 923 S.W.2d at 86 (citing
Frankiewicz v. Nat'l Comp. Assocs., 633 S.W.2d 505, 507–08 (Tex.1982)). We have previously
allowed severance of illegal contract provisions where the invalid provisions were “only a part
of the many reciprocal promises in the agreement” and “did not constitute the main or essential
purpose of the agreement.” Williams, 569 S.W.2d at 871.




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In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

The 2002 version of the arbitration agreement in this case is over five pages long and contains
numerous provisions not challenged by Luna as imposing any unconscionable burdens: procedures
for mediation, selection of a neutral arbitrator, filing of motions, and other general provisions
governing arbitration procedures. We agree with Poly–America that the intent of the parties, as
expressed by the severability clause, is that unconscionable provisions be excised where possible.
Furthermore, it is clear by the contract's terms that the main purpose of the agreement is for the
parties to submit their disputes to an arbitral forum rather than proceed in court. See id. Excising
the unconscionable provisions we have identified will not defeat or undermine this purpose, which
we have upheld in the context of agreements to arbitrate employment disputes. See AdvancePCS,
172 S.W.3d at 608; EZ Pawn Corp., 934 S.W.2d at 90; Cantella & Co., 924 S.W.2d at 944.



                                                  VII. Conclusion

We hold invalid, as substantively unconscionable and void, provisions of the parties' *361
contract that prohibit the award of punitive damages or reinstatement and thus inhibit effective
vindication of Luna's retaliatory-discharge claim in an arbitral forum. We further hold that the trial
court did not abuse its discretion in allowing the arbitrator to determine whether the fee-splitting
agreement and discovery limitations—as applied in the course of arbitration—are unconscionable.
Because we find the invalid remedies-limitation provisions severable from the agreement to
arbitrate, which we conclude is otherwise enforceable, the trial court did not abuse its discretion
in compelling arbitration. Accordingly, we conditionally grant the writ of mandamus.



Justice BRISTER filed a dissenting opinion.

Justice WILLETT did not participate in the decision.

Justice BRISTER, dissenting.
The hard thing about granting mandamus relief is knowing when to stop. This Court has tried
over the years to set mandamus boundaries through various tests, all of which soon generated
exceptions, and most of which were met with objections that the “established” boundaries of
mandamus were being ignored.

Only two years ago, we held in In re Palacios that mandamus review was available for “orders
that deny arbitration, but not orders that compel it.” 1 We noted that this was a reversal of previous
practice, 2 but was necessitated by the Supreme Court's 2000 opinion in Green Tree Financial
Corp. v. Randolph, which said that orders compelling arbitration “would not be appealable” unless
they included final dismissal of the case. 3 Today the Court comes full circle, saying once again that


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In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

mandamus review of orders compelling arbitration is “proper,” though courts should be “hesitant”
about it. 4 Apparently, so long as one expresses qualms, Palacios is a dead letter.

Of course, firm rules governing mandamus are made to be broken, as issuance of the writ is
primarily a matter of judgment and prudence. 5 As the United States Supreme Court said in 2004,
mandamus is appropriate if a party shows a clear right, no alternative remedy, and that mandamus
is “appropriate under the circumstances.” 6 This test (especially the last prong) defies precise
application, but years of judicial effort have failed to produce a better one. As a result, reasonable
judges will sometimes *362 disagree whether mandamus is “prudent” or “appropriate under the
circumstances,” and sometimes decide differently in one case than the next. But departing from
Palacios is neither prudent nor appropriate for at least five reasons.

First, Congress amended the Federal Arbitration Act in 1988 so that it “permits immediate appeal
of orders hostile to arbitration, ... but bars appeal of interlocutory orders favorable to arbitration.” 7
Texas law is to the same effect. 8 As the trial court's order here was favorable to arbitration, we
should defer to the cost-benefit analysis already conducted by the federal and state legislatures. 9
We cannot simply substitute mandamus when interlocutory appeal is prohibited without running
into serious Supremacy Clause problems; 10 “[f]requent pre-arbitration review would inevitably
frustrate Congress's intent to move the parties to an arbitrable dispute out of court and into
arbitration as quickly and easily as possible.” 11

Second, the trial court ordered these parties to arbitration five years ago. Had mandamus
proceedings not intervened, this dispute would have long since been concluded. Surely the time
and expense incurred arbitrating this case would have been less than that incurred in mandamus
review. And now that mandamus review is concluded, the parties must go to arbitration anyway.
Given our state's strong public policy favoring freedom of contract, 12 claims that a contract is
unconscionable are asserted far more often than they are sustained. After today's decision, it is
hard to see how any arbitration cannot be stopped in its tracks by alleging unconscionability.

Third, today's opinion is purely advisory; if an arbitrator ignores it, there is little we can do. Both
federal and state law require courts to enforce an arbitrator's decision, no matter what it is, with
very few exceptions. 13 The allowable exceptions concern extrinsic or procedural matters like
corruption, fraud, or refusing to hear evidence; 14 they do not include (as the Supreme Court just
held) disregarding the law, even if a legal error is “manifest.” 15 What is the benefit of mandamus
review if the resulting order can be ignored?

 *363 Fourth, even if most arbitrators would comply with an appellate court's mandamus rulings,
issuing them creates a hybrid procedure unknown to the arbitration acts. As already noted, those

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In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

statutes commit matters concerning the law and the merits to the arbitrators and foreclose judicial
review of the details of the result. This also appears to violate the parties' agreement in this case,
which authorized the arbitrator to address unconscionability:

            Should any term of this Agreement be declared illegal, unenforceable, or
            unconscionable, the remaining terms of the Agreement shall remain in full
            force and effect. To the extent possible, both Employee and Company desire
            that the Arbitrator modify the term(s) declared to be illegal, unenforceable, or
            unconscionable in such a way as to retain the intended meaning of the term(s)
            as closely as possible.

Telling the arbitrators in advance what legal rulings they should make (as the Court does today)
is an improper way to circumvent these restrictions.

Fifth and finally, the Court decides an important question in the abstract that the arbitration may
render moot. The Court concedes that unconscionability of the fee-splitting and discovery-limiting
clauses should be deferred to the arbitrator. But unconscionability of the remedy-stripping clause
is just as fact-based, and just as speculative until all the facts are arbitrated. The fairness of such
clauses is not as one-sided as the Court suggests; many employees might actually prefer cash for
lost wages (and no appellate delays) rather than reinstatement or a long shot at punitive damages.
As the Court notes, several courts have held that such “limitations of remedies are permissible.” 16
Twice in 2003 the Supreme Court declined to hold that a remedy-stripping arbitration clause
violates the FAA—each time deferring the question until after arbitrators had addressed it. 17 We
should do the same here.

We have never held (as the Court holds repeatedly today) that an arbitration agreement is invalid
unless an employee can “effectively vindicate his statutory rights.” 18 We did not say so in In re
Halliburton Co. (as the Court's citations aver), where that phrase appears only in a parenthetical
describing an opinion by an intermediate appellate court in Michigan, an opinion we neither
approved nor adopted. 19 Nor does the Court's judgment comply with this new standard. Despite
the remedy limits imposed here, an arbitrator could still award Johnny Luna 50 years of future lost
wages, which would certainly seem to “effectively vindicate his statutory rights.” Even more than
the fee-splitting or discovery-limiting provisions, it is simply too early to tell whether the remedy-
stripping provisions will be unfair to Luna at all.

Such an important and controversial question should not be decided in such an offhanded and
abstract way. We should instead wait to see whether the arbitration *364 award makes such a
decision necessary; “if it is not necessary to decide more, it is necessary not to decide more.” 20




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In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

The Court overlooks all these problems on the ground that mandamus “has been broadly applied”
by federal courts to review orders compelling arbitration. 21 But the string citations that follow do
not support that claim. Of the five cases cited, three predated Green Tree, 22 and a fourth did not
involve a trial court order favorable to arbitration. 23 The single case granting mandamus relief
from an order favorable to arbitration was by the Ninth Circuit, the court widely recognized as the
“most hostile,” 24 “far to the left of center,” 25 and “renegade” court in the country in employment
arbitration cases. 26 Even so, mandamus was granted in that case only because arbitrating the
single class representative's case could moot the class action he had brought, wiping it out without
appellate review. 27 In short, there is no “broad” consensus for doing precisely the opposite of
what Congress and the Texas Legislature intended.

*365 It is certainly true that leaving matters like unconscionability to arbitrators will mean
development of the law is “substantially hindered,” 28 but the same could be said of arbitration
in all cases. It is hard to see the allure of a system in which decision-makers can ignore the law,
unless of course one is planning to ignore the law oneself. Based on its popularity, few arbitrators
apparently go that far. But even carefully selected judges and jurors make mistakes, and carefully
selected arbitrators are surely no less fallible. Nevertheless, these are policy matters that only
Congress can address or amend; we cannot disregard the express legislative limits on interlocutory
review merely by calling it mandamus when we think the questions are important and the issues
well-briefed.

While appeal from arbitration awards is very limited, that appeal is an adequate remedy unless the
benefits of mandamus outweigh the costs. 29 Considering the costs expended so far, I doubt Johnny
Luna would consider them outweighed by getting the right to seek reinstatement in arbitration
(which employees rarely request) and punitive damages (which they rarely get). Accordingly, I
agree with the Court that the court of appeals erred in reviewing and reversing the trial court's
order compelling arbitration. But I disagree that we have any place reviewing those matters either.
To that extent, I respectfully dissent.


Parallel Citations

156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237


Footnotes
1    While it is true that several of these cases pre-date the Supreme Court's decision in Green Tree, they do not pre-date the authority
        on which the Supreme Court relied in noting that an order compelling arbitration and staying rather than dismissing the underlying
        litigation “would not be appealable.” 531 U.S. at 87 n. 2, 121 S.Ct. 513 (citing 9 U.S.C. § 16(b)(1)) (emphasis added). Unlike the
        present case, the two cases in which the courts denied mandamus relief from compel-and-stay orders did not involve claims that
        enforcement of the arbitration provisions would prevent the plaintiffs from vindicating important statutory rights. See Manion, 255



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In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

       F.3d 535; McDermott Int'l, Inc., 981 F.2d 744. In Douglas, the Ninth Circuit granted mandamus relief, concluding that a choice-of-
       law provision in the arbitration agreement would not allow enforcement of the agreement under circumstances that the forum state
       would deem unconscionable. Douglas, 495 F.3d at 1068.
2      The Texas Legislature, exercising its policy-making role, responded immediately and outlawed such plans. See TEX. LAB.CODE
       § 406.033(e).
3      The Society for Human Resource Management Texas State Council submitted an amicus brief supporting Poly–America's arguments,
       arguing that the court of appeals wrongfully failed to compare Luna's alleged costs with the prospective cost of litigation. The Texas
       Trial Lawyers Association likewise submitted an amicus brief supporting Luna, arguing that unconscionability should be determined
       by comparing “the general financial condition of the claimant's peer group” to estimated arbitration costs.
4      The Court received briefs from amici curiae the Texas Association of Business and the Society for Human Resource Management
       Texas State Council, both of which argue that the court of appeals erred in refusing to sever the provisions it deemed unconscionable
       from the remainder of the arbitration agreement. The brief submitted by amicus curiae the Texas Trial Lawyers Association argues
       that such severance would be improper.
1      221 S.W.3d 564, 566 (Tex.2006) (emphasis added).

2      Id. at 565 (noting abrogation of Freis v. Canales, 877 S.W.2d 283, 284 (Tex.1994)).

3      531 U.S. 79, 87 n. 2, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000).

4      262 S.W.3d 337, 347.

5      See, e.g., CSR Ltd. v. Link, 925 S.W.2d 591, 597 (Tex.1996) ( “Because of the size and complexity of the asbestos litigation, the most
       prudent use of judicial resources in this case is to permit a preliminary resolution of the fundamental issue of personal jurisdiction
       by writ of mandamus.”) (emphasis added); In re Dean, 527 F.3d 391, 396 (5th Cir.2008) (“The decision whether to grant mandamus
       is largely prudential.”); In re Atlantic Pipe Corp., 304 F.3d 135, 140 (1st Cir.2002) (concluding mandamus was “prudent under the
       circumstances”); In re Chimenti, 79 F.3d 534, 539 (6th Cir.1996) (noting availability of interlocutory appeal was merely one of
       several factors affecting court's “prudential considerations” regarding issuance of mandamus).
6      Cheney v. U.S. Dist. Court for Dist. of Columbia, 542 U.S. 367, 380–81, 124 S.Ct. 2576, 159 L.Ed.2d 459 (2004) (holding mandamus
       should issue when there is (1) no other adequate remedy, (2) a “clear and indisputable” right, and (3) “the writ is appropriate under
       the circumstances”).
7      Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 86, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000) (construing 9 U.S.C. § 16) (emphasis
       added).
8      See TEX. CIV. PRAC. & REM.CODE § 171.098; In re Palacios, 221 S.W.3d 564, 566 (Tex.2006).

9      In re McAllen Med. Ctr., Inc., 275 S.W.3d 458, ––––, 2008 WL 4051053, at *1 (Tex.2008) (“Although mandamus review is generally
       a matter within our discretion, our place in a government of separated powers requires us to consider also the priorities of the other
       branches of Texas government.”).
10     See U.S. CONST. art. VI, cl. 2 (“[T]he Laws of the United States ... shall be the supreme Law of the Land; and the Judges in every
       State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.”).
11     Perry Homes v. Cull, 258 S.W.3d 580, 599 (Tex.2008) (quoting Preston v. Ferrer, 552 U.S. 346, ––––, 128 S.Ct. 978, 169 L.Ed.2d
       917 (2008) and Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 22, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983))
       (internal quotations omitted).
12     Fairfield Ins. Co. v. Stephens Martin Paving, LP, 246 S.W.3d 653, 664 (Tex.2008); Fortis Benefits v. Cantu, 234 S.W.3d 642, 649
       (Tex.2007); Lawrence v. CDB Servs., Inc., 44 S.W.3d 544, 553 (Tex.2001).
13     See 9 U.S.C. §§ 9–11; TEX. CIV. PRAC. & REM.CODE §§ 171.087–171.088, 171.091.

14     Id.

15     Hall St. Assocs., L.L.C. v. Mattel, Inc., 552U.S. 576, ––––, 128 S.Ct. 1396, 1404, 170 L.Ed.2d 254 (2008).

16     262 S.W.3d at 352.

17     See PacifiCare Health Sys., Inc. v. Book, 538 U.S. 401, 406–07, 123 S.Ct. 1531, 155 L.Ed.2d 578 (2003) (holding that “since we do not
       know how the arbitrator will construe the remedial limitations” barring treble damages, “the proper course is to compel arbitration”);
       Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 454, 123 S.Ct. 2402, 156 L.Ed.2d 414 (2003) (remanding for arbitrator to determine
       whether contracts prohibited class arbitration).
18     262 S.W.3d at 349, 352, 352, & 356.

19     80 S.W.3d 566, 572 (citing Rembert v. Ryan's Family Steak Houses, Inc., 235 Mich.App. 118, 596 N.W.2d 208, 226 (1999)).




               © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                                      25
In re Poly-America, L.P., 262 S.W.3d 337 (2008)
156 Lab.Cas. P 60,669, 28 IER Cases 140, 51 Tex. Sup. Ct. J. 1237

20     PDK Labs. Inc. v. U.S. D.E.A., 362 F.3d 786, 799 (D.C.Cir.2004) (Roberts, J., concurring).

21     262 S.W.3d at 346.

22     Georgiou v. Mobil Exploration & Prod. Servs., Inc. US, 190 F.3d 538 (5th Cir.1999); Cofab Inc. v. Phil. Joint Bd., Amalgamated
       Clothing & Textile Workers Union, 141 F.3d 105 (3d Cir.1998); McDermott Intern., Inc. v. Underwriters at Lloyds Subscribing to
       Memorandum of Ins. No. 104207, 981 F.2d 744 (5th Cir.1993).
23     Manion v. Nagin, 255 F.3d 535, 540 (8th Cir.2001) (involving injunction to obtain salary payments pending arbitration); see also
       Cofab, 141 F.3d at 110 (involving temporary stay of motion to enforce arbitration award pending NLRB review of related matter).
24     See Adam Borstein, Arbitrary Enforcement: When Arbitration Agreements Contain Unlawful Provisions, 39 LOY. L.A.L.REV..
       1259, 1275 (2006) (“This combination of finding unconscionability and favoring public policy over enforcement of the FAA has
       made the Ninth Circuit more hostile towards unlawful arbitration provisions than any other federal circuit.”); Michael G. McGuinness
       & Adam J. Karr, California's “Unique” Approach to Arbitration: Why This Road Less Traveled Will Make All the Difference on the
       Issue of Preemption Under the Federal Arbitration Act, 2005 J. DISP. RESOL. . 61, 91–92 (2005)(“[T]he conclusion that California
       courts—and the Ninth Circuit—are imposing their own biases against arbitration is inescapable.”); Steven M. Warshawsky, Gilmer,
       the Contractual Exhaustion Doctrine, and Federal Statutory Employment Discrimination Claims, 19 LAB. LAW. 285, 303 n. 180
       (2004) (“The Ninth Circuit continues to be hostile to mandatory arbitration agreements.”); Dennis R. Nolan, Employment Arbitration
       After Circuit City, 41 BRANDEIS L.J. 853, 890 (2003) ( “[D]espite Congress's broad endorsement of arbitration in the FAA and the
       Supreme Court's repeated confirmation of that policy, many judges (not all of them on the Ninth Circuit) remain deeply skeptical if
       not openly hostile.”); Hai Jiang, Do We Allow Contract Law to Administer Civil Rights Remedies? Casenote on Haskins v. Prudential
       Insurance Co., 2003 L.REV. MICH. ST. U. DET. C.L. 251, 260 (2003) (“The Ninth Circuit is the most hostile to arbitration of
       employment discrimination claims among the circuit courts....”).
25     See Earl Greene III, Note, Armendariz v. Foundation Health Psychcare Services, Inc.: The California Supreme Court Searches For
       a Middle Ground, 1 J. AM. ARB. 105, 108–09 (2001) (“On a mandatory arbitration agreement enforcement continuum, the Ninth
       Circuit would be sitting far to the left of center as it seems to be more concerned with protecting the statutory rights of employees
       than toeing the line with the Supreme Court.”)
26     See Jennifer LaFond, Notes, The Private Enforcement of Public Laws in Armendariz v. Foundation Health Psychcare Servs., 29
       PEPP. L.REV. . 401, 414 n. 127 (2002) (“The Ninth Circuit is the renegade circuit with respect to ... [whether] employees can be
       compelled to arbitrate statutory claims.”).
27     Douglas v. U.S. Dist. Court, 495 F.3d 1062, 1068–69 (9th Cir.2007).

28     262 S.W.3d at 346.

29     In re BP Products N. Am., Inc., 244 S.W.3d 840, 845 (Tex.2008); In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 136 (Tex.2004).


End of Document                                                          © 2015 Thomson Reuters. No claim to original U.S. Government Works.




               © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                                      26
In re Poly-America, L.P., 262 S.W.3d 337



    History (3)

    Direct History (3)
      1. In re Luna
    175 S.W.3d 315 , Tex.App.-Hous. (1 Dist.) , Sep. 09, 2004 , rehearing overruled ( Nov
    05, 2004 )


       Mandamus Granted by

        2. In re Poly-America, L.P.
      262 S.W.3d 337 , Tex. , Aug. 29, 2008


       AND Order Withdrawn by

    3. In re Luna
    275 S.W.3d 537 , Tex.App.-Hous. (1 Dist.) , Sep. 03, 2008




            © 2015 Thomson Reuters. No claim to original U.S. Government Works.             27
Khan v. Meknojiya, Not Reported in S.W.3d (2013)
2013 WL 3336874




                                        2013 WL 3336874
                          Only the Westlaw citation is currently available.

     SEE TX R RAP RULE 47.2 FOR DESIGNATION AND SIGNING OF OPINIONS.

                                    MEMORANDUM OPINION
                                     Court of Appeals of Texas,
                                              Austin.

                                    Liaquat Ali KHAN, Appellant
                                                 v.
                                   Nizarali MEKNOJIYA, Appellee.

                             No. 03–11–00580–CV.          |   June 28, 2013.

From the District Court of Travis County, 200th Judicial District, No. D–1–GN–08–001931; Lora
J. Livingston, Judge Presiding.

Attorneys and Law Firms

D. Todd Smith, Smith Law Group, P.C., Austin, TX, for Liaquat Ali Khan.

Timothy J. Herman, Howry Breen & Herman, L.L.P., Austin, TX, for Nizarali Meknojiya.

Before Chief Justice JONES, Justices GOODWIN and FIELD.



                                       MEMORANDUM OPINION

SCOTT K. FIELD, Justice.

 *1 Landlord Liaquat Ali Khan sued tenant Nizarali Meknojiya for breach of the parties'
commercial lease. In the suit, Khan sought damages pursuant to the lease's holdover provision,
contending that Meknojiya became a holdover tenant as a result of Khan's termination of the
lease. Meknojiya moved for summary judgment on the sole ground that Khan's recovery under the
holdover provision is barred as a matter of law because it represents an unenforceable penalty in
the form of “double-rent.” The trial court granted partial summary judgment in favor of Meknojiya,
and following a bench trial only on attorney's fees, the court rendered a final judgment that Khan
take nothing on his claims and that Meknojiya recover attorney's fees. Because we conclude that
the holdover provision is not an unenforceable penalty, we reverse the trial court's judgment and
remand the case for further proceedings.


             © 2015 Thomson Reuters. No claim to original U.S. Government Works.                1
Khan v. Meknojiya, Not Reported in S.W.3d (2013)
2013 WL 3336874




                                              BACKGROUND

Khan owns commercial property located in Austin, Texas. In 1996, Khan and Meknojiya entered
into a written lease agreement, and Meknojiya began operating a convenience store on the leased
premises. The parties renegotiated their lease (“the lease”) in March 2002. The renegotiated lease
required Meknojiya to pay $4,500 per month in “base rent” and included the following paragraph,
which the parties refer to as a “holdover provision”:

           2.07 Holding Over.If Tenant does not vacate the Leased Premises upon the
           expiration or earlier termination of the Lease, Tenant shall be a tenant at
           sufferance for the holdover period and all of the terms and provisions of this
           Lease shall be applicable during that period, except that Tenant shall pay
           Landlord (in addition to additional rent payable under this Lease and any other
           sums payable under this Lease) as base rental for the period of such holdover
           an amount equal to two times the base rent which would have been payable by
           Tenant had the holdover period been a part of the original terms of the Lease
           (without waiver of Landlord's right to recover damages as permitted by law).

According to Khan, Meknojiya committed a series of breaches following execution of the 2002
lease. For instance, Khan contends that Meknojiya (1) failed to obtain or renew required insurance,
(2) failed to provide the required insurance documentation, and (3) permitted a corporation owned
by other individuals to operate the convenience store without obtaining Khan's prior written
consent. Khan notified Meknojiya in writing, through counsel, that Meknojiya was in default of
the lease and that Khan was exercising his option to terminate the lease effective May 1, 2002.
Nevertheless, despite additional notices of default, Meknojiya continued to occupy the premises
and to pay $4,500 per month until January 2, 2007, the date the lease was set to have expired by
its own terms.

Khan subsequently sued Meknojiya for breach of the lease, asserting that upon Meknojiya's breach
of the lease and Khan's notification that the lease was terminated, Meknojiya occupied the property
as a tenant at sufferance. See ICM Mortg. Corp. v. Jacob, 902 S.W.2d 527, 530 (Tex.App.-El Paso
1994, writ denied) (citing Restatement (First) of Property § 22 (1936)) (“A tenant at sufferance
is a person who has been in lawful possession of property but who wrongfully remains as a
holdover after his right to possession has expired.”). Khan sought damages in an amount equal
to the difference that Meknojiya actually paid during the alleged holdover period and the amount
that Meknojiya was required to pay for the same time period under paragraph 2.07.




             © 2015 Thomson Reuters. No claim to original U.S. Government Works.                 2
Khan v. Meknojiya, Not Reported in S.W.3d (2013)
2013 WL 3336874

*2 Khan moved for partial summary judgment, asserting that he conclusively established all
elements of his claim for breach of the lease. 1 Meknojiya filed a response and subsequently moved
for summary judgment asserting that Khan's recovery was barred as a matter of law because the
double-rent rate under paragraph 2.07 constitutes an unenforceable penalty. After conducting a
hearing, the trial court granted Meknojiya's motion for summary judgment but denied Khan's
motion. Following a bench trial on Meknojiya's remaining counterclaim for attorney's fees, the trial
court rendered a final judgment incorporating the trial court's order granting summary judgment
in favor of Meknojiya and ordering Khan to pay $60,191.71 in attorney's fees. 2 In three issues on
appeal, Khan argues that the trial court erred in granting summary judgment in favor of Meknojiya
and consequently, in awarding Meknojiya attorney's fees as the prevailing party.



                                       STANDARD OF REVIEW

We review a trial court's ruling on summary judgment de novo. Valence Operating Co. v. Dorsett,
164 S.W.3d 656, 661 (Tex.2005). A moving party is entitled to summary judgment if (1) there
are no genuine issues of material fact and (2) the movant is entitled to judgment as a matter of
law. Tex.R. Civ. P. 166a(c). A party who moves for traditional summary judgment on another
party's claim is entitled to summary judgment when he negates at least one essential element of
that claim or conclusively establishes each element of an affirmative defense. Science Spectrum,
Inc. v. Martinez, 941 S.W.2d 910, 911 (Tex.1997). When reviewing the trial court's summary
judgment ruling, we take as true all evidence favorable to the nonmovant, and we indulge every
reasonable inference and resolve any doubts in the nonmovant's favor.Valence Operating Co., 164
S.W.3d at 661.

In part, Khan's arguments on appeal raise matters of contract construction. In construing a
written agreement, we must ascertain and give effect to the parties' intentions as expressed in the
agreement. Frost Nat'l Bank v. L & F Distribs., Ltd., 165 S.W.3d 310, 311–12 (Tex.2005) (per
curiam). We consider the agreement as a whole and attempt to harmonize and give effect to all
provisions of the contract. Id. If the contract language can be given a certain or definite legal
meaning, then the language is not ambiguous, and this Court will construe the contract as a matter
of law. SAS Inst., Inc. v. Breitenfeld, 167 S.W.3d 840, 841 (Tex.2005) (quoting Coker v. Coker,
650 S.W.2d 391, 393 (Tex.1983)).



                                                   DISCUSSION

Meknojiya moved for traditional summary judgment on the sole ground that the lease's holdover
provision, calling for double rent, is an unenforceable liquidated-damages provision, i.e. a penalty.


             © 2015 Thomson Reuters. No claim to original U.S. Government Works.                   3
Khan v. Meknojiya, Not Reported in S.W.3d (2013)
2013 WL 3336874

This assertion by Meknojiya is an affirmative defense that he had the burden of pleading and
proving. See Phillips v. Phillips, 820 S.W.2d 785, 788 (Tex.1991). As a result, to be entitled to
summary judgment, Meknojiya had to conclusively establish every element of this defense. See
Ryland Grp., Inc. v. Hood, 924 S.W.2d 120, 121 (Tex.1996) (per curiam).

 *3 “The universal rule for measuring damages for the breach of a contract is just compensation
for the loss or damage actually sustained.”Phillips, 820 S.W.2d at 788. Accordingly, a liquidated-
damages provision is not enforceable if, in effect, it is a penalty. See id.(“Whether a contractual
provision is an enforceable liquidated damages provision or an unenforceable penalty is a question
of law for the court to decide.”). A liquidated-damages provision is enforceable only if a court
finds that (1) the harm caused by the breach is incapable or difficult of estimation, and (2) the
amount of liquidated damages called for is a reasonable forecast of just compensation.Id. Whether
a liquidated-damages provision is an unenforceable penalty is a question of law for the court,
although sometimes factual issues must be resolved before the court can decide the legal question.
Id.

In his first and second issues on appeal, Khan argues that the trial court erred in granting
Meknojiya's summary-judgment motion because Meknojiya failed to conclusively establish the
essential elements of his affirmative defense of penalty. Specifically, Khan argues that, as a matter
of law, paragraph 2.07 is not an unenforceable penalty provision because it is not a liquidated-
damages provision at all. Instead, according to Khan, paragraph 2.07 simply sets forth the parties'
agreed rental rate for any holdover period. Based on the unambiguous language of the lease, we
agree.

Whether a contract term is a liquidated-damages provision is a question of law for the court.
Valence Operating Co., 164 S.W.3d. at 644. “The term ‘liquidated damages' ordinarily refers to
an acceptable measure of damages that parties stipulate in advance will be assessed in the event
of a contract breach.”Flores v. Millennium Interests, Ltd., 185 S.W.3d 427, 431 (Tex.2005). Here,
paragraph 2.07 sets an agreed-upon rental rate for situations in which the tenant has failed to
surrender the leased premises upon expiration of the lease term or earlier termination by one of the
parties. The provision itself describes the amount due during the holdover period as “base rental for
the period of such holdover.”Further, paragraph 2.07 states that payment of such rental amounts
do not waive the landlord's right to recover “damages as permitted by law.” In other words, based
on the plain language of the lease, there is no indication that the parties intended the amounts owed
under paragraph 2.07 as a means of forecasting damages in the event of a breach. And, while rent
under paragraph 2.07 may, in certain circumstances, form the basis of measuring damages, it does
not independently set a damages amount or attempt to calculate damages. Simply put, any amount
owed under paragraph 2.07 does not equate to a stipulated measure of damages; rather, it is an
agreed-upon rental amount that is due under particular circumstances.




             © 2015 Thomson Reuters. No claim to original U.S. Government Works.                   4
Khan v. Meknojiya, Not Reported in S.W.3d (2013)
2013 WL 3336874

Our conclusion that paragraph 2.07 of the lease is not a liquidated-damages provision, and
therefore is not a penalty, is consistent with that of our sister court of appeals in Dallas in analyzing
whether a similar clause operated as a penalty provision. See Meridien Hotels, Inc. v. LHO Fin.
P'ship I, L.P., 255 S.W.3d 807 (Tex.App.-Dallas 2008, no pet.). In Meridien Hotels, the landlord
leased hotel space to the tenant under a lease that required the tenant to pay 1.5 times the base
rental amount if the tenant remained in the space upon termination of the lease by one of the parties
or the lease term's expiration. 3 Id. at 822.The landlord sent the tenant a notice of termination of
the lease, but the tenant remained in the hotel space anyway. Id. at 814.The landlord eventually
sued the tenant, seeking multiple types and amounts of damages, including $2,130,136 in holdover
rent, plus prejudgment interest, all of which the trial court awarded. Id.

 *4 The tenant appealed, claiming that the holdover rent provision was an unlawful penalty and
that, as a result, the trial court erred in awarding pre-judgment interest on that amount. Id. at
822.Concluding that the holdover rental rate did not constitute a penalty, the court of appeals
concluded that the provision “does not punish appellants; it instead requires that if appellants make
the decision to hold over beyond the term of the lease, they must pay a higher rate for doing so.
Appellants were on notice that [the landlord] considered the lease terminated, yet they chose to
stay, having agreed in the lease to pay 1.5 times the usual rent for doing so.”Id.

Likewise, in this case, paragraph 2.07 of the parties' lease agreement sets out in advance the rent to
be paid should the tenant choose to remain on the premises after one of the parties terminates the
lease or the lease expires by its own terms, creating a tenancy at sufferance. Upon expiration or
termination of the lease, the tenant must decide whether to (1) leave the leased premises (assuming
he is not forcibly removed) or (2) hold over under the lease as a tenant at sufferance and pay
additional rent at the agreed holdover rate. Such additional rent is not a penalty; in fact, it does
not represent liquidated damages at all. Rather, the additional rent is the agreed-to, bargained-for
amount of rent due and owing in the event of a holdover. 4

Because paragraph 2.07 of the parties' lease agreement is not a liquidated-damages provision, it
cannot be an unenforceable penalty, as a matter of law. We therefore conclude that the trial court
erred in granting summary judgment in favor of Meknojiya on this ground. In addition, because
Meknojiya should not have prevailed on summary judgment, it follows that he was not entitled to
attorney's fees. We sustain appellant's first and second issues on appeal. 5



                                               CONCLUSION




             © 2015 Thomson Reuters. No claim to original U.S. Government Works.                       5
Khan v. Meknojiya, Not Reported in S.W.3d (2013)
2013 WL 3336874

Because we conclude that the trial court erred in granting summary judgment, we reverse the trial
court's judgment and award of attorney's fees in favor of Meknojiya. We remand the case to the
trial court for further proceedings consistent with this opinion.



Footnotes
1    Khan also asked the trial court to render summary judgment that he was entitled to attorney's fees, but to reserve judgment on the
        amount of fees for a separate hearing.
2       Paragraph 13.03 of the lease states:
              Attorney's Fees.The prevailing party in any legal proceeding brought under or with a relation to this agreement shall be entitled
              to recover form the non-prevailing party, their reasonable attorney['s] fees, court costs and expenses, including but not limited
              to travel and witness costs.
3       Specifically, the lease at issue in Meridien Hotels, Inc. v. LHO Financing Partnership I, L.P., contained the following provision:
              Any holding over by Tenant after the expiration or sooner termination of this Agreement shall be treated as a daily tenancy at
              sufferance at a rate equal to one and one-half (1.5) times the Rent and other charges herein provided (prorated on a daily basis).
           255 S.W.3d 807, 822 (Tex.App.-Dallas 2008, no pet.)
4       Meknojiya relies on Phillips v. Phillips, 820 S.W.2d 785 (Tex.1991), for the proposition that a contractual provision in which one
        party agrees to pay the other some multiple of damages is an unenforceable penalty. Phillips is a classic illustration of a liquidated-
        damages provision that constitutes an unlawful penalty. In the midst of divorce proceedings, a husband and wife agreed to create
        a limited partnership rather than divide their substantial assets. Id. at 786–87.The agreement contained the following provision: “If
        the general partner breaches his trust hereunder, he shall pay to the limited partner as liquidated damages ten times the amount she
        loses as a result of such breaches of trust.”Id. at 787.In other words, once actual damages were established for breach of the parties'
        contract, they would be multiplied by ten to reach the damages award. Id. at 789.The supreme court held that this provision was an
        unenforceable penalty provision, rather than an enforceable liquidated damages provision. Id.
           Meknojiya's reliance on Phillips in this case is misplaced. First, unlike paragraph 2.07, the provision at issue in Phillips was
           undisputedly a liquidated-damages provision. As previously discussed, paragraph 2.07 is not a liquidated-damages provision at
           all, but instead is a rental amount that is triggered if and when the lease expires or is terminated. Second, the liquidated-damages
           provision at issue in Phillips was an unenforceable penalty on its face because the amount awarded by the provision was computed
           by multiplying actual damages (once established).See id. at 789.Here, paragraph 2.07 does not require a separate determination of
           damages or the application of any multiplier to that amount. Thus, even if we were to conclude that paragraph 2.07 is a liquidated-
           damages provision, unlike the court in Phillips we could not conclude that it constitutes a penalty on its face.
5       In his third issue on appeal, Khan argues that, even if the double-rent rate set forth in paragraph 2.07 represents liquidated damages,
        Meknojiya failed to satisfy his burden to establish that it is an unenforceable penalty. Having sustained Khan's first and second issues
        on appeal, we do not address this issue. SeeTex.R.App. P. 47.1.


End of Document                                                            © 2015 Thomson Reuters. No claim to original U.S. Government Works.




                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                                          6
Khan v. Meknojiya, Not Reported in S.W.3d



    History (4)

    Direct History (4)
      1. Khan v. Meknojiya
    2011 WL 11671835 , Tex.Dist. , May 11, 2011


      Reversed and Remanded by

      2. Khan v. Meknojiya
      2013 WL 3336874 , Tex.App.-Austin , June 28, 2013




      3. Khan v. Meknojiya
    2011 WL 11671836 , Tex.Dist. , Aug. 10, 2011


      Reversed and Remanded by

      4. Khan v. Meknojiya
      2013 WL 3336874 , Tex.App.-Austin , June 28, 2013




           © 2015 Thomson Reuters. No claim to original U.S. Government Works.   7
Landry's Seafood Restaurants, Inc. v. Waterfront Cafe, Inc., 49 S.W.3d 544 (2001)




                                                49 S.W.3d 544
                                           Court of Appeals of Texas,
                                                    Austin.

                      LANDRY'S SEAFOOD RESTAURANTS, INC.
                       and Landry's Crab Shack, Inc., Appellants,
                                          v.
                 WATERFRONT CAFE, INC. and Michael R. Young, Appellees.

    No. 03–00–00381–CV.                |    June 7, 2001.        |   Rehearing Overruled Aug. 9, 2001.

Prospective sublessee brought action against restaurant alleging tortious interference with contract
and business relations when restaurant blocked landlord's grant of permission for sublease. The
126th Judicial District Court, Travis County, John K. Dietz, J., granted summary judgment for
restaurant. Prospective sublessee appealed. The Court of Appeals, Yeakel, J., held that restaurant
had a contractual right to interfere.

Affirmed.


Attorneys and Law Firms

*545 Julie A. Ford, Haynes and Boone, LLP, Austin, for Appellants.

Craig S. Comeaux, Akin, Gump, Strauss, Hauer & Feld, L.L.P., Austin, for Appellees.

*546 Before Justices YEAKEL, PATTERSON and POWERS. *

Opinion

YEAKEL, Justice.

Appellants Landry's Seafood Restaurants, Inc. and Landry's Crab Shack, Inc. (together “Landry's”)
appeal from the district court's summary judgment in favor of appellees Waterfront Cafe, Inc.
and Michael R. Young (together “Waterfront”). Landry's sued Waterfront for tortious interference
with contract and business relations. We will affirm the district court's summary judgment in favor
of Waterfront.



                         FACTUAL AND PROCEDURAL BACKGROUND


              © 2015 Thomson Reuters. No claim to original U.S. Government Works.                        1
Landry's Seafood Restaurants, Inc. v. Waterfront Cafe, Inc., 49 S.W.3d 544 (2001)



Oyster Investment Corporation (“Oyster”) leases from the University of Texas a commercial
property on Lake Travis in Austin called “Oyster Landing.” Oyster subleases two adjoining
restaurant spaces in Oyster Landing to third parties. In 1993 Oyster subleased one restaurant space
to Waterfront. At that time Oyster was subleasing the other space to Stillwater, Inc. (“Stillwater”),
which was operating a restaurant known as “The Lodge at Lakeview” in the subleased space.
Under the terms of the sublease contract, Stillwater could not assign its interest in the sublease
without Oyster's consent. In its subleased space, Waterfront began operating a restaurant called
“Chuy's Hula Hut.” Waterfront's sublease provides that the restaurant in the other space must be
“of substantially different character” from the Hula Hut. Waterfront describes the Hula Hut as
“nautically-themed.”

Landry's operates a chain of restaurants known as “Joe's Crab Shack.” In 1996 Landry's began
negotiations with Stillwater to assume Stillwater's sublease and operate a Joe's Crab Shack
restaurant in the space occupied by The Lodge at Lakeview. Waterfront learned of Landry's plan
and voiced its objection to Oyster that a Joe's Crab Shack restaurant would not be “of substantially
different character” from the Hula Hut. The sublease between Waterfront and Oyster included an
arbitration clause, and the two parties entered into arbitration. The arbitrators issued a decision in
May 1997, which found that Joe's Crab Shack was not “of substantially different character” from
the Hula Hut. Landry's did not participate in the arbitration and apparently was not invited to do
so. As a result, Oyster declined to approve Stillwater's assignment of its sublease to Landry's.

In June 1997 Landry's brought this suit against Waterfront and Oyster for “tortiously interfer[ing]
with the contractual relationship between it and Stillwater,” “maliciously [and] intentionally
interfering with and preventing [a] business relationship [with Stillwater] from occurring and
continuing,” acting in a “conspiracy to tortiously interfere with a contract and a business
relationship,” and entering “into a combination or conspiracy in restraint of trade.” Landry's also
filed suit against Stillwater. Waterfront filed a traditional motion for summary judgment. See
Tex.R. Civ. P. 166a(b). Landry's did not respond. The district court granted Waterfront's motion
and severed Landry's claims against Waterfront from those against Oyster and Stillwater. The
court denied Landry's motion for new trial. By five issues, Landry's appeals the district court's
summary judgment in favor of Waterfront and the court's denial of Landry's motion for new trial.



                                                 DISCUSSION

Summary Judgment
 [1] [2] [3] Summary judgments must stand on their own merits. Rhone–Poulenc, Inc. *547
v. Steel, 997 S.W.2d 217, 223 (Tex.1999). Accordingly, on appeal the nonmovant need not have
answered or responded to the motion to contend that the movant's summary-judgment proof is
insufficient as a matter of law to support summary judgment. Id. The failure of the nonmovant to


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Landry's Seafood Restaurants, Inc. v. Waterfront Cafe, Inc., 49 S.W.3d 544 (2001)



respond to the summary-judgment motion does not allow the trial court to grant the motion when
the movant's summary-judgment proof is insufficient. Id. (citing City of Houston v. Clear Creek
Basin Auth., 589 S.W.2d 671, 678 (Tex.1979)). But when the nonmovant fails to file a response,
the sole issue on appeal is whether the movant's proof entitles it to judgment as a matter of law.
Clear Creek Basin Auth., 589 S.W.2d at 678.

 [4] [5] A traditional motion for summary judgment is properly granted when the movant
establishes that there are no genuine issues of material fact to be decided and that it is entitled to
judgment as a matter of law. Tex.R. Civ. P. 166a(c); Rhone–Poulenc, 997 S.W.2d at 222; Lear
Siegler, Inc. v. Perez, 819 S.W.2d 470, 471 (Tex.1991). All doubts are resolved against the movant,
and the reviewing court must view the evidence in the light most favorable to the nonmovant.
Lear Siegler, 819 S.W.2d at 471. When a defendant moves for summary judgment based on an
affirmative defense, the defendant, as movant, bears the burden of conclusively proving each
essential element of its defense. See Rhone–Poulenc, 997 S.W.2d at 223; Ryland Group, Inc. v.
Hood, 924 S.W.2d 120, 121 (Tex.1996).

By its first three issues, Landry's complains that the district court erred in granting Waterfront's
motion for summary judgment because Waterfront “completely failed to establish the elements of
its affirmative defense, and the burden to respond never shifted to Landry.” Waterfront moved for
summary judgment based on the affirmative defense of legal justification. The supreme court has
held that justification is an affirmative defense to a claim of tortious interference with contract.
Texas Beef Cattle Co. v. Green, 921 S.W.2d 203, 210 (Tex.1996).

Waterfront and Landry's dispute what Waterfront must prove to prevail. Waterfront relies on Texas
Beef Cattle, which established that the defense of justification is based on either the exercise of (1)
one's own legal rights or (2) a good-faith claim to a colorable legal right, even though that claim
ultimately proves to be mistaken. See id. at 211. Waterfront does not dispute that it provided no
evidence that its actions were done in good faith; therefore, to have prevailed on this defense, it
must have conclusively proved that it was exercising its own legal right. If the trial court found as
a matter of law that the defendant, in exercising a legal right, interfered with a contract, then the
defendant has conclusively established the justification defense. Id. Waterfront asserts that it was
exercising a right provided it under its sublease with Oyster. The sublease states that Oyster will
only lease the adjoining space to a restaurant of substantially different character and provides for
arbitration between Oyster and Waterfront in the event of a sublease dispute.

Landry's counters that a party seeking summary judgment on the affirmative defense of
justification must conclusively prove that (1) “the acts of interference were not in themselves
tortious and or unlawful,” (2) “the acts of interference were consistent with protecting the right
at issue,” and (3) “the contractual right to interfere exists as a matter of law pursuant to an
unambiguous contract.” Landry's relies on Prudential Insurance Co. of America v. Financial


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Landry's Seafood Restaurants, Inc. v. Waterfront Cafe, Inc., 49 S.W.3d 544 (2001)



Review Services, *548 Inc., 29 S.W.3d 74 (Tex.2000), 1 as support for its claim that Waterfront
must prove that its acts were not tortious or unlawful. In Financial Review Services, the supreme
court observed that an otherwise legitimate privilege may not be exercised by resorting to illegal
or tortious means, and that a defendant, under the guise of exercising a privilege, may not say
or do whatever it sees fit. Id. at 81. Thus, Landry's concludes, “The obvious and fatal flaw in
Waterfront's summary judgment motion was that it filed no evidence whatsoever as to its own
acts of interference. Without such evidence it could not conclusively establish that those acts were
lawful and consistent with the right being asserted.”

However Financial Review Services does not relieve Landry's of pleading acts by Waterfront that
constitute tortious interference.

   Generally, justification is established as a matter of law when the acts the plaintiff complains
   of as tortious interference are merely the defendant's exercise of its own contractual rights.

   ... Thus, if the plaintiff pleads and proves methods of interference that are tortious in themselves,
   then the issue of privilege or justification never arises.

Id. (emphasis added). Landry's has failed to make any specific allegation as to what actions
Waterfront took that interfered with its business and contractual relations. Even construing the
petition liberally in favor of Landry's, see Roark v. Allen, 633 S.W.2d 804, 809 (Tex.1982),
the only claims are that Waterfront “engaged in conduct to prevent the sale by Stillwater of its
leasehold interest to Landry's” and “knowingly and unlawfully interfered with the contractual and
prospective business relationship between Stillwater, Inc. and Landry's.” There are no specific
allegations of any actions on the part of Waterfront.

Waterfront, however, has provided summary-judgment proof that, pursuant to its sublease, it
engaged in arbitration with Oyster. This is the only evidence in the record of any actions on the
part of Waterfront. In Financial Review Services, Financial Review Services' (“FRS”) pleadings
disclosed no fewer than five specific factual allegations of how Prudential disparaged FRS and
interfered with its contracts and business relations. Financial Review Servs., 29 S.W.3d at 81. “To
raise an issue of whether Prudential interfered with FRS's contract by tortiously disparaging FRS,
there must be evidence that Prudential made statements rising to the level of trade disparagement.
To do so, FRS must first present evidence that Prudential made false statements of fact about
FRS.” Id. at 82 (emphasis added) (citing Hurlbut v. Gulf Atl. Life Ins. Co., 749 S.W.2d 762, 766
(Tex.1987)). Landry's presented no evidence that would raise an issue that Waterfront committed
any acts other than relying on the provisions of its sublease with Oyster.

 [6] Landry's also claims that a party asserting justification must prove that its acts of interference
“were consistent with protecting the right at issue.” In addition to Financial Review Services,
Landry's directs this Court to two federal cases to support its proposition. See Access Telecom,


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Landry's Seafood Restaurants, Inc. v. Waterfront Cafe, Inc., 49 S.W.3d 544 (2001)



*549 Inc. v. MCI Telecomms. Corp., 197 F.3d 694, 710 (5th Cir.1999); Wardlaw v. Inland
Container Corp., 76 F.3d 1372, 1379 (5th Cir.1996). 2 Without addressing whether Landry's
assertion is a correct statement of the law, we note that Waterfront has proven that the arbitration
between it and Oyster, the only Waterfront act detected in the record, concerned the sublease's
language that the adjoining space would not be occupied by a restaurant of substantially similar
character.

 [7] [8] [9] [10] [11] Finally, Landry's asserts that any contractual right to interfere must
exist “as a matter of law pursuant to an unambiguous contract.” We agree that this is a correct
statement of the law. See Friendswood Dev. Co. v. McDade + Co., 926 S.W.2d 280, 282
(Tex.1996). However, we disagree with Landry's contention that the Oyster–Waterfront sublease
is an ambiguous contract. Section 4.2 of the sublease reads, “Landlord [Oyster] covenants and
agrees that the two full service restaurants shall be of substantially different characters [sic] and
offer substantially different menus to provide a diversity of food service for the customers visiting
[Oyster Landing].” Landry's argues that “the exact meaning of [‘substantially different characters']
is uncertain, making the provision ambiguous,” and “[where] the contract is ambiguous, the
asserted legal right cannot be established as a matter of law.” 3 Whether a contract is ambiguous is
a question of law for the court to decide. Id. (citing National Union Fire Ins. Co. v. CBI Indus., Inc.,
907 S.W.2d 517, 520 (Tex.1995); Coker v. Coker, 650 S.W.2d 391, 394 (Tex.1983)). A contract
is ambiguous when its meaning is uncertain and doubtful or it is reasonably susceptible to more
than one meaning. Coker, 650 S.W.2d at 393. “If a contract is worded in such a manner that it can
be given a definite or certain legal meaning, then it is not ambiguous.” Friendswood Dev., 926
S.W.2d at 282 (citing CBI Indus., 907 S.W.2d at 520; Coker, 650 S.W.2d at 393). Interpreting
the sublease according to its plain meaning, see Northern Natural Gas Co. v. Conoco, Inc., 986
S.W.2d 603, 606 (Tex.1998), it is not rendered ambiguous by its use of the word “character.”
“Character” has a meaning from common usage; it is understood to mean an entity's features,
traits, and qualities. 4 The character of a restaurant includes its interior and exterior appearance,
its menu, its atmosphere, and the attire of employees, among other things.

Here, the sublease separates “character” from “menu” and provides that, in the two restaurants
located in Oyster Landing, both character and menu are to be “substantially different.” If the
menu is not included in the sublease's use of “character,” what remains of a restaurant's character
can only be the decor and atmosphere. This is the intention expressed in the language used by
Oyster and Waterfront. See Reilly v. Rangers Mgmt., Inc., 727 S.W.2d 527, 529 (Tex.1987) (“The
interpretation of a written contract is a quest for the intention of the parties to it.”). We hold that
the use of “character” in the sublease between Oyster and Waterfront is not uncertain nor is it
reasonably *550 susceptible to more than one meaning; the sublease is not ambiguous.

Landry's next attacks Waterfront's evidence. As summary-judgment proof, Waterfront submitted
to the district court (1) a certified copy of Landry's first amended petition, (2) an affidavit of

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Landry's Seafood Restaurants, Inc. v. Waterfront Cafe, Inc., 49 S.W.3d 544 (2001)



Michael R. Young (Waterfront's custodian of records) identifying and authenticating an attached
copy of the sublease between Oyster and Waterfront, and (3) an affidavit of William C. Bryant (one
of the arbitrators) identifying and authenticating an attached copy of the arbitrators' memorandum
in the proceeding between Oyster and Waterfront.

Section 10.17 of the sublease allows the parties to the sublease, Waterfront and Oyster, to submit a
“dispute or matter” arising under the sublease to binding arbitration. Bryant's affidavit and attached
memorandum reflect that Waterfront and Oyster arbitrated the question of whether a Joe's Crab
Shack restaurant would be substantially different in character from the Hula Hut. Outside of its
formal preface and conclusion, Bryant's affidavit states:

   “My name is William C. Bryant. I am of sound mind, capable of making this affidavit, and
   personally acquainted with the facts herein stated:

   “In the spring of 1997, I acted as one of the arbitrators in a matter entitled ‘Arbitration
   Proceeding Between Oyster Boat Town[e] Landing, Ltd. And Waterfront Café, Inc. (The
   “Oyster–Waterfront Proceeding”)’. Attached hereto as Exhibit 1 is a true and correct copy of
   a Memorandum signed by me and issued on or about May 22, 1997 in which Dean Blaine and
   I, acting as arbitrators with the consent of both parties, announced our findings in the Oyster–
   Waterfront Proceeding.”

The arbitrators' memorandum attached to Bryant's affidavit contains the only summary-judgment
proof that describes the “character” of the Hula Hut and proposed Joe's Crab Shack and concludes
that the two restaurants would not be substantially different in character. 5

 *551 [12] The rules of civil procedure provide that affidavits in support of a motion for summary
judgment “shall be made on personal knowledge, shall set forth such facts as would be admissible
in evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated
therein.” Tex.R. Civ. P. 166a(f). Defects in summary-judgment proof fall into two categories—
defects in form and defects in substance. Substantive defects can be asserted for the first time on
appeal, but formal defects are waived if not raised in the trial court. See id.; Life Ins. Co. v. Gar–
Dal, Inc., 570 S.W.2d 378, 381 (Tex.1978); Youngstown Sheet & Tube Co. v. Penn, 363 S.W.2d
230, 233–34 (Tex.1962).

 [13] [14] Bryant's affidavit states that the attachment is a true and correct copy of the arbitrators'
memorandum, but it does not state that the facts contained in the memorandum are true and correct.
Landry's neither filed a response to Waterfront's motion for summary judgment nor objected to
Bryant's affidavit. This Court has determined that the failure to object to the form of an affidavit
on the ground that it does not show personal knowledge waives the complaint on appeal. McBride
v. New Braunfels Herald–Zeitung, 894 S.W.2d 6, 8 (Tex.App.—Austin 1994, writ denied). The
failure of Bryant's affidavit to attest that the facts contained in the arbitrators' memorandum

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Landry's Seafood Restaurants, Inc. v. Waterfront Cafe, Inc., 49 S.W.3d 544 (2001)



were true and correct is a formal defect that Landry's waived by not objecting in the district
court. Cf. id. (stating that failure to object to form of affidavit on ground that it does not show
personal knowledge waives complaint on appeal) (citing Tex.R. Civ. P. 166a(f); Tex.R.App. P.
52(a); Garcia v. John Hancock Variable Life Ins. Co., 859 S.W.2d 427, 433 (Tex.App.—San
Antonio 1993, writ denied)); Mid–Texas Tel. Co. v. First Nat'l Mobile Home Sales, 506 S.W.2d
728, 730 (Tex.Civ.App.—Austin 1974, no writ) (holding failure to object at trial-court level on
grounds that proof requirements were not satisfied because summary-judgment movant did not
show how affiant gained personal knowledge of underlying facts results in waiver of formal
defect). Furthermore, copies of documents attached to a properly prepared affidavit are sworn
copies within the meaning of rule 166a(f). Republic Nat'l Leasing Corp. v. Schindler, 717 S.W.2d
606, 607 (Tex.1986); McBride, 894 S.W.2d at 8. “Rule 166a(f) does not require that the affiant
have personal knowledge of the contents of attached sworn exhibits.” McBride, 894 S.W.2d at 8.

 [15] The only question that remains is whether the arbitrators' memorandum proves that the Hula
Hut and Landry's Crab Shack would not be of substantially different character. The evidence before
the district court and this Court is sparse. Waterfront produced little summary-judgment proof.
However, Landry's produced no controverting evidence. A nonmovant must present summary-
judgment proof when necessary to establish a fact issue. Clear Creek Basin Auth., 589 S.W.2d at
678. Waterfront provided evidence as to the decor and atmosphere of the two restaurants, elements
that we have determined were intended in the sublease's use of “character.” The arbitrators'
memorandum, in the absence of any controverting evidence, establishes that the Hula Hut and
Landry's Crab Shack were not substantially different in character.

We hold that the uncontroverted summary-judgment proof conclusively establishes *552 that
Waterfront's alleged actions were done in the exercise of its own legal right provided by its sublease
with Oyster. We overrule Landry's first three issues.


Motion for New Trial
By its last two issues, Landry's complains that the district court erred in denying its motion for new
trial. Landry's claims that the district court treated Waterfront's motion for summary judgment as a
no-evidence summary judgment. See Tex.R. Civ. P. 166a(i). Landry's continues that because it had
no notice that Waterfront was seeking a no-evidence summary judgment, the summary judgment
granted by the district court was a default summary judgment. Landry's contentions are without
merit because Waterfront established its right to a traditional summary judgment as a matter of law
by proving its affirmative defense of justification. Waterfront was not seeking, nor was it granted,
a no-evidence summary judgment. We overrule Landry's final two issues.




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Landry's Seafood Restaurants, Inc. v. Waterfront Cafe, Inc., 49 S.W.3d 544 (2001)




                                                           CONCLUSION

Having overruled all of Landry's issues, we affirm the district court's summary judgment.



Footnotes
*    Before John E. Powers, Senior Justice (retired), Third Court of Appeals, sitting by assignment. See Tex. Gov't Code Ann. § 74.003(b)
        (West 1998).
1       Financial Review Services involved whether the defendant had conclusively established a justification defense in a tortious-
        interference case. See Prudential Ins. Co. of Am. v. Financial Review Servs., 29 S.W.3d 74 (Tex.2000). The defendant had been
        granted a partial summary judgment on some issues and a directed verdict on the remaining issues. Id. at 76. The supreme court
        held that because the plaintiff had presented “at least some evidence” of improper conduct by the defendant, the defendant “did not
        establish its justification defense as a matter of law.” Id. at 83.
2       We note that although this Court may consider the decisions of federal courts of appeals, we are not bound by them. See Newth v.
        Adjutant General's Dep't, 883 S.W.2d 356, 359 (Tex.App.—Austin 1994, writ denied).
3       Landry's neither pleaded nor argued ambiguity in the district court

4       Webster's defines character as “distinctive differentiating mark,” the “aggregate of distinctive qualities” of a thing, and an “outward
        and visible quality or trait.” Webster's Third New International Dictionary 376 (Philip B. Gove ed., 1986).
5       The memorandum provides, in pertinent part, the following:
             We have been asked to decide the following question:
                           “Is a Joe's Crab Shack restaurant substantially different in character from the Chuy's Hula Hut restaurant
                           presently operated by Waterfront at [Oyster Landing]?”
             It is our decision that the answer to that question is no. To the contrary, it is our opinion that a Joe's Crab Shack restaurant is
             substantially similar in character to the Chuy's Hula Hut restaurant presently operated by Waterfront at the Facility.
             The requirements in Section 4.2 of the Oyster–Waterfront sublease that the restaurants be of substantially different characters is
             separate and independent from the requirement that they offer substantially different menus. We do not believe the [sub]lease
             should be interpreted to make superfluous the requirement of substantially different characters. In addition, the requirement is
             not just that the restaurants be of different characters but that they be of substantially different characters.
             We view the requirement of substantially different characters to require the restaurants to have substantially different
             characteristics, distinguishments, structures, functions and qualities—not just menu items. In that regard Hula Hut is described
             by its owner as a typical beach hut, surf shack or old wharf boat house typical along sea coasts everywhere. The building is
             built out of salvaged lumber and old boats, motors, surfboards, fishing nets, wooden fish and pictures of Hawaiian scenes are
             randomly hung or placed within the restaurant.
             Landry's Seafood Restaurant, Inc.'s Form 10K describes the character of a Joe's Crab Shack as “an old fishing camp with a
             wood facade, tin roof and a raised outside deck. The Crab Shack restaurants feature a casual, nautical theme ...” Various articles
             describe Joe's Crab Shack as having fish nets, sea shells, and other fake bounty from the sea, and a weatherbeaten facade giving
             the impression of a Gulf fishing camp. Apart from menu, the characteristics of the two restaurants appear nearly identical.
             Photographs that have been supplied to us also indicate that the characters appear to be very similar and not of a substantially
             different nature.


End of Document                                                            © 2015 Thomson Reuters. No claim to original U.S. Government Works.




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Landry's Seafood Restaurants, Inc. v. Waterfront Cafe, Inc., 49 S.W.3d 544



    History (5)

    Direct History (5)
    1. LANDRY'S SEAFOOD RESTAURANTS, INC. and Landry's Crab Shack, Inc., v.
    WATERFRONT CAFE, INC. and Michael R. Young.
    2000 WL 35463906 , Tex.Dist. , May 01, 2000


       New Trial Denied by

    2. LANDRY'S SEAFOOD RESTAURANTS, INC. and Landry's Crab Shack, Inc., v.
    WATERFRONT CAFE, INC. and Michael R. Young.
    2000 WL 35463907 , Tex.Dist. , July 19, 2000


       AND Judgment Affirmed by

      3. Landry's Seafood Restaurants, Inc. v. Waterfront Cafe, Inc.
      49 S.W.3d 544 , Tex.App.-Austin , June 07, 2001 , rehearing overruled ( Aug 09,
      2001 ) , review dismissed ( Dec 13, 2001 )




    4. LANDRY'S SEAFOOD RESTAURANTS. INC. and Landry's Crab Shack, Inc., v.
    WATERFRONT CAFE, INC. and Michael. R. Young.
    2000 WL 35490340 , Tex.Dist. , May 01, 2000


       Judgment Affirmed by

      5. Landry's Seafood Restaurants, Inc. v. Waterfront Cafe, Inc.
      49 S.W.3d 544 , Tex.App.-Austin , June 07, 2001 , rehearing overruled ( Aug 09,
      2001 ) , review dismissed ( Dec 13, 2001 )




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LHR Enterprises, Inc. v. Geeslin, Not Reported in S.W.3d (2007)
2007 WL 3306492




                                       2007 WL 3306492
                          Only the Westlaw citation is currently available.

     SEE TX R RAP RULE 47.2 FOR DESIGNATION AND SIGNING OF OPINIONS.

                                     MEMORANDUM OPINION
                                      Court of Appeals of Texas,
                                               Austin.

          LHR ENTERPRISES, INC.; Task Services, Inc.; Business Staffing, Inc .;
          Harry Sewill; Rick Chapman; and Transglobal Mortgage, Inc., Appellants
                                             v.
           Mike GEESLIN, in His Official Capacity as Commissioner of Insurance
             for the State of Texas; Texas Department of Insurance; and State
            Office of Administrative Hearings for the State of Texas, Appellees.

                                No. 03-05-00176-CV.               |   Nov. 7, 2007.

From the District Court of Travis County, 345th Judicial District, No. GN402881; Suzanne
Covington, Judge Presiding.

Attorneys and Law Firms

Bogdan Rentea, Rentea & Associates, Austin, for Appellant.

Kristofer S. Monson, Asst. Solicitor General, Austin, for Appellee.

Before Justices PATTERSON, PURYEAR and PEMBERTON.



                                        MEMORANDUM OPINION

DAVID PURYEAR, Justice.

 *1 The procedural history of this case is complicated by its relationship to another case before
the Department of Insurance (“Department”). Although we will discuss the various proceedings
in more detail later in the opinion, we will briefly summarize the proceedings here. The
Commissioner of Insurance became concerned that LHR Enterprises, Inc.; Transglobal Mortgage,
Inc.; Business Staffing, Inc.; Task Services, Inc.; Rick Chapman; and Harry Sewill (cumulatively
“the appellants”) were engaged in the unauthorized practice of insurance and referred the matter
to the State Office of Administrative Hearings (“SOAH”). In response, the appellants filed a


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LHR Enterprises, Inc. v. Geeslin, Not Reported in S.W.3d (2007)
2007 WL 3306492

declaratory-judgment action in district court seeking declarations that the Commissioner did
not have the authority to refer the matter for a hearing before SOAH. Shortly thereafter, the
Commissioner and the Department filed a plea to the jurisdiction contending that the district court
did not have jurisdiction over the case because the appellants had failed to show a valid waiver of
sovereign immunity. The district court granted the plea, and the appellants appealed the judgment
of the district court. We will dismiss this case for want of subject-matter jurisdiction.



                                               BACKGROUND

Proceedings Before SOAH
The case presently before us is related to another case involving the appeal of an administrative
order. Because it is helpful in explaining the outcome of this appeal, we will briefly review some
of the facts of the related case.

In 2004, the staff of the Department of Insurance (“Staff”) became concerned that several
companies and individuals, including the appellants, were engaged in the unauthorized business
of insurance. SeeTex. Ins.Code Ann. §§ 101.051 (specifying what constitutes business of
insurance), .102 (prohibiting unauthorized business of insurance) (West Supp.2006). In particular,
the Staff believed that the appellants and others were improperly engaged in the business of
providing various companies' employees with workers' compensation insurance coverage.

After formalizing their concerns, the Staff filed a report with the Commissioner that detailed the
allegations against the appellants and others. The report also contained the Staff's recommendation
that the Commissioner order that all the parties investigated (1) be held jointly and severally liable
for any unpaid workers' compensation claims, (2) pay monetary penalties, and (3) cease practicing
the business of insurance in Texas. See id. §§ 84.041 (providing that if Staff determines that
insurance violations have occurred, they have the authority to file report with Commissioner that
specifies facts forming basis of their conclusion and also specifies any penalty that they feel should
be imposed), .021 (West Supp.2006) (authorizing Commissioner to impose penalty on individual
who violates insurance law, rule, or order).

In July 2004, the Commissioner referred the matter to SOAH for a contested-case hearing
to determine whether the appellants and others had engaged in the unauthorized business of
insurance and whether a cease-and-desist order prohibiting the parties from engaging in the
allegedly improper actions should be issued. See, e.g., id. §§ 31.021(a) (requiring Commissioner
to “administer and enforce” insurance code), 40.002 (requiring SOAH to conduct hearing when
required under insurance code), 101.151 (West Supp.2006) (authorizing Commissioner to set
hearing to determine whether cease-and-desist order should be imposed if, among other things,
Commissioner has reason to believe that individual has violated insurance provision or rule).


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LHR Enterprises, Inc. v. Geeslin, Not Reported in S.W.3d (2007)
2007 WL 3306492



 *2 During the proceedings, the investigated parties, including the appellants, filed pleas to the
jurisdiction and a motion for summary disposition. The administrative law judge overseeing the
case denied the motions, and the investigated parties appealed the administrative law judge's
ruling to the Commissioner. The Commissioner denied the appeal. Subsequently, a hearing was
scheduled before SOAH.


Declaratory-Judgment Action
Soon after the Commissioner requested a hearing before SOAH, the appellants filed a petition for
declaratory relief in the district court. SeeTex. Civ. Prac. & Rem.Code Ann. §§ 37.001-.011 (West
1997 & Supp.2006) (Uniform Declaratory Judgments Act). The propriety of the district court's
judgment is the subject of this appeal.

In their petition, the appellants sought, among other things, a declaration that the Commissioner
did not have the authority to require a hearing before SOAH. Specifically, they sought a declaration
that the Commissioner has no authority to require a hearing or impose administrative penalties on
individuals that are neither licensed to engage in the business of insurance nor regulated by the
insurance code. SeeTex. Ins.Code Ann. § 84.021 (West Supp.2006) (authorizing Commissioner
to impose administrative penalties on individuals who are “licensed or regulated” under insurance
code or another Texas insurance law).

In addition, the appellants also sought a declaration that the Commissioner may not refer a matter
to SOAH for a determination of whether a cease-and-desist order should be issued to stop an
individual from engaging in certain activities when the statutory time for requesting a hearing
has expired. See id. §§ 101.151(a) (authorizing Commissioner to set hearing concerning issuance
of cease-and-desist order and specifying that Commissioner is required to provide notice of
hearing), .152 (providing that unless parties agree otherwise, hearing must be held “not earlier than
the fifth day or later than the 30th day after” notice was given), .153 (West Supp.2006) (allowing
Commissioner to issue cease-and-desist order after hearing has been held).

In response to the appellants' petition, the Commissioner and the Department filed a plea to the
jurisdiction. In their plea, they argued that because this case is essentially a suit against state
agencies, the appellants had the burden of proving a waiver of sovereign immunity. Further, the
Commissioner and the Department contended that because the appellants failed to plead and prove
a waiver, the district court did not have jurisdiction over the appellants' claims.

Ultimately, the district court granted the plea to the jurisdiction, and the appellants appeal the
district court's judgment.




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LHR Enterprises, Inc. v. Geeslin, Not Reported in S.W.3d (2007)
2007 WL 3306492




                                                 DISCUSSION

The appellants raise three issues on appeal. First, they argue that the district court erred when it
granted the plea to the jurisdiction. Specifically, they contend that their suit does not implicate
sovereign immunity because it seeks declaratory and injunctive relief against state officials acting
beyond their statutory authority. See Texas Natural Res. Comm'n v. IT-Davy, 74 S.W.3d 849, 855
(Tex.2002) (explaining that “[p]rivate parties may seek declaratory relief against state officials
who allegedly act without legal or statutory authority” but that “such suits are not ‘suits against
the State’ ... because suits to compel state officers to act within their official capacity do not
attempt to subject the State to liability” and, therefore, “do not implicate the sovereign-immunity
doctrine” (citation omitted)). Second, the appellants argue that the district court erred by failing to
declare that the Commissioner does not have the authority to impose administrative penalties on
individuals who are not licensed or regulated under the provisions of the insurance code. Finally,
the appellants insist that the district court erred when it failed to declare that the Commissioner
may not refer a matter to SOAH for a hearing if the referral is not made within the time allowed
by statute.

 *3 After the appellants filed this appeal, the SOAH hearing for determining whether the appellants
and the other investigated parties had engaged in the unauthorized practice of insurance was held.
After the hearing concluded, the Commissioner issued a final order, which specified that none of
the appellants had violated any insurance provision or regulation and that, accordingly, no sanction
or penalty should be imposed upon them. Shortly thereafter, the Commissioner and the Department
filed a motion to dismiss this appeal. 1 In their motion, the Commissioner and the Department
argue that because a final order has been issued absolving the appellants of any wrongdoing, this
Court no longer has subject-matter jurisdiction over the appellants' declaratory claims. Because
our resolution of the motion to dismiss is dispositive of this appeal, we will now turn to the various
arguments made by the parties regarding the motion to dismiss.

The appellants seek relief under the Uniform Declaratory Judgment Act. SeeTex. Civ. Prac. &
Rem.Code Ann. § 37.001-.011. The Act allows an individual “whose rights, status, or other legal
relations are affected by a statute” to “have determined any question of construction or validity
arising under the ... statute ... and obtain a declaration of rights, status, or other legal relations
thereunder.”Id. § 37.04(a) (West 1997). In this case, the appellants seek declarations concerning
the authority of the Commissioner. This Court has previously recognized that individuals may
request declaratory relief regarding whether state agencies or officers have acted beyond their
statutory authorities. See, e.g., Texas Dep't of Ins., Div. of Workers' Comp. v. Lumbermens Mut.
Cas. Co., 212 S.W.3d 870, 874-75 (Tex.App.-Austin 2006, pet. denied) (holding that claimant
may seek declaration that agency's issuance of advisories was outside agency's statutory authority).
However, while individuals may employ the Act to challenge actions as beyond an agency's or


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LHR Enterprises, Inc. v. Geeslin, Not Reported in S.W.3d (2007)
2007 WL 3306492

officer's authority, a court must still have subject-matter jurisdiction over the case before it may
properly issue a declaration. Subject-matter jurisdiction may be considered for the first time on
appeal, and appellate courts may raise that issue on their own accord. See Aguilar v. Weber, 72
S.W.3d 729, 731 (Tex.App.-Waco 2002, no pet.). The Act does not expand the scope of a trial
court's subject-matter jurisdiction but merely authorizes a court “to declare rights, status, and
other legal relations” when subject-matter jurisdiction is already present. SeeTex. Civ. Prac. &
Rem.Code Ann. § 37.003(a) (West 1997) (court may act “within its jurisdiction”); Texas Ass'n
of Bus. v. Texas Air Control Bd., 852 S.W.2d 440, 444 (Tex.1993). Although the Act does not
expand the jurisdiction of a trial court, “[a] suit under the [Act] is not confined to cases in which
the parties have a cause of action apart from the Act itself.”Texas Dep't of Pub. Safety v. Moore,
985 S.W.2d 149, 153 (Tex.App.-Austin 1998, no pet.).

 *4 In order for a court to have jurisdiction to consider a declaratory-judgment action, there must
be a “justiciable controversy as to the rights and status of” the parties, and the requested declaration
“must actually resolve the controversy.” Brooks v. Northglen Ass'n, 141 S.W.3d 158, 163-64
(Tex.2004).“A justiciable controversy is one in which a real and substantial controversy exists
involving a genuine conflict of tangible interests and not merely a theoretical dispute.”Moore, 985
S.W.2d at 153;see also City of Euless v. Dallas/Fort Worth Int'l Airport Bd., 936 S.W.2d 699,
703 (Tex.App.-Dallas 1996, writ denied) (explaining that if there is no actual controversy between
parties, declaratory judgment is improper). However, a person seeking declaratory relief need not
have yet incurred an actual injury of the sort for which consequential relief might be granted.
See Bexar Metro. Water Dist. v. City of Bulverde, 156 S.W.3d 79, 88 (Tex.App.-Austin 2004,
pet. denied). Instead, the Act is intended to provide a means to determine, before any wrong has
actually occurred, the rights of parties when a controversy has arisen and is remedial in nature. Id.

The need for a justiciable controversy is related to the jurisdictional concepts of standing and
ripeness and does not supersede these concepts. See Texas Dep't of Ins v. Reconveyance Servs.,
Inc., No. 03-06-00313-CV, ---S.W.3d ----, ----, 2007 Tex.App. LEXIS 7262, at *38, 2007 WL
2462043 (Tex.App.-Austin Aug. 31, 2007, no pet. h.). Ripeness is a necessary component of
subject-matter jurisdiction, Atmos Energy Corp. v. Abbott, 127 S.W.3d 852, 857 (Tex.App.-Austin
2004, no pet.), and concerns when a claim may be made, Patterson v. Planned Parenthood, 971
S.W.2d 439, 442 (Tex.1998). The requirement that a claim be ripe for review is based on the
prohibition against issuing advisory opinions. Id.; see alsoTex. Const. art. II, § 1 (separation of
powers); Northglen Ass'n, 141 S.W.3d at 164 (explaining that separation of powers provision bars
issuance of advisory opinions). A claim is ripe if the facts involved demonstrate that “an injury
has occurred or is likely to occur.”Patterson, 971 S.W.2d at 442;see also City of Waco v. Texas
Natural Res. Comm'n, 83 S.W.3d 169, 175 (Tex.App.-Austin 2002, pet. denied) (“In determining
whether a cause is ripe for judicial consideration, we look to see if the facts have sufficiently
developed to show that an injury has occurred, or is likely to occur”). In other words, there must
be a concrete injury for the claim to be ripe. See Atmos Energy Corp., 127 S.W.3d at 858. A claim


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LHR Enterprises, Inc. v. Geeslin, Not Reported in S.W.3d (2007)
2007 WL 3306492

is not ripe if it is based on hypothetical or contingent facts that may not occur as anticipated or
may not occur at all. See Waco Indep. Sch. Dist. v. Gibson, 22 S.W.3d 849, 852 (Tex.2000).

In this case, there is no concrete dispute to resolve. The appellants pled the following, relevant
jurisdictional facts as the basis for their suit:

    *5 On June 24, 2004, pursuant to section 84.041 of the insurance code, the Staff delivered to
   the Commissioner a report “in which it alleged that these Plaintiffs engaged in activities in the
   State of Texas in violation of the Texas Insurance Code, and recommended that administrative
   penalties be assessed against them in the aggregate amount of $2,000,000.”

            “[T]he Staff, on July 16, 2004, filed with SOAH and served on these Plaintiffs
            a Notice of Hearing, thereby initiating a contested case ... [which] was assigned
            Docket No. 454-4-75940H.”

   The pleadings then recount that the appellants filed a plea to the jurisdiction and general denial
   in the SOAH proceeding, that the Staff filed a response asserting various statutory bases for
   jurisdiction, that the administrative law judge denied the appellant's plea to the jurisdiction and
   summary disposition motion, and that they appealed the decision to the Commissioner, who
   upheld it.

   The appellants pled that they “have not and will not voluntarily subject themselves to the
   [Department]'s jurisdiction” and sought a declaration that “the Commissioner as a matter of law
   does not have jurisdiction over the Plaintiffs to take the action contemplated by the July 16,
   2004 Notice of Hearing.”

Subsequently, as previously discussed, the Commissioner issued a final order in the complained-
of contested-case proceeding. The Commissioner's order concluded that none of the appellants
were engaged in the unauthorized practice of insurance or had violated any insurance provisions
or regulations and that, therefore, no penalty should be imposed upon the appellants. As the State
argues, these developments resolve the controversy on which Appellants' suit is based, i.e., the
subject matter of the July 16, 2004 Notice of Hearing has been resolved in Appellants' favor.

Appellants nonetheless urge that a justiciable controversy remains because the Commissioner's
order states a conclusion of law that, “Under Tex. Ins.Code § 84.021, the Commission may impose
an administrative penalty on a person, including an entity, that is licensed or regulated under and
who violates the Insurance Code or rules adopted or orders issued thereunder.”However, absent
another impending hearing or other action by the Department adversely impacting the appellants
in some concrete way, the Commissioner's legal conclusion amounts to a bare, abstract statement
of legal opinion, and any judicial determination regarding the conclusion would necessarily be
no more than a mere abstract advisory opinion. Cf. Waco Indep. Sch. Dist., 22 S.W.3d at 852


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LHR Enterprises, Inc. v. Geeslin, Not Reported in S.W.3d (2007)
2007 WL 3306492

(explaining that “ripeness doctrine allows courts to avoid premature adjudication, and serves the
constitutional interests in prohibiting advisory opinions”).

We conclude that we do not have subject-matter jurisdiction over this appeal and, therefore,
grant the Commissioner and the Department's motion to dismiss the case. SeeTex.R.App. P. 43 .2
(explaining that one of permissible types of appellate judgments is to dismiss appeal); South Tex.
Water Auth. v. Lomas, 223 S.W.3d 304, 308 (Tex.2007) (dismissing case after determining court
did not have subject-matter jurisdiction over case).



Footnotes
1    As part of their motion to dismiss, the Commissioner and the Department attached a copy of the final order.


End of Document                                                        © 2015 Thomson Reuters. No claim to original U.S. Government Works.




                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                                     7
LHR Enterprises, Inc. v. Geeslin, Not Reported in S.W.3d



    History (1)

    Direct History (1)
     1. LHR Enterprises, Inc. v. Geeslin
     2007 WL 3306492 , Tex.App.-Austin , Nov. 07, 2007 , review denied ( Feb 22, 2008 )




            © 2015 Thomson Reuters. No claim to original U.S. Government Works.           8
Murphy v. Cintas Corp., 923 S.W.2d 663 (1996)




                                            923 S.W.2d 663
                                        Court of Appeals of Texas,
                                                  Tyler.

                        R.K. MURPHY a/k/a Ken Murphy d/b/a Murphy's
                         Exxon and d/b/a Murphy's Chevron, Appellant,
                                             v.
                              CINTAS CORPORATION, Appellee.

  No. 12–94–00371–CV.              |    Feb. 23, 1996.   |   Rehearing Overruled March 14, 1996.

Uniform lessor sued lessee service-station owner, alleging failure to pay in accordance with parties'
agreement. After nonjury hearing, the County Court at Law No. 2, Smith County, Randall L.
Rogers, J., rendered judgment for lessor, and lessee appealed. The Court of Appeals, Holcomb, J.,
held that: (1) as matter of law, suit was for breach of contract, and was not one on sworn account;
(2) some evidence supported award of liquidated damages; and (3) liquidated damages provision
was enforceable.

Affirmed.


*664 Appeal from County Court at Law No. 2, Smith County; Randall L. Rogers, Judge.

Attorneys and Law Firms

H.L. McGee, for appellant.

Ronnie Horsley, Tyler, for appellee.

Opinion

HOLCOMB, Justice.

Ken Murphy appeals from a judgment awarding Cintas Corporation $6,167.30 for breach of a
uniform rental agreement. In the first six points of error, Murphy challenges the legal sufficiency
of the evidence to support the court's award of liquidated damages. In his seventh point, Murphy
contends that the court erred when it awarded liquidated damages because the stipulated damage
clause in the contract was an unenforceable penalty, as a matter of law. In his last point, Murphy
contends that the court erred when it refused to set aside the judgment and render a take-nothing
judgment in his favor. In one cross-point, Cintas contends that the court erred when it permitted



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Murphy v. Cintas Corp., 923 S.W.2d 663 (1996)



Murphy to file a trial amendment after the court had taken the case under advisement. We will
affirm.

Cintas Corporation is a national company that rents uniforms, towels and mats to businesses on a
weekly basis. Murphy owns and *665 operates an Exxon and Chevron service station in Tyler,
Texas. From 1988 until 1991, Murphy and Cintas entered into a series of contracts to rent uniforms.
Initially, Cintas filed suit against Murphy alleging that he had failed to pay in accordance with their
agreements which resulted in $8,724.59 in damages. As exhibits to its petition, Cintas attached the
contracts, the invoices and Cintas's affidavit stating that the claim against Murphy was just and
true, that it was due, and that all just and lawful credit had been allowed. TEX.R.CIV.P. 185.

Murphy answered by an unsworn denial, but alleged that Cintas “fail[ed] to furnish clean, high
quality garments and fail[ed] to replace torn, damaged and worn garments when requested.”
Murphy also alleged that Cintas was not entitled to recover liquidated damages because the
liquidated damage provision was an unenforceable penalty. After a non-jury hearing, the court
rendered judgment in favor of Cintas. Neither party requested findings of fact and conclusions
of law.

In points one, two, three, four, five, six and eight, Murphy challenges the legal sufficiency of the
evidence to support the court's award of liquidated damages. According to Murphy, the record
is void of any evidence regarding the amount of monetary loss that Cintas actually suffered as a
result of the breach or the reasonableness of the liquidated damage provision. He also argues that
the record is void of any evidence that the amount of liquidated damages was a reasonable forecast
of just compensation. Therefore, Murphy concludes that the court erred when it awarded damages
in accordance with the liquidated damage provision of the contract rather than awarding damages
in accordance with common law contract law. We do not agree.

 [1] [2] [3] When findings and conclusions are neither requested nor filed, the trial court is
presumed to have made all of the findings necessary to support its judgment. Roberson v. Robinson,
768 S.W.2d 280, 281 (Tex.1989). All questions of fact are presumed found in support of the
judgment and the judgment will be upheld on any legal theory raised by the evidence. Point
Lookout West, Inc. v. Whorton, 742 S.W.2d 277, 278–79 (Tex.1987). Further, Murphy's points
of error are “no evidence” points. In deciding a “no evidence” point, we must consider only the
evidence and inferences tending to support the finding and disregard all evidence and inferences
to the contrary. Davis v. City of San Antonio, 752 S.W.2d 518, 522 (Tex.1988).

 [4] [5] [6] [7] Here, we have a dispute between the parties about whether the court rendered
judgment on a suit on sworn account or breach of contract. TEX.R.CIV.P. 185. To be a valid
suit on sworn account, the account or liquidated money demand must involve a claim for goods,
wares, merchandise, personal services rendered, labor done or labor or materials furnished. Great–


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Murphy v. Cintas Corp., 923 S.W.2d 663 (1996)



Ness Prof. Serv. v. First Nat. Bank of Louisville, 704 S.W.2d 916, 917 (Tex.Civ.App.—Houston
[14th Dist.] 1986, no writ). Had Cintas properly filed a suit on a sworn account in accordance
with Rule 185, and Murphy had failed to file a written denial under oath, Murphy could not have
denied Cintas's claim, he could not have disputed that he received the services, and he could not
have disputed the correctness of the stated charges. Vance v. Holloway, 689 S.W.2d 403, 404
(Tex.1985); Airborne Freight Corp. v. CRB Marketing, Inc., 566 S.W.2d 573, 575 (Tex.1978).
However, a lawsuit involving a breach of a lease agreement is not a valid claim on sworn account
because a lease agreement does not involve a purchase and sale, and title to personal property
has not passed from one party to another. Id. Thus, we hold that Cintas's cause of action against
Murphy is not a suit on sworn account as a matter of law. Id.

 [8] [9] Having determined that the court rendered judgment in favor of Cintas under a breach of
contract, we will determine whether there is any evidence to support the damage award. Murphy
argues that, because Cintas did not offer proof of its actual damages, there was no evidence in
the record to show that the liquidated damage provision in the contract was reasonable. As an
affirmative defense to Cintas's claim for liquidated damages, Murphy pled penalty. TEX.R.CIV.P.
94; *666 Phillips v. Phillips, 820 S.W.2d 785, 789 (Tex.1991). In doing so, Murphy not Cintas
had the burden to prove that the liquidated damage provision was unreasonable and a penalty.
Gorman v. Life Ins. Co. of North America, 811 S.W.2d 542, 546 (Tex.1991). Murphy did not offer
any evidence to prove the amount of Cintas' actual damages. Accordingly, points one, two, three,
four, five, six and eight are overruled.

[10] In his seventh point, Murphy contends that the court erred when it awarded Cintas liquidated
damages because the contractual provision was, as a matter of law, an unenforceable penalty. The
disputed liquidated damage clause stated:

            In the event of cancellation of this service agreement by the Customer prior to
            the termination date, other than for failure of the Company to perform under its
            guarantee, the Customer will pay the greater of 50% of the weekly service charge
            per person per week for the unexpired term, or buy back all of the garments in
            inventory at the rates listed above as replacement value.

Citing Servisco v. Tramco Inc., 568 S.W.2d 434, 437 (Tex.App—Texarkana 1978, writ ref'd n.r.e);
Mayfield v. Hicks, 575 S.W.2d 571, 575 (Tex.App.—Dallas 1978, writ ref'd n.r.e.) and Bethel v.
Butler Drilling Co., 635 S.W.2d 834, 837 (Tex.App.—Houston 1982, writ ref'd n.r.e), Murphy
argues that a contract provision is a penalty and is unenforceable if it provides for unreasonable
payments for a minor breach. In Servisco, the court held that “a sum stipulated to be paid under an
agreement should be treated as an unenforceable penalty if the agreement contains several matters
of different degrees of importance and the sum stipulated is payable for the breach of any, even the
least.” Murphy argues that, under the language of the Cintas–Murphy agreement, Murphy could
have been liable for the same amount of damages whether he breached the agreement by failing to


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Murphy v. Cintas Corp., 923 S.W.2d 663 (1996)



pay the rental for all of the uniforms, by failing to pay for one shirt or by violating any of the other
obligations contained in the contract. Murphy also contends that the harm caused by the breach
must not be capable of estimation or difficult to estimate to be an enforceable liquidated damage
stipulation. Because employees of Cintas testified that documentation of the actual damage that
Cintas incurred as a result of the breach were available at the time of trial, Murphy concludes that
Cintas admitted that the liquidated damage provision was unenforceable.

In Stewart v. Basey, the Supreme Court considered the difference between an enforceable
liquidated damage provision and an unenforceable penalty. Stewart v. Basey, 150 Tex. 666, 245
S.W.2d 484 (1952). More recently, the courts have restated this two-part Stewart test when
analyzing the validity of a contractual damages provision:

  In order to enforce a liquidated damage clause, the court must find:

  (1) that the harm caused by the breach is incapable or difficult of estimation; and

  (2) that the amount of liquidated damages called for is a reasonable forecast of just
     compensation.

Phillips, 820 S.W.2d at 788. For the provision to be an unenforceable penalty, the uncertainty of the
damages and the reasonableness of the stipulation must have existed at the time when the contract
was executed. Oetting v. Flake Uniform & Linen Service, 553 S.W.2d 793, 796 (Tex.Civ.App.—
Ft. Worth 1977, no writ). Even though Murphy contends that the actual damage incurred by Cintas
could have been calculated at the time of trial, such testimony was long after the contract between
Cintas and Murphy had been executed. To forecast the actual damages to Cintas as a result of
Murphy's termination of the contract sixty months in advance would be fraught with uncertainty.
Further, similar contracts for liquidated damages have been approved in Liberty Sign Co. v.
Newsom, 426 S.W.2d 210 (Tex.1968); Blakeway v. National Credit Corporation, 439 S.W.2d 155
(Tex.Civ.App.—Austin 1969, writ ref'd n.r.e.); Blakeway v. General Electric Credit Corporation,
429 S.W.2d 925 (Tex.Civ.App.—Austin 1968, writ ref'd n.r.e.); Hyde v. Claude Neon Federal Co.,
157 S.W.2d 952 (Tex.Civ.App.—Eastland 1941, writ dism'd); White v. Wilbanks, 144 S.W.2d 941
(Tex.Civ.App.—Amarillo 1940, no writ). Accordingly, we hold that the liquidated *667 damage
clause is enforceable. Point seven is overruled.

 [11] In his last point of error, Murphy contends that the court erred when it refused to set aside
the judgment and render a take-nothing judgment in his favor. However, he failed to cite any
authority to support his position. Under Rule 74(f), Murphy's point is not preserved for our review.
TEX.R.APP.P. 74(f); Tobias v. Univ. of Texas at Arlington, 824 S.W.2d 201, 206–07 (Tex.App.
—Fort Worth 1991, writ denied).




             © 2015 Thomson Reuters. No claim to original U.S. Government Works.                      4
Murphy v. Cintas Corp., 923 S.W.2d 663 (1996)



 [12] In one cross-point, Cintas contends that the court erred when it allowed Murphy to file a trial
amendment after the case had been heard by the court. According to Cintas, Murphy had failed to
plead the defense of penalty to the contract action under Rule 94 until after both parties had closed
and the court had taken the case under advisement. TEX.R.CIV.P. 94. However, the only answer
in the transcript is Defendant's Second Amended Original Answer. The record before us does
not contain any of the answers that precede Murphy's last amended answer, from which Cintas
complains. Accordingly, we cannot determine from the record to what extent Murphy amended
his prior pleadings. To complain of error on appeal, it is incumbent upon the complaining party
to submit evidence in the record to support his claim. TEX.R.APP.P. 50(d). Cintas's cross-point
is overruled.


End of Document                                         © 2015 Thomson Reuters. No claim to original U.S. Government Works.




              © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                        5
Murphy v. Cintas Corp., 923 S.W.2d 663



    History (1)

    Direct History (1)
     1. Murphy v. Cintas Corp.
     923 S.W.2d 663 , Tex.App.-Tyler , Feb. 23, 1996 , rehearing overruled ( Mar 14,
     1996 ) , writ denied ( Sep 26, 1996 ) , rehearing of writ of error overruled ( Nov 15,
     1996 )




           © 2015 Thomson Reuters. No claim to original U.S. Government Works.                6
Nexstar Broadcasting, Inc. v. Gray, Not Reported in S.W.3d (2008)
2008 WL 2521967, 27 IER Cases 1872




                                              2008 WL 2521967

SEE TX R RAP RULE 47.2 FOR DESIGNATION AND SIGNING OF OPINIONS.
                        MEMORANDUM OPINION
                          Court of Appeals of Texas,
                                 Beaumont.

              NEXSTAR BROADCASTING, INC. d/b/a KBTV NBC 4, Appellant
                                        v.
                      Jennifer GRAY and KTBS, Inc., Appellees.

   No. 09-07-364 CV.           |    Submitted on March 13, 2008.         |   Decided June 26, 2008.

On Appeal from the 60th District Court, Jefferson County, Texas, Trial Cause No. B-174,467,
Gary Sanderson, J.

Attorneys and Law Firms

William L. Davis, Esq., Jackson Lewis LLP, Dallas, for appellant.

Wyatt D. Snider, Jason M. Byrd, Snider & Byrd, L.L.P., Beaumont, Scott Louis Zimmer,
Shreveport, LA, for appellee.

Before McKEITHEN, C.J., GAULTNEY and HORTON, JJ.



                                       MEMORANDUM OPINION

DAVID GAULTNEY, Justice.

 *1 Nexstar Broadcasting, Inc. d/b/a KBTV NBC 4 appeals a judgment rendered in a lawsuit
filed against former employee Jennifer Gray for breach of contract and against Gray's subsequent
employer, KTBS, Inc., for interference with the contract. A jury awarded Nexstar $1 in nominal
damages from Gray on the breach of contract claim, and $2,000 in actual damages from KTBS
on the tortious interference with the contract claim. The trial court granted Gray a declaratory
judgment, ruling that a liquidated damages provision in the contract was an unenforceable penalty
as a matter of law. The trial court ruled that Nexstar was not entitled to attorney's fees and awarded
attorney's fees to Gray. The court granted KTBS's motion for judgment notwithstanding the verdict
on the ground that there was no evidence of damages and rendered judgment that Nexstar take
nothing from KTBS.



              © 2015 Thomson Reuters. No claim to original U.S. Government Works.                   1
Nexstar Broadcasting, Inc. v. Gray, Not Reported in S.W.3d (2008)
2008 WL 2521967, 27 IER Cases 1872

Nexstar asserts eight issues for appellate review. KTBS raises a cross-point attacking the
sufficiency of the evidence to support the jury's finding of $2,000 in damages. SeeTEX.R. CIV.
P. 324(c). We reverse the trial court's judgment. The cause is remanded for a new trial.



                                               BACKGROUND

Gray was originally hired by Nexstar as a reporter in 2003 and signed an employment contract. In
2004, Gray signed another contract with Nexstar as an on-air performer for a term of employment
from April 11, 2004, to May 31, 2006. The contract contained a provision titled “Remedies and
Procedure for Remedying Disputes,” which stated:

            In the event Employee elects to breach this Agreement and leave employment
            prior to the conclusion of the term, the Company may accept as liquidated
            damages for said breach the amount of $10,000. In the event the Company
            determines that the liquidated damages amount described above is insufficient
            to cover all of its damages, the Company may seek to obtain additional
            compensatory and consequential damages by pursuing an action under
            paragraph 7(a) herein.

In February 2005, Gray gave notice that she would be resigning from her position. Nexstar sent
her a letter reminding her of her continuing obligations under the contract. The letter informed
Gray she would have to pay $10,000 if she left her employment. Nexstar learned that KTBS was
interested in hiring Gray and sent KTBS a letter stating that Gray was still under contract.

Gray stopped appearing as an on-air performer for Nexstar in March 2005. Within two weeks of
Gray's departure, she began working for KTBS.



                THE DECLARATORY JUDGMENT AND ATTORNEY'S FEES

Nexstar's lawsuit against Gray sought “liquidated damages from Gray and/or all actual and
consequential damages proximately caused by her breach of contract.”Gray filed a counterclaim
seeking a declaratory judgment that the liquidated damages provision in the contract was an
unenforceable penalty as a matter of law.

The trial court found that the liquidated damages provision in the employment contract was an
unenforceable penalty. The jury awarded Nexstar $1.00 in nominal damages from Gray for the
breach of contract. Nexstar and Gray stipulated to the amount of reasonable attorney's fees, but
not to entitlement to attorney's fees. The trial court awarded Gray attorney's fees.


              © 2015 Thomson Reuters. No claim to original U.S. Government Works.             2
Nexstar Broadcasting, Inc. v. Gray, Not Reported in S.W.3d (2008)
2008 WL 2521967, 27 IER Cases 1872



 *2 In issue one, Nexstar argues the trial court erred in granting the declaratory judgment, because
Gray had simply re-asserted an affirmative defense as a request for declaratory judgment. In issue
six, Nexstar contends the trial court erred in awarding Gray attorney's fees because Gray asserted
the declaratory judgment counterclaim merely to recover attorney's fees that were otherwise not
recoverable.

The purpose of the Declaratory Judgments Act is to “settle and to afford relief from uncertainty
and insecurity with respect to rights, status, and other legal relations[.]”TEX. CIV. PRAC. &
REM.CODE ANN. § 37.002(b) (Vernon 1997). A declaratory judgment is appropriate only if
there is a justiciable controversy and the declaration sought will resolve the controversy. Bonham
State Bank v. Beadle, 907 S.W.2d 465, 467 (Tex.1995). The Act is not available to settle disputes
already pending before the court.BHP Petroleum Co. v. Millard, 800 S.W.2d 838, 841 (Tex.1990).

A trial court may allow a counterclaim seeking a declaratory judgment if it is more than a mere
denial of the plaintiff's cause of action and has greater ramifications than the original lawsuit.
See id. at 842.Generally, a counterclaim will have greater ramifications than the original claim
if it would have the effect of settling future disputes between the parties. See, e.g., id.(allowing
declaratory judgment counterclaim that defined the parties' obligations under an ongoing contract
for the foreseeable future); Winslow v. Acker, 781 S.W.2d 322, 328 (Tex.App.-San Antonio 1989,
writ denied) (holding trial court did not err in allowing declaratory judgment counterclaim that
would settle all future disputes regarding royalties under deed). The counterclaim must seek
affirmative relief and allege that the defendant has a cause of action, independent of the plaintiff's
claim, on which the defendant could recover benefits, compensation, or relief. Millard, 800 S.W.2d
at 841; HECI Exploration Co. v. Clajon Gas Co., 843 S.W.2d 622, 638-39 (Tex.App.-Austin
1992, writ denied). A counterclaim that presents no new controversy may not be asserted simply
to recover attorney's fees. Hitchcock Props. Inc. v. Levering, 776 S.W.2d 236, 239 (Tex.App.-
Houston [1st Dist.] 1989, writ denied).

Gray sought a declaration that the remedies provision in the contract was an unenforceable penalty
and void as a matter of law. This requested declaration is essentially a restatement of the “penalty”
affirmative defense asserted in Gray's answer. See Phillips v. Phillips, 820 S.W.2d 785, 789
(Tex.1991) (noting that “penalty” is an affirmative defense to an award of damages under a
liquidated damages provision). She sought no greater relief in her counterclaim than she asserted in
her affirmative defense; Gray denied Nexstar's entitlement to liquidated damages. See Millard, 800
S.W.2d at 842. Gray and Nexstar have no ongoing relationship. See HECI Exploration Co., 843
S.W.2d at 639. Gray's declaratory judgment counterclaim presented no new controversy. Under
the circumstances, the award of attorney's fees to Gray under the Declaratory Judgments Act was
unauthorized. See Hitchcock Props., 776 S.W.2d at 239. We sustain issues one and six. 1



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Nexstar Broadcasting, Inc. v. Gray, Not Reported in S.W.3d (2008)
2008 WL 2521967, 27 IER Cases 1872




                                        LIQUIDATED DAMAGES

 *3 In issue two, Nexstar argues the trial court erred in failing to award liquidated damages because
Nexstar prevailed on the breach of contract claim, and the contract provision was enforceable
as a matter of law. Nexstar argues that liquidated damages are appropriate because damages
were difficult or incapable of estimation at the time the contract was signed, and $10,000 was a
reasonable forecast of just compensation.

“Whether a contractual provision is an enforceable liquidated damages provision or an
unenforceable penalty is a question of law[.]”Phillips, 820 S.W.2d at 788. A liquidated damages
provision may be enforceable if the harm caused by the breach is difficult to estimate and the
amount of liquidated damages is a reasonable forecast of just compensation. Id. Evidence that the
harm caused is difficult to estimate, and that the amount of liquidated damages is a reasonable
forecast, must be viewed as of the time the parties executed the contract. Baker v. Int'l Record
Syndicate, Inc., 812 S.W.2d 53, 55 (Tex.App.-Dallas 1991, no writ).

Generally, a contractual provision that does not exclude further liability for actual damages is not
a reasonable forecast of just compensation and is an unenforceable penalty. Robert G. Beneke &
Co., v. Cole, 550 S.W.2d 321, 322 (Tex.Civ.App.-Dallas 1977, no writ). The provision must make
clear that the amount of liquidated damages will be in lieu of other damages. Birdwell v. Ferrell,
746 S.W.2d 338, 340 (Tex.App.-Austin 1988, no writ).

The provision in this case provided for $10,000 as liquidated damages, but also stated that
“[i]n the event the Company determines that the liquidated damages amount described above is
insufficient to cover all of its damages, the Company may seek to obtain additional compensatory
and consequential damages by pursuing an action under paragraph 7(a) herein.”This provision
does not limit Nexstar's recovery to liquidated damages or make clear that liquidated damages will
be recovered in lieu of actual damages; under the provision, Nexstar could claim the “liquidated”
damages and then claim any additional damages by taking the dispute to an arbitrator under
paragraph 7(a). The trial court did not err in failing to award $10,000 as “liquidated” damages.
Issue two is overruled.



                                            ACTUAL DAMAGES

In issue three, Nexstar asserts the evidence conclusively established that Nexstar suffered damages
in excess of the $1 awarded by the jury. Nexstar argues it provided undisputed evidence that it
incurred $14,615.49 in actual damages; we understand Nexstar to argue in issue three that it proved



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Nexstar Broadcasting, Inc. v. Gray, Not Reported in S.W.3d (2008)
2008 WL 2521967, 27 IER Cases 1872

$14,615.49 in damages as a matter of law. In the alternative, Nexstar argues in issue four that the
jury's finding of $1 in actual damages is against the overwhelming weight of the evidence.

In issue eight, Nexstar argues the trial court erred in disregarding the jury's finding on damages
against KTBS for tortious interference with the contract. A judgment notwithstanding the verdict
is proper when no evidence supports the jury's finding. Mancorp, Inc. v. Culpepper, 802 S.W.2d
226, 227 (Tex.1990). Nexstar contends the evidence supported a finding of at least $2,000 in
damages, the amount found by the jury. KTBS argues by cross-point that the $2,000 finding is
unsupported by the evidence.

 *4 A party attacking the legal sufficiency of evidence concerning an adverse finding on an issue
on which it has the burden of proof must demonstrate that the evidence conclusively established
all vital facts in support of the issue. Dow Chem. Co. v. Francis, 46 S.W.3d 237, 241 (Tex.2001).
If the proposition contrary to the verdict is established as a matter of law, an appellate court must
render judgment for that proposition.Id.

In a factual sufficiency review, the appellate court considers and weighs all of the evidence and
will set aside a verdict only if the evidence is so weak or if the finding is so against the great weight
and preponderance of the evidence that it is clearly wrong and unjust. Id.

Nexstar points out the jury instructions on damages for interference with the contract and breach
of the contract were the same: “out of pocket” damages. The jury found $2,000 in “out of pocket”
damages resulted from the interference with contract, but $1 in damages resulted from the breach
of contract. Nexstar argued in a post-judgment pleading that it was entitled to contract damages,
at the least, in “the same $2,000 awarded against Defendant KTBS.” In its claim against Gray,
Nexstar argues on appeal “it is clear that the jury improperly failed to consider the undisputed
evidence regarding Nexstar being ‘out of pocket’ $2,000 for the speech pathologist/talent coach
because it found Nexstar was ‘out of pocket’ this amount in its answer to the damages question
against KTBS.” 2

Nexstar also contends it paid $7,000 to promote a new morning show format that featured Gray
as a meteorologist. The news director testified regarding this expense as follows:

   [Plaintiff's Counsel]: And how much was that total cost?

   [News Director]: I need to look. I'm not positive off the top of my head.

   [Q]: Well, just give me your best estimate.

   [A]: I believe it ran about $7,000.



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Nexstar Broadcasting, Inc. v. Gray, Not Reported in S.W.3d (2008)
2008 WL 2521967, 27 IER Cases 1872


   [Q]: Okay.

Nexstar did not show that it promoted the morning show format only because of Gray. At the time
of trial, Nexstar still aired the morning show with the same format.

Nexstar also argues that it is entitled to the $146.31 in makeup expenses it paid to Gray. The
employment contract states that Gray would be reimbursed for makeup expenses for up to $50 per
month. Nexstar presented two checks spent in makeup reimbursements: $73.61 paid in November
2004; and $73.70 paid on April 20, 2004. KBTV's news director testified that Gray used the
makeup while she worked for Nexstar. Nexstar would have paid these expenses even had Gray
fully performed under the contract.

Nexstar asserts that it reimbursed Gray $3,110.07 for her meteorology school tuition. Gray
acknowledged that Nexstar paid for her to attend meteorology school. KBTV's news director
testified that Nexstar did not normally pay for meteorology school but agreed to pay Gray's tuition
because she had “great potential.” The trial court admitted into evidence the checks issued by
Nexstar for Gray's tuition: $1,431.50 paid on January 16, 2004; $1,194.07 paid on June 1, 2004;
and $484.50 paid on July 28, 2004. The last two tuition checks, for $1,194.07 and $484.50, were
paid during the term of employment under the March 2004 contract. However, Nexstar was not
required to reimburse Gray for her meteorology school tuition expenses under the March 2004
contract.

 *5 Nexstar argues that it paid $2,000 to a speech pathologist, or talent coach, who provided Gray
with voice training. The talent coach trained all of the on-air performers. KBTV's news director
would set a day planner for the coach and would allocate how much time each individual would
spend with the coach. The time an individual would spend with the coach varied according to how
long the individual worked with the station and how much potential they had. KBTV's general
manager testified that when Gray first started working with the station, the coach spent more time
with Gray to improve her voice. However, Nexstar did not present evidence showing how much
time Gray spent with the coach, nor did it segregate Gray's time with the coach from the time the
other on-air performers trained with the coach. The record does not show whether the training
occurred when Gray was first hired under the original contract, or during the term of the second
contract.

Finally, Nexstar also contends it incurred costs in hiring Gray's replacement and paid for an
on-air performer to fill in for Gray. While Nexstar sought candidates to replace Gray, Gray's
meteorology duties were covered by the station's chief and weekend meteorologists. Nexstar paid
Gray's meteorology replacement $191.30 in traveling expenses, $750 in moving expenses, and
$607.81 for a plane ticket. Nexstar also paid $810 to a freelance reporter who covered some of
Gray's reporting duties. KTBS argues Nexstar would have been required to replace Gray at the


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Nexstar Broadcasting, Inc. v. Gray, Not Reported in S.W.3d (2008)
2008 WL 2521967, 27 IER Cases 1872

end of her contract in any event and would have incurred the costs even without the alleged
interference.



                                                 THE JURY'S FINDINGS

The findings by the jury, that Nexstar suffered $1 in out of pocket damages as a result of Gray's
breach and $2,000 in out of pocket damages as a result of KTBS's tortious interference, address
the same material fact. The measure of damages under the interference with contract claim is the
same as that under the breach of contract claim in this case. See Am. Nat'l Petroleum Co. & Oil
Invs., Ltd. v. Transcon. Gas Pipe Line Corp., 798 S.W.2d 274, 278 (Tex.1990).

The trial judge found no evidence to support the $2,000 damage finding and signed a judgment
notwithstanding the verdict. There is legally sufficient evidence in this record of some damages,
however. Though this record may not support an award of all of the costs of finding a replacement,
the jury could reasonably conclude some of the costs incurred in covering Gray's job duties, hiring
a freelance reporter, and finding a replacement on short notice could have been avoided if KTBS
had not interfered with the contract. See Guevara v. Ferrer, 247 S.W.3d 662, 670 (Tex.2007)
(“[W]hen there is evidence to support some damages it is not appropriate to render judgment.”).
But the jury made conflicting jury findings on conflicting evidence concerning the same material
fact. The jury also found the same evidence did not support more than $1 in damages for the breach
of contract. On this record, a coherent judgment cannot be rendered. A new trial is required. 3



                                                        CONCLUSION

*6 The trial court's judgment is reversed. The cause is remanded for a new trial.

REVERSED AND REMANDED.


Parallel Citations

27 IER Cases 1872


Footnotes
1    In issue seven, Nexstar also argues the trial court abused its discretion in awarding attorney's fees. We need not address this issue
        because of our resolution of issues one and six.
2       We address the arguments made and issues raised despite Nexstar's failure to object to the asserted conflict before the jury was
        discharged. See generally C. & R. Transport, Inc. v. Campbell, 406 S.W.2d 191, 195-96 (Tex.1966); Little Rock Furniture Mfg. Co.




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Nexstar Broadcasting, Inc. v. Gray, Not Reported in S.W.3d (2008)
2008 WL 2521967, 27 IER Cases 1872

      v. Dunn, 148 Tex. 197, 222 S.W.2d 985 (1949).But see Columbia Med. Ctr. of Las Colinas v. Bush, 122 S.W.3d 835, 861 (Tex.App.-
      Fort Worth 2003, pet. denied); Coastal Chem, Inc. v. Brown, 35 S.W.3d 90, 99 (Tex.App.-Houston [14th Dist.] 2000, pet. denied).
3     In issue five, Nexstar argues the trial court erred in denying its request for attorney's fees because it prevailed on its breach of contract
      claim against Gray. Because we reverse and remand the cause for a new trial, we do not reach this issue.


End of Document                                                             © 2015 Thomson Reuters. No claim to original U.S. Government Works.




               © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                                              8
Nexstar Broadcasting, Inc. v. Gray, Not Reported in S.W.3d



    History (4)

    Direct History (4)
      1. NEXSTAR BROADCASTING, INC. d/b/a KBTV NBC 4, v. Jennifer GRAY and
    KTBS, Inc.
    2007 WL 1510498 , Tex.Dist. , Apr. 18, 2007


      Judgment Reversed by

      2. Nexstar Broadcasting, Inc. v. Gray
      2008 WL 2521967 , Tex.App.-Beaumont , June 26, 2008




      3. NEXSTAR BROADCASTING, INC. d/b/a KBTV NBC 4, Plaintiff, v. Jennifer
    GRAY and KTBS, Inc., Defendant.
    2007 WL 1510499 , Tex.Dist. , Apr. 18, 2007


      Judgment Reversed by

      4. Nexstar Broadcasting, Inc. v. Gray
      2008 WL 2521967 , Tex.App.-Beaumont , June 26, 2008




            © 2015 Thomson Reuters. No claim to original U.S. Government Works.   9
Paulsen v. Texas Equal Access to Justice Foundation, 23 S.W.3d 42 (1999)




                                              23 S.W.3d 42
                                        Court of Appeals of Texas,
                                                 Austin.

    James W. PAULSEN; Independent Bankers Association of Texas; Texas Bankers
     Association; and Texas Savings & Community Bankers Association, Appellants,
                                         v.
            TEXAS EQUAL ACCESS TO JUSTICE FOUNDATION, Appellee.

  No. 03–98–00709–CV.               |   Dec. 2, 1999.       |   Rehearing Overruled March 23, 2000.

Attorney and bank associations brought action against legal service foundation which supported
by interest on lawyers trust accounts (IOLTA) funds, seeking declaratory judgment that IOLTA
accounts are general accounts and interest earned on IOLTA account is property of banks which
may be used in IOLTA program without liability to attorney's clients. Following trial, the District
Court, Travis County, 353rd Judicial District, Margaret A. Cooper, J., denied all requests for relief,
and attorney and associations appealed. The Court of Appeals, Jones, J., held that: (1) attorney's
declaratory judgment action did not state justiciable controversy, and (2) association failed to
establish existence of imminent contractual dispute between banks and foundation, sufficient for
declaratory judgment action.

Vacated and dismissed.


Attorneys and Law Firms

*43 James Walter Paulsen, Houston, Mark Schwartz, Howard Nirken, Jenkens & Gilchrest,
Austin, for appellant.

Darrell E. Jordan, Hughes & Luce, L.L.P., Dallas, for appellee.

Before Justices JONES, YEAKEL and PATTERSON.

Opinion

J. WOODFIN JONES, Justice.

Appellants James W. Paulsen (Paulsen), Independent Bankers Association of Texas, Texas
Bankers Association, and Texas Savings and Community Bankers Association (collectively,
Bankers) sued the Texas Equal Access to Justice Foundation (the Foundation), appellee, seeking
declaratory and injunctive relief. The trial court denied all requested relief. The Texas Supreme


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Paulsen v. Texas Equal Access to Justice Foundation, 23 S.W.3d 42 (1999)



Court then declined to hear a direct appeal. Before this Court, appellants have abandoned the
request for injunctive relief and now seek only a declaration that (1) IOLTA (“interest on lawyers
trust account”) accounts generally and in this particular case are “general” not “special” accounts;
(2) the relationship between an attorney-depositor and the financial institution that administers
an IOLTA account is that of creditor and banker, respectively; (3) the financial institution holds
legal title to all sums deposited in the IOLTA account at issue in this case; (4) the financial
institution incurs no legal liability to third parties, including the attorney's clients, solely because
it participates in the IOLTA program; and (5) Paulsen is not subject to professional discipline for
failure to participate in the Texas IOLTA program, pending definitive resolution of that program's
constitutionality. We will vacate the trial court's judgment and dismiss the cause for lack of a
justiciable controversy.



                        FACTUAL AND PROCEDURAL BACKGROUND

The Texas IOLTA program, like similar programs instituted in almost every other state, was
established to raise money to provide legal assistance to low-income Texans. The “Rules
Governing the Operation of the Texas Equal Access to Justice Program” oblige attorneys to
participate, subject to suspension of their law licenses. See Tex.R. Equal Access to Justice Prog.
24 (State Bar Rules art. 11). When an attorney holds client funds, the money should ordinarily
be deposited into a trust account to earn interest for the client. But where the amount held is
nominal, such that it could not be expected to earn enough interest to offset the cost of maintaining
a separate trust account, the funds are required to be deposited into an IOLTA account. See Tex.R.
Equal Access to Justice Prog. 4, 6. The IOLTA account pools all such deposits from the attorney;
collectively, the sums generate interest where no individual deposit could. The interest is then paid
to the Foundation, which distributes the interest received from all IOLTA accounts in Texas to
low-income legal services. See Tex.R. Equal Access to Justice Prog. 4, 10.

A constitutional takings challenge to Texas's IOLTA program was brought in Phillips v.
Washington Legal Foundation, which resulted in a 1998 United States Supreme Court decision
holding that interest *44 earned on an IOLTA account is the private property of the clients of the
attorney who established the account. 524 U.S. 156, 172, 118 S.Ct. 1925, 141 L.Ed.2d 174 (1998).
That case is now on remand to the United States District Court for the Western District of Texas
for further proceedings to determine whether those funds have been “taken” by the state without
just compensation. While Phillips did not decide the ultimate issue of whether compliance with
the IOLTA program effectuates a governmental taking of client property, it is fair to say that the
constitutionality of the program is uncertain in the wake of the Supreme Court's decision. It is that
uncertainty that appellants hope to resolve in this action.




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Paulsen v. Texas Equal Access to Justice Foundation, 23 S.W.3d 42 (1999)



The Phillips decision left many questions unanswered, in part because of the procedural framework
in which the case was brought. That case was an appeal from the trial court's grant of summary
judgment and so arrived before the Supreme Court without the benefit of discovery. Since the
record was essentially devoid of details, the Phillips decision made no reference to banking law
or the particulars of an IOLTA contract between an attorney and bank. The Phillips decision
therefore makes no reference to the distinction recognized in Texas banking law between “general”
and “special” accounts; this distinction, appellants assert, would have led to a different ruling.
Appellants urge us to clarify what they characterize as the Supreme Court's misstatement of Texas
law and to hold that both the principal and the interest earned on “general” accounts—and IOLTA
accounts are apparently all “general”—are the property of the bank and not the client. Since the
interest earned is bank property, appellants argue, there is no unconstitutional taking involved
when the bank pays that interest to the Foundation.

All parties to this suit agree on the constitutionality of IOLTA. Appellant Paulsen is an attorney
who has received a $1,000 retainer from a client and claims uncertainty as to his rights and
obligations with respect to this money. The Equal Access to Justice Rules require him to deposit
the $1,000 in an IOLTA account or risk suspension of his license to practice law, yet he claims
the Phillips decision exposes him to liability to his client for breach of fiduciary duties if he does
deposit the funds. Bankers are the principal trade organizations for Texas financial institutions.
They claim that the contracts signed by their members and attorneys establishing IOLTA accounts
are brought into question by the Phillips decision. While the banks are contractually obligated to
pay IOLTA interest to the Foundation, they also fear liability from threatened lawsuits should they
continue to participate in the IOLTA program.

Appellee, the Foundation, does not disagree with appellants as to the constitutionality of the
IOLTA program. In fact, the Foundation has vigorously defended the IOLTA program as a
defendant in the ongoing Phillips litigation. It apparently disagrees with appellants only as to
how far this Court should go in deciding the ultimate constitutional issues involved. This lack of
adversarial debate between the parties was noted in an amicus brief tendered by David Furlow, an
attorney who disputes the constitutionality of the IOLTA program.



                                                DISCUSSION

 [1] The Uniform Declaratory Judgments Act gives courts the power to “declare rights, status,
and other legal relations whether or not further relief is or could be claimed.” Tex. Civ. Prac.
& Rem.Code Ann. § 37.003 (West 1997). The determination of jurisdiction over a declaratory
judgment action is a question of law and so is subject to de novo review. See Texas Dep't of Pub.
Safety v. Moore, 985 S.W.2d 149, 153 (Tex.App.—Austin 1998, no pet.).



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Paulsen v. Texas Equal Access to Justice Foundation, 23 S.W.3d 42 (1999)



 [2] [3] An action for declaratory relief is subject to the same jurisdictional requirements *45 as
any other action brought in our courts. “Subject matter jurisdiction requires that the party bringing
the suit have standing, that there be a live controversy between the parties, and that the case be
justiciable.” State Bar of Tex. v. Gomez, 891 S.W.2d 243, 245 (Tex.1994) (plurality opinion)
(citing Texas Ass'n of Business v. Texas Air Control Bd., 852 S.W.2d 440, 443–46 (Tex.1993)).
The parties before us cannot satisfy these threshold jurisdictional requirements. Because the trial
court lacked subject matter jurisdiction over this case, we will vacate that court's judgment and
dismiss the cause.


Appellant Paulsen
 [4] Paulsen seeks declaratory judgment because, by refusing to deposit a $1,000 client retainer
in his IOLTA account, he claims he faces the imminent suspension of his law license. It is not
at all clear from the record that the suspension of Paulsen's license is inevitable or imminent.
In a post-submission brief, however, Paulsen attached a letter he received from the Foundation
informing him that disciplinary action will be initiated if he does not comply with IOLTA rules.
Assuming without deciding that we can consider this letter, and further assuming that the letter
confers standing on Paulsen, we nonetheless conclude that his suit must be dismissed for want of
jurisdiction, for he has not demonstrated any justiciable controversy with his putative opponent
in this case.

The crux of the claimed dispute between Paulsen and the Foundation lies in the interpretation
of the Supreme Court's Phillips decision. Paulsen argues that if we accept as a correct statement
of Texas law the Phillips holding that interest earned in IOLTA accounts is client property, 1
then the decision places him in an ethical quandary. If he continues to participate in the IOLTA
program, Paulsen believes he breaches his ethical duty to his client when he contracts with his
bank to turn IOLTA interest over to the Foundation. On the other hand, if he does not give the
interest to the Foundation, he breaches professional ethics rules and stands to lose his law license.
The Foundation disagrees with Paulsen only as to whether Phillips creates ethical uncertainty. It
believes that Phillips answered only the question of whether a client could ever have a property
right in interest that would not exist without the IOLTA program; the Foundation believes Phillips
did not establish conclusively that IOLTA interest is always client property. That question will
be decided by the federal district court on remand. This dispute, then, centers on how broadly
Phillips can be read.

 [5] What is troubling about this appeal is that the parties all believe that an attorney can ethically
participate in the Texas IOLTA program. Paulsen merely claims that someone else might construe
Phillips differently, and that such an alternate interpretation would put him in an ethical bind.
With no true opponent in the Foundation, what Paulsen seeks, in essence, is an advisory opinion
interpreting a decision from the Supreme Court to resolve his doubts about the IOLTA program.


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Paulsen v. Texas Equal Access to Justice Foundation, 23 S.W.3d 42 (1999)



But, of course, the separation of powers doctrine prevents us from complying with this request.
Neither the legislature nor the constitution has vested us with the authority to render an advisory
opinion. See Tex. Const. art. II, § 1; Olson v. Commission for Lawyer Discipline, 901 S.W.2d 520,
522 (Tex.App.—El Paso 1995, no writ). We therefore hold that Paulsen has presented *46 no
justiciable controversy between himself and the Foundation.


Appellant Bankers
[6] Bankers claim to have standing in this declaratory relief action because they are faced with
uncertainty and insecurity in their performance of current contracts with the Foundation. 2 The
Uniform Declaratory Judgments Act specifically provides that “a contract may be construed either
before or after there has been a breach.” Tex. Civ. Prac. & Rem.Code Ann. § 37.004(b) (West
1997); see also In re City of Dallas, 977 S.W.2d 798, 804 (Tex.App.—Fort Worth 1998, no pet.);
Hasty Inc. v. Inwood Buckhorn Joint Venture, 908 S.W.2d 494, 499 (Tex.App.—Dallas 1995, writ
denied). Section 37.004 does not, however, extend an open-ended invitation to parties seeking
interpretation of their contracts. There must be some showing that litigation is imminent between
the parties unless the contractual uncertainties are judicially resolved. See Reuter v. Cordes–
Hendreks Coiffures, Inc., 422 S.W.2d 193, 196 (Tex.Civ.App.—Houston [14th Dist.] 1967, no
writ).

[7] Bankers have not demonstrated any imminent contractual dispute with the Foundation. As
primary proof of their grounds for uncertainty, Bankers cite a letter from Michael Mazzone 3 to
appellant banking groups warning that the banks could face liability for the tort of conversion
for any interest paid by them to the Foundation after the Phillips decision. In the letter, Mazzone
ominously warned that he has “personal knowledge that there are lawyers who are planning a class
action lawsuit against a number of banks.”

Mazzone's letter is insufficient to support an action for declaratory judgment. It amounts to a
threat from a stranger to this action who refers to unnamed sources who may be contemplating a
lawsuit at some point in the future. Bankers' feared liability to theoretical litigants is simply too
remote to support a claim for declaratory relief. Further, it does not appear that the litigation the
Bankers fear would even involve the Foundation. Mazzone's letter warned banks that they could
be liable for the tort of conversion if they continue to pay IOLTA interest to the Foundation. In
that event, any liability for conversion would be to the clients of the depositing attorneys and not
to the Foundation.

Bankers, as evidenced by their briefs, strongly believe that IOLTA is constitutional and apparently
intend to honor their contracts establishing IOLTA accounts unless and until a court declares the
IOLTA program unconstitutional. Even assuming that the Foundation would have standing to
protect its right as third-party beneficiary to the interest earned on IOLTA accounts, there is no


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Paulsen v. Texas Equal Access to Justice Foundation, 23 S.W.3d 42 (1999)



justiciable controversy where, as here, there is an absence of any real threat or intention to breach
a contract. See id. (citing Spradley v. Whitehall, 314 S.W.2d 615, 619 (Tex.Civ.App.—Fort Worth
1958, no writ)). The trial court, therefore, lacked jurisdiction to grant the relief sought by Bankers.


True Controversy
The only issue on which the parties to this case seem to disagree is how broadly Phillips should
be read. Appellants paint a doomsday picture that throws all banking practices into uncertainty
unless we hold that the Supreme Court misstated Texas law, grant declaratory relief reiterating
the distinction between “general” and “special” accounts, and explicitly hold that IOLTA is
constitutional. Appellants assert in the alternative that if, despite their arguments to the contrary,
we believe Phillips is correct, we should hold IOLTA expressly unconstitutional. The Foundation
thinks the Phillips holding is *47 more narrow than appellants read it; they have no qualms with a
declaration from this Court that IOLTA is constitutional, but they urge us to refrain from deciding
IOLTA is unconstitutional on the strength of the Phillips decision. They otherwise have no dispute
with appellants' position and encourage us to grant the declaratory relief sought.

 [8] We must not decide a case that amounts to no more than a disagreement on how broadly the
Phillips decision can be read. “A mere difference of opinion, not involving the assertion of adverse
interests, is not sufficient to support an action for declaratory judgment.” Reuter, 422 S.W.2d at 196
(quoting 26 C.J.S. Declaratory Judgments, § 29 (1956)). In spite of the injuries and uncertainties
appellants claim they will suffer, it seems they have no real dispute with the Foundation. This
case has been marked throughout by a near-total lack of true controversy between the parties. The
trial below was very brief. Paulsen was the only witness who testified, and cross-examination by
the Foundation's lawyer was perfunctory, consisting of only three questions to confirm that the
Phillips court did not determine the ultimate constitutionality of the IOLTA program. On appeal,
the Foundation has not even raised the strongest reasons in support of the trial court's judgment—
those jurisdictional issues we have detailed above; indeed, appellee's brief is a mere seven pages
long. They are seven well-written and thoughtful pages, to be sure, but the brevity underscores
the lack of true controversy in this case.

Whatever dispute appellants claim to have with the Foundation is clearly secondary to their
desire to have this Court effectively overrule the U.S. Supreme Court, declaring that the Court
misinterpreted Texas law in its Phillips ruling. Appellants' briefs focus almost exclusively on
the constitutionality of IOLTA, paying only minor attention to the claimed dispute with the
Foundation.

We are not unsympathetic to appellants' arguments. The Phillips decision does appear to have at
least overlooked, if not misstated, a large body of Texas banking law that distinguishes between
“general” and “special” accounts. See, e.g., Texas Commerce Bank v. Townsend, 786 S.W.2d 53
(Tex.App.—Austin 1990, writ denied). In a general account, Texas law is clear that the financial

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Paulsen v. Texas Equal Access to Justice Foundation, 23 S.W.3d 42 (1999)



institution holds title to the funds deposited. See id. at 54. Paulsen's contract with his bank
establishing an IOLTA account expressly states that it is a general account. Since the Phillips
court stated that “interest follows principal,” Phillips, 524 U.S. at 165–66, 118 S.Ct. 1925, the
natural conclusion would be that the interest earned in an IOLTA account belongs to the banks as
well. This appears to be in direct conflict with the actual Phillips holding that interest earned in
an IOLTA account is the property of the attorney's client. See id. at 172, 118 S.Ct. 1925.

Whatever our impressions of the constitutional arguments in support of IOLTA, however,
this particular case provides a singularly inappropriate context for deciding those issues. Both
appellants and the Foundation are committed to upholding the constitutionality of the IOLTA
program. In its brief the Foundation candidly admits that it does not contest the central legal
premises of appellants' argument, and emphasizes that the Foundation is making the same pro-
IOLTA arguments in the ongoing Phillips litigation in the federal district court.

In their arguments, the parties attempt to demonstrate that they are not in unanimous agreement
on how far this Court might go if we were to agree with the Supreme Court, but neither side ever
seriously argues that IOLTA could be anything but constitutional. The hair-splitting difference
between the parties' positions hardly presents the sort of robust debate a court should expect
and demand when a major constitutional ruling is at issue. At core, both appellants and the
Foundation *48 are in total agreement that IOLTA should be declared constitutional. It would be
inappropriate for us to decide an issue of such gravity where there has been no genuine debate. In
fact, the Supreme Court has expressly held that where both litigants agree on the constitutionality
of a statute being challenged and desire the same result, there is no case or controversy before
the court. See Moore v. Charlotte–Mecklenburg Bd. of Educ., 402 U.S. 47, 48, 91 S.Ct. 1292, 28
L.Ed.2d 590 (1971).

Truly, the appropriate forum for deciding the issues at the heart of this appeal is in the federal
district court, where the Phillips litigation is now pending on remand and the court is faced squarely
with the constitutionality of IOLTA. If the facts of this case were altered only slightly, we would
be required to defer to that court's proceeding, for there is a wide body of law that would prevent
us from deciding this declaratory judgment action if another action were pending between the
same parties which would adjudicate the issues involved in the present action. See Texas Liquor
Control Bd. v. Canyon Creek Land Corp., 456 S.W.2d 891, 895 (Tex.1970); Tucker v. Graham,
878 S.W.2d 681, 683 (Tex.App.—Eastland 1994, no writ); Southern Traffic Bureau v. Thompson,
232 S.W.2d 742, 750 (Tex.Civ.App.—San Antonio 1950, writ ref'd n.r.e.). Because the parties
before us are not identical to those involved in the Phillips litigation, that doctrine cannot squarely
dispose of this case. 4 The parties before us could, however, have intervened in the Phillips suit
and presented their constitutional arguments in a more direct fashion to the district court. That
case has been hotly contested and is certain to involve a much fuller and more balanced debate
than has developed in the present cause. For that reason, the ongoing Phillips litigation would


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Paulsen v. Texas Equal Access to Justice Foundation, 23 S.W.3d 42 (1999)



be a more appropriate forum for settling the question of whether the IOLTA program creates an
unconstitutional taking of client property.



                                                          CONCLUSION

We hold that appellants have not presented this Court or the trial court with a justiciable
controversy. Paulsen seeks an advisory opinion from this Court interpreting a United States
Supreme Court opinion. Bankers face no imminent litigation over their IOLTA contracts, and
their claimed uncertainty as to their rights and obligations is insufficient to present the court with
a justiciable action. For these reasons, the trial court lacked subject matter jurisdiction over the
action presented; we therefore vacate that court's judgment and dismiss the cause.



Footnotes
1    Of course, Paulsen does not really want us to accept this as true at all. He frames the issue in these terms to attempt to create a
        justiciable controversy between himself and the Foundation. The real goal of the litigation is apparently to have this Court decide
        that the U.S. Supreme Court was wrong in so holding, and that consequently IOLTA is constitutional under Texas law. We discuss
        infra why the present case is an inappropriate one for deciding that issue.
2       In an IOLTA contract, the Foundation is declared to be a third-party beneficiary to the contract between the financial institution and
        the attorney who establishes the account.
3       Mazzone is a named plaintiff in the Phillips litigation.

4       Paulsen is not a party to the Phillips case, but he was involved in the case to the extent that he drafted the amicus curiae briefs
        tendered to the Fifth Circuit Court of Appeals on behalf of the state bars of Texas, Mississippi, and Louisiana in support of IOLTA.
        The Foundation is a party to the ongoing Phillips litigation, but Bankers are not.


End of Document                                                           © 2015 Thomson Reuters. No claim to original U.S. Government Works.




                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                                        8
Paulsen v. Texas Equal Access to Justice Foundation, 23 S.W.3d 42



    History (4)

    Direct History (1)
        1. Paulsen v. Texas Equal Access to Justice Foundation
     23 S.W.3d 42 , Tex.App.-Austin , Dec. 02, 1999 , rehearing overruled ( Mar 23,
     2000 ) , review dismissed ( Jan 18, 2001 ) , order withdrawn ( Apr 26, 2001 ) ,
     rehearing of petition for review denied ( Apr 26, 2001 ) , review denied ( Apr 26,
     2001 )



    Related References (3)
      2. Paulsen v. State Bar of Texas
    2001 WL 23180 , Tex.App.-Austin , Jan. 11, 2001


      Opinion Withdrawn and Superseded on Rehearing by

      3. Paulsen v. State Bar of Texas
    2001 WL 300142 , Tex.App.-Austin , Mar. 29, 2001


      Opinion Withdrawn and Superseded on Rehearing by

    4. Paulsen v. State Bar of Texas
    55 S.W.3d 39 , Tex.App.-Austin , June 14, 2001 , rehearing overruled ( Oct 04, 2001 ) ,
    review denied ( Jun 06, 2002 ) , rehearing of petition for review denied ( Dec 12, 2002 )




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Phillips v. Phillips, 820 S.W.2d 785 (1991)




                                                 820 S.W.2d 785
                                              Supreme Court of Texas.

                                  Martha Jean PHILLIPS, Petitioner,
                                                  v.
                                 Harry S. PHILLIPS, et al., Respondents.

            No. D–0107.          |   Dec. 11, 1991.     |   Rehearing Overruled Jan. 29, 1992.

Limited partner sued general partner for breach of partnership agreement. The 114th Judicial
District Court, Smith County, Galloway Calhoun, J., granted judgment, and appeal was taken.
The Tyler Court of Appeals, 792 S.W.2d 269, reversed and remanded, and further appeal was
taken. The Supreme Court, Hecht, J., held that: (1) clause in partnership agreement calling for
payment of ten times actual damages to limited partner if agreement was breached by general
partner was unenforceable penalty, rather than enforceable liquidated damages provision, and (2)
general partner did not waive affirmative defense of penalty by failing to plead it, in that such
defense was apparent on face of petition and established as matter of law.

Affirmed.

Gonzalez, J., dissented and filed opinion in which Mauzy and Doggett, JJ., joined.


Attorneys and Law Firms

*786 Michael S. Wilk, Anna L. Stock, Jay N. Gross, Houston, for petitioner.

Patrick Kelley, Otis Carroll, Tyler, for respondents.



                                                    OPINION

HECHT, Justice.

We granted the applications for writ of error in this case to decide whether a contractual provision
that requires payment of a multiple of actual damages for breach of trust is an unenforceable
penalty, and if so, whether the defense of penalty was waived because it was not pleaded. The trial
court and court of appeals refused to enforce the provision. 792 S.W.2d 269 (Tex.App.1990). We
affirm the judgment of the court of appeals.




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Phillips v. Phillips, 820 S.W.2d 785 (1991)



During 32 years of marriage, Harry and Martha Phillips accumulated over $18 million in
community property, primarily through the oil and gas business Harry managed. When they
divorced, rather than break up their oil and gas holdings, they created Phillips & Phillips, Ltd., a
limited partnership, and transferred the bulk of their assets to it. Each had an equal interest in the
partnership. Harry, the only general partner, agreed to work for the partnership full-time without
salary and to offer Martha the option to participate in any business opportunities he pursued outside
the partnership. Martha, the only limited partner, agreed that she would have no right to participate
in Harry's business decisions for the partnership and that she would leave each of her four children
by Harry at least one-sixth of her estate.

The partnership agreement required Harry to pay himself and Martha each a minimum *787 of
$21,000 per month for 24 months, and then minimum monthly distributions adjusted for inflation
and for oil and gas prices. It also required Harry to furnish Martha certain financial information
about the partnership and to cooperate with her in auditing its affairs. The agreement contained
the following provision: “If the general partner breaches his trust hereunder, he shall pay to the
limited partner as liquidated damages ten times the amount she loses as a result of such breaches
of trust. Errors of judgment shall not be considered breaches of trusts.”

The value of the partnership increased under Harry's management, but Harry did not fully comply
with the terms of the written agreement. In particular, after the first 20 months Harry distributed
much less than the required minimum amounts, never actually calculating what payments the
agreement required. He also failed to provide timely annual statements of operations and refused
to cooperate fully with Martha's attempts to audit the partnership.

Martha eventually sued Harry for dissolution of the partnership and damages based upon Harry's
breach of contractual and fiduciary duties. The case was tried to a jury, who found that Harry
breached the partnership agreement by favoring himself in paying his personal expenses and
encumbering partnership assets, thus endangering partnership distributions. The jury also found
that Harry breached both the partnership agreement and his fiduciary duty to Martha by failing to
keep current and complete partnership books, failing to prepare required annual statements, and
interfering with Martha's efforts to examine partnership books and records. 1 The jury assessed
Martha's actual damages at $300,000. None of the jury's findings are challenged by the parties
on appeal.

During the trial the parties stipulated that a reasonable fee for legal services necessary for Martha's
prosecution of the case was $235,302.14. The jury was aware of this stipulation, and the trial court
surmised that the jury included this amount in its $300,000 finding. Accordingly, the trial court
rendered judgment for Martha for a total of $300,000, $235,302.14 against the partnership and
$64,697.86 against Harry, and refused to award Martha any additional amount for attorney fees.
The trial court also ordered the partnership dissolved.


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Phillips v. Phillips, 820 S.W.2d 785 (1991)




Martha appealed; Harry did not. The court of appeals held that the trial court erred in refusing to
award Martha the $235,302.14 stipulated attorney fees in addition to the $300,000 damages found
by the jury, but that the trial court did not err in refusing to award Martha decuple damages under
the partnership agreement. Consequently, the appeals court reversed the judgment of the trial court
in part and rendered judgment against Harry for a total of $535,302.14, plus interest. 2

 *788 Martha contends that she is entitled to recover liquidated damages equal to ten times
the actual damages found by the jury, as provided by the limited partnership agreement. Harry
contends that the contractual provision is not an enforceable agreement for liquidated damages but
an unenforceable penalty. Martha argues that even if Harry is correct, he has waived any defense
of penalty by failing to plead it as an affirmative defense.

 [1] We first considered the difference between an enforceable liquidated damages provision and
an unenforceable penalty in Stewart v. Basey, 150 Tex. 666, 245 S.W.2d 484, 485–486 (1952).
There we explained:

   Volumes have been written on the question of when a stipulated damage provision of a contract
   should be enforced as liquidated damages and when enforcement should be denied because it is
   a penalty provision.... All agree that to be enforceable as liquidated damages the damages must
   be uncertain and the stipulation must be reasonable.

.....

   The right of competent parties to make their own bargains is not unlimited. The universal rule
   for measuring damages for the breach of a contract is just compensation for the loss or damage
   actually sustained. By the operation of that rule a party generally should be awarded neither
   less nor more than his actual damages. A party has no right to have a court enforce a stipulation
   which violates the principle underlying that rule.

More recently, in Rio Grande Valley Sugar Growers, Inc. v. Campesi, 592 S.W.2d 340, 342 n. 2
(Tex.1979), we restated the two-part Stewart test for determining whether to enforce a contractual
damages provision as follows: “In order to enforce a liquidated damage clause, the court must
find: (1) that the harm caused by the breach is incapable or difficult of estimation, and (2) that
the amount of liquidated damages called for is a reasonable forecast of just compensation.” Cf.
TEX.BUS. & COM.CODE § 2.718(a). 3

[2] Whether a contractual provision is an enforceable liquidated damages provision or an
unenforceable penalty is a question of law for the court to decide. Farrar v. Beeman, 63 Tex. 175,
181 (1885); see Lefevere v. Sears, 629 S.W.2d 768, 771 (Tex.Civ.App.—El Paso 1981, no writ);
Muller v. Light, 538 S.W.2d 487, 488 (Tex.Civ.App.—Austin 1976, writ ref'd n.r.e.); Schepps

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Phillips v. Phillips, 820 S.W.2d 785 (1991)



v. American Dist. Telegraph Co., 286 S.W.2d 684, 690 (Tex.Civ.App.—Dallas 1955, no writ);
Zucht v. Stewart Title Guar. Co., 207 S.W.2d 414, 418 (Tex.Civ.App.—San Antonio 1947, writ
dism'd); Bourland v. Huffhines, 244 S.W. 847, 849 (Tex.Civ.App.—Amarillo 1922, writ dism'd).
Sometimes, however, factual issues must be resolved before the legal question can be decided. For
example, to show that a liquidated damages provision is unreasonable because the actual damages
incurred were much less than the amount contracted for, a defendant may be required to prove
what the actual damages were. See Johnson Eng'rs, Inc. v. Tri–Water Supply Corp., 582 S.W.2d
555, 557 (Tex.Civ.App.—Texarkana 1979, no writ); Oetting v. Flake Uniform & Linen Serv.,
Inc., 553 S.W.2d 793, 796–797 (Tex.Civ.App.—Fort Worth 1977, no writ); *789 Smith v. Lane,
236 S.W.2d 214, 215 (Tex.Civ.App.—San Antonio 1950, no writ); Southern Plow Co. v. Dunlap
Hardware Co., 236 S.W. 765, 766–767 (Tex.Civ.App.—Dallas 1922, no writ); Walsh v. Methodist
Episcopal Church, 212 S.W. 950, 952 (Tex.Comm'n App.1919, judgm't adopted).

 [3] [4] The enforceability of the contractual provision in this case involves no fact issues. A
contractual provision like the one here by which one party agrees to pay the other some multiple
of actual damages for breach of the agreement does not meet either part of the legal test for
an enforceable liquidated damages provision. It cannot meet the first prong of the test because
the harm caused by the breach of the contract is not incapable or difficult of estimation. The
provision assumes actual damages can and will be determined, indeed must be determined, before
the prescribed multiplier can be applied. The provision cannot meet the second prong of the test
because, instead of attempting to forecast actual damages, it calls for them to be determined and
then multiplied. Cf. Robert G. Beneke & Co. v. Cole, 550 S.W.2d 321 (Tex.Civ.App.—Dallas
1977, no writ) (contract provision which fixes liquidated damages without excluding additional
liability for actual damages is not a reasonable forecast of just compensation and therefore a
penalty). A contractual provision like the one in this case is thus, on its face, an unenforceable
penalty.

 [5] [6] Harry, however, did not plead penalty as an affirmative defense to an award of damages
under the liquidated damages provision in the partnership agreement. Although penalty is not
among the affirmative defenses enumerated in Rule 94, TEX.R.CIV.P., the listing in that rule
is not exclusive. Penalty is, in the language of the rule, a “matter constituting an avoidance or
affirmative defense.” Johnson, 582 S.W.2d at 557; Oetting, 553 S.W.2d at 795–796; Robinson v.
Granite Equip. Leasing Corp., 553 S.W.2d 633, 637 (Tex.Civ.App.—Houston [1st Dist.] 1977,
writ ref'd n.r.e.); Walter E. Heller & Co. v. B.C. & M., Inc., 543 S.W.2d 696, 697 (Tex.Civ.App.—
Houston [1st Dist.] 1976, writ ref'd n.r.e.); LoBue v. United Serv. Planning Ass'n, 467 S.W.2d 574,
576 (Tex.Civ.App.—Fort Worth 1971, writ dism'd); Young v. J.F. Zimmerman & Sons, Inc., 434
S.W.2d 926, 927 (Tex.Civ.App.—Waco 1968, writ dism'd); Smith v. Waite, 424 S.W.2d 691, 693
(Tex.Civ.App.—Waco 1968, writ ref'd n.r.e.); Smith, 236 S.W.2d at 215; Southern Plow, 236 S.W.
at 766–767; Walsh, 212 S.W. at 952. As a general rule, an affirmative defense must be pleaded
or it is waived. TEX.R.CIV.P. 94.


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Phillips v. Phillips, 820 S.W.2d 785 (1991)




 [7] One exception to this rule is the defense of illegality, a defense specifically listed in Rule 94.
“[I]f the illegal nature of the document to be relied upon or sought to be enforced is apparent from
the plaintiff's pleadings, it is not necessary that illegality be specially pleaded by the defendant
in order to rely upon it as a defense.” Lewkowicz v. El Paso Apparel Corp., 625 S.W.2d 301,
303 (Tex.1981); accord Niles v. Harris County Fresh Water Supply Dist., 339 S.W.2d 562, 563
(Tex.Civ.App.—Waco 1960, writ ref'd); Reid v. Associated Employers Lloyds, 164 S.W.2d 584,
585–586 (Tex.Civ.App.—Fort Worth 1942, writ ref'd); Montgomery Ward & Co. v. Lusk, 52
S.W.2d 1110 (Tex.Civ.App.—Waco 1932, writ ref'd); Texas & P. Coal Co. v. Lawson, 89 Tex.
394, 34 S.W. 919, 921 (1896). Two principles support this exception to the general rule that
affirmative defenses are waived if not pleaded. One is that “[w]hen a plaintiff in his pleadings
anticipates defensive matters and pleads them, a defendant may rely upon the defenses though
his only pleading is a general denial.” Raney v. White, 267 S.W.2d 199, 200 (Tex.Civ.App.—San
Antonio 1954, writ ref'd). Pleading an agreement illegal on its face in effect anticipates the defense.
The other principle is that the courts will not enforce a plainly illegal contract even if the parties do
not object. Lawson, 34 S.W. at 921. Enforcement of an illegal agreement violates public policy. Id.

 [8] For the same reasons, we hold that the defense of penalty is not waived by the failure
to plead it if it is apparent on the face of the petition and established as a matter of law.
Enforcement of a penalty, like enforcement of an illegal contract, violates *790 public policy.
RESTATEMENT (SECOND) OF CONTRACT § 356; see State v. Alpha Oil & Gas, Inc., 747
S.W.2d 378 (Tex.1988). It should not be done, even if the parties do not object. In this case Martha
pleaded that she was “entitled to damages ... in the amount of ten (10) times all losses suffered”.
Inasmuch as Martha's own pleading establishes that the contractual provision she relies upon is an
unenforceable penalty under our decisions in Stewart and Campesi as a matter of law, Harry was
not required to plead penalty as an affirmative defense.

Contrary to the dissent's very exaggerated alarms, we do not hold that the affirmative defense of
penalty need never be pleaded. Whenever the defense is not clearly established on the face of the
pleadings, as it is here, it must be pleaded. We do not “resurrect[ ] trial by ambush”, post, at 790,
or “retreat from ... encouraging full disclosure during discovery”, post, at 792. We apply a narrow
but necessary exception, long and well established, to the general requirement that affirmative
defenses be pleaded. We do not hold that penalty “can be asserted as a defense for the first time
on appeal”, post, at 792, in violation of Rule 52(a), TEX.R.APP.P. The record in this case reflects
that the issue of penalty was raised in the trial court, and that the trial court refused to enforce the
penalty provision of the partnership agreement.

******




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Phillips v. Phillips, 820 S.W.2d 785 (1991)



Accordingly, we conclude that Martha is not entitled to recover ten times her actual damages.
Finding no error in the judgment of the court of appeals, we affirm it.


GONZALEZ, Justice, dissenting.
Despite the clear language of TEX.R.CIV.P. 94 and the collective wisdom of every court of appeals
of this state that has considered the issue, the majority holds that a defendant need not affirmatively
plead the defense of “penalty” in a contract action. This holding resurrects trial by ambush and
rejects the notion that parties are entitled to know what theories of law they will face at trial. I would
hold that by failing to plead it, Mr. Phillips waived his right to assert that the contract he entered
into with his wife is unenforceable. Furthermore, since Mr. Phillips waived the penalty defense by
failing to affirmatively plead it, I would not reach the question of whether the contractual provision
in question is, on its face, an unenforceable penalty. I thus would reverse the judgment of the
court of appeals and remand this cause to the trial court for entry of a judgment that enforces the
provision.

Mr. and Mrs. Phillips were married for 32 years prior to getting a divorce. With the assistance of
counsel, they entered into a pre-divorce agreement, whereby they transferred about $18 million
of their assets into a partnership which Mr. Phillips would manage. Mr. Phillips in effect said to
his soon-to-be ex-wife: “Trust me.” As a disincentive to cheating or short changing Mrs. Phillips,
Mr. Phillips pledged that he would pay her 10 times the amount of the losses if he violated the
contract. 1 The agreement also recited that Mr. Phillips owed Mrs. Phillips a fiduciary duty, a
higher standard of care than normally exists between parties to a contract. 2

Eight years later, Mrs. Phillips sued Mr. Phillips, alleging that he violated the agreement. *791
Mr. Phillips entered a general denial and asserted the affirmative defenses of limitations, laches,
and equitable estoppel. In a unanimous verdict, the jury found that Mr. Phillips breached the
agreement by interfering with Mrs. Phillips right to examine the books and records of the
partnership, and by willfully underpaying Mrs. Phillips and overpaying himself.



                                          AFFIRMATIVE DEFENSE

Rule 94 enumerates specific affirmative defenses which are waived if not pleaded, such as accord
and satisfaction, arbitration and award, fraud, illegality, statute of frauds, statute of limitations,
“and any other matter constituting an avoidance or affirmative defense.” TEX.R.CIV.P. 94. An
affirmative defense does not tend to rebut factual propositions asserted by a plaintiff, but seeks
to establish an independent reason why the plaintiff should not recover. Gorman v. Life Ins. Co.
of North America, 811 S.W.2d 542, 546 (Tex.1991). Asserting the defense of penalty does not
deny the facts pleaded by the plaintiff; instead, it is an independent reason why the contract should


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Phillips v. Phillips, 820 S.W.2d 785 (1991)



not be enforced as written. In other words, if the defendant asserts facts that defeat in whole or in
part the plaintiff's claim, such assertion amounts to an affirmative defense that must be pleaded
or it is waived. “Penalty” is a classic affirmative defense; in my view, it clearly falls within the
purview of Rule 94.

The majority implies that as long as the issue does not depend upon evidence or findings, no
purpose is served by requiring that it be specifically pleaded. But there is a valid purpose to serve,
namely, the need for notice and fair play, so as to avoid trials by ambush.

The court refers to Lewkowicz v. El Paso Apparel Corp., 625 S.W.2d 301, 303 (Tex.1981), for
its holding that pleading is not necessary if the affirmative defense appears on the face of the
plaintiff's pleadings. That case is distinguishable because it involved the defense of illegality of
contract. The defense of illegality is a special situation and a poor choice from which to draw a rule
of general applicability. The rule that a court will not enforce an illegal contract is for the public's
benefit rather than contending parties. Lewis v. Davis, 145 Tex. 468, 199 S.W.2d 146, 151 (1947).
A strong policy reason supports the illegality exception. That is, courts should not have to validate
contracts that are illegal on their face merely because a defendant has failed to plead illegality.

Here, the court seems to be saying that pleading and proof are not necessary, because the issue
of whether the liquidated damages provision is a penalty is a question of law. In some contracts
it may be possible to determine from their four corners that they impose a penalty. The classic
example is the lease that assesses the same liquidated damages for every breach, regardless of how
trivial. Stewart v. Basey, 150 Tex. 666, 245 S.W.2d 484, 486 (1952). But, in most cases, proof will
be necessary. Commercial Union Ins. Co. v. La Villa I.S.D., 779 S.W.2d 102, 106–107 (Tex.App.
—Corpus Christi 1989, no writ); See D. WENDORF, ET AL., TEXAS RULES OF EVIDENCE
MANUAL, I–38 (3rd ed. 1991).

A good example of the need for proof is Presnal v. TLL Energy Corp., 788 S.W.2d 123, 127
(Tex.App.—Houston [1st Dist.1990], writ denied). In that case, a mineral lease provided that the
lessee was required to drill a second well or pay $75,000, which the defendant contended was a
penalty. There is no way a court could possibly know if this provision is a reasonable forecast of
damages and therefore not a penalty, unless pleadings and proof develop the issue. It would be
patently unfair not to require defendant to notify the plaintiff that the possible existence of penalty
would be an issue and this is contrary to well established case law.

Every intermediate appellate court considering this issue has held that penalty is an affirmative
defense under Rule 94 which is waived if not pleaded. Bethel v. Butler Drilling Co., 635 S.W.2d
834, 838–839 (Tex.App.—Houston [14th Dist.] 1982, writ ref'd n.r.e.); *792 Robinson v. Granite
Equip. Leasing Corp., 553 S.W.2d 633, 637 (Tex.Civ.App.—Houston [1st Dist.] 1977, writ ref'd
n.r.e.); Walter E. Heller & Co. v. B.C. & M., Inc., 543 S.W.2d 696, 697 (Tex.Civ.App.—Houston


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Phillips v. Phillips, 820 S.W.2d 785 (1991)



[1st Dist.] 1976, writ ref'd n.r.e.); LoBue v. United Serv. Planning Ass'n, 467 S.W.2d 574, 576
(Tex.Civ.App.—Fort Worth 1971, writ dism'd); Young v. J.F. Zimmerman & Sons, Inc., 434
S.W.2d 926, 927 (Tex.Civ.App.—Waco 1968, writ dism'd); Smith v. Waite, 424 S.W.2d 691, 693
(Tex.Civ.App.—Waco 1968, writ ref'd n.r.e.).

There is no compelling reason for this court now to reject by implication the well-grounded
pleading practice and disagree with the cases cited above that hold that as a rule penalty is an
affirmative defense which must be pleaded or it is waived. In my view, this is a retreat from this
court's recent trend towards encouraging full disclosure during discovery of all witnesses, facts and
legal theories upon which a party intends to rely at trial. This trend not only encourages litigants
to be well prepared for trial, but also enables disputes to be resolved on their true merits and
not on “mere technicalities.” It makes no sense to me to subject parties to a severe sanction for
failing to disclose witnesses or to supplement discovery responses, but not require them to plead
the legal theory upon which they intend to rely to defeat their opponent's claim. The majority has
created an exception to Rule 94 that has a visceral appeal, but collapses on its own logic. The court
says that the contractual provision in issue is a penalty as a matter of law, and thus need not be
pleaded (and can be asserted as a defense for the first time on appeal). But a defendant likewise
may defeat a contract claim under a statute of limitations defense. And while the defendant may
be entitled to a judgment as a matter of law, we nevertheless require affirmative pleading of the
statute of limitations defense. The court ultimately rationalizes its de facto modification of Rule
94 by relying on the RESTATEMENT (SECOND) OF CONTRACTS § 356 to assert that public
policy demands the result. The court expands the public policy exception to Rule 94's pleading
requirement beyond the exception for illegal contracts to include contracts that allegedly impose
a penalty. This is a faulty rationale. First, this is not a case where pure contract principles apply.
Mr. Phillips agreed to a higher standard of care (namely, a fiduciary's standard) than he normally
would have owed Mrs. Phillips in a standard contractual relationship. Courts impose damages on
parties who violate a fiduciary duty in order to punish the party's breach of trust. I agree with the
Restatement § 356's directive that the “central objective behind the system of contract remedies is
compensatory, not punitive.” RESTATEMENT (SECOND) OF CONTRACTS § 356 comment a
(1979). But Mr. Phillips entered into this agreement with his eyes open, accepting a higher than
normal standard of care and devising and adopting a measure of damages for his breach of that
standard. I do not see how the it advances the best interest of the public to bail him out of his
bargain. I would hold that penalty is an affirmative defense that must be pleaded and that Mr.
Phillips waived this defense by failing to plead it. For the above reasons, I dissent.



MAUZY and DOGGETT, JJ., join this opinion.


Footnotes


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Phillips v. Phillips, 820 S.W.2d 785 (1991)



1      The jury also found that Harry breached the partnership agreement by failing to calculate the amount of distributions required to be
       paid the partners and by failing to make all the distributions required by the agreement, but that Martha ratified Harry's actions in
       making distributions other than as called for by the agreement.
2      Harry contends that the court of appeals should not have disturbed the trial court's damage award. As a rule, however, the judgment in
       a case tried by a jury must conform to the verdict. See TEX.R.CIV.P. 301. The trial court properly did not ask the jury to include in its
       determination of Martha's actual damages a reasonable fee for legal services necessary to her prosecution of the case. See Hammonds
       v. Hammonds, 158 Tex. 516, 313 S.W.2d 603, 605 (1958). We must assume that the jury followed the trial court's instructions and
       answered the question put to them. See Turner, Collie & Braden v. Brookhollow, Inc., 642 S.W.2d 160, 167 (Tex.1982). Given that
       assumption, we must conclude that the jury's answer of $300,000 to the trial court's question did not include attorney fees.
          Harry argues that, logically, the jury must have arrived at their $300,000 finding by adding $37,585 accounting fees which Martha
          testified she incurred to the stipulated $250,000 in attorney fees. However plausible Harry's explanation of the jury's reasoning
          process may be, it cannot substitute for the jury's finding. What the jury found, not why the jury found it, is the relevant inquiry
          absent jury misconduct. First Nat'l Bank v. Zimmerman, 442 S.W.2d 674, 678 (Tex.1969).
          Under Rule 301, the trial court could properly have rendered judgment awarding Martha less than the $300,000 found by the jury
          as actual damages only if the finding had no support in the evidence. See Burt v. Lochausen, 151 Tex. 289, 249 S.W.2d 194, 199
          (1952). See also 4 R. MCDONALD, TEXAS CIVIL PRACTICE IN DISTRICT AND COUNTY COURTS § 17.32 nn. 7–8 (rev.
          1984). Harry does not argue here that there is no evidence to support the jury's finding. Thus, we conclude that the court of appeals
          was correct in rendering judgment against Harry for the actual damages found by the jury plus stipulated attorney fees.
          Harry also complains of the court of appeals' judgment that he, rather than the partnership, pay Martha's attorney fees. This point,
          however, was not raised in Harry's motion for rehearing in the court of appeals and is therefore not preserved. See TEX.R.APP.P.
          131(e); Oil Field Haulers Ass'n v. Railroad Commission, 381 S.W.2d 183, 189 (Tex.1964).
3      “Damages for breach by either party may be liquidated in the agreement but only at an amount which is reasonable in the light of the
       anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or non-feasibility of otherwise
       obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty.”
1      At trial, Mr. Phillips testified as follows:
             Q There's another interesting provision in [the partnership agreement] that says if Mrs. Phillips can show that you have breached
             your fiduciary duty to her that you will be obliged to pay her 10 times any amount that she proves. Are you familiar with that?
             A Yes sir.
             Q How in the world did that get in there?
             A I wanted her to let me-wanted to prove to her that I would not do anything wrong.
             Q So—
             A So I put it in myself.
             Q Was it your idea?
             A Yes, sir.
2      The partnership agreement provides:
          16.1 Fiduciary Capacity. “The general partner shall act in a fiduciary capacity with respect to the limited partner.”
          16.2 Damages. “If the general partner breaches his trust hereunder, he shall pay to the limited partner as liquidated damages ten
          times the amount she loses as a result of such breach. Errors of judgment shall not be considered breaches of trusts”.


End of Document                                                            © 2015 Thomson Reuters. No claim to original U.S. Government Works.




                © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                                          9
Phillips v. Phillips, 820 S.W.2d 785



    History (4)

    Direct History (2)
      1. Phillips v. Phillips
    792 S.W.2d 269 , Tex.App.-Tyler , June 26, 1990 , writ granted ( Oct 03, 1990 )


       Judgment Affirmed by

        2. Phillips v. Phillips
      820 S.W.2d 785 , Tex. , Dec. 11, 1991 , rehearing of cause overruled ( Jan 29, 1992 )



    Related References (2)
      3. Matter of Phillips
    966 F.2d 926 , 5th Cir.(Tex.) , July 02, 1992 , rehearing denied ( Aug 10, 1992 )


       On Remand to

      4. In re Phillips
    175 B.R. 901 , Bankr.E.D.Tex. , Sep. 08, 1994




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Southern Union Co. v. CSG Systems, Inc., Not Reported in S.W.3d (2005)
2005 WL 171349




                                         2005 WL 171349
                          Only the Westlaw citation is currently available.

     SEE TX R RAP RULE 47.2 FOR DESIGNATION AND SIGNING OF OPINIONS.

                                    MEMORANDUM OPINION
                                     Court of Appeals of Texas,
                                              Austin.

                            SOUTHERN UNION COMPANY, Appellant
                                           v.
                                CSG SYSTEMS, INC., Appellee.

                               No. 03-04-00172-CV.            |   Jan. 27, 2005.

From the District Court of Travis County, 201st Judicial District, No. GN-100403; Paul Davis,
Judge Presiding.

Attorneys and Law Firms

Cynthia Keely Timms, W. Scott Hastings, Locke Liddel & Sapp LLP, Dallas, John L. Foster,
Minton, Burton, Foster & Collins, Jennifer Ramsey, Cantey & Hanger, L.L.P., Austin, for
appellant.

Scott S. Cooley, Patton G. Lochridge, Travis C. Barton, McGinnis, Lochridge & Kilgore, LLP,
Austin, for appellee.

Before Justices KIDD, PATTERSON and PURYEAR.



                                       MEMORANDUM OPINION

JAN P. PATTERSON, Justice.

 *1 Southern Union Company, a gas utility provider, contracted with CSG Systems, Inc., a printing
company, to outsource Southern Union's print-and-mail operations. The conversion of services
was more problematic than anticipated, causing Southern Union to cease operations and sue CSG
for breach of contract. Following trial, the jury found in favor of CSG. Accordingly, the trial court
entered a final judgment awarding damages to CSG. Southern Union appeals only the amount of
damages awarded and does not challenge liability. Because there is legally sufficient evidence in
the record to support the judgment, we affirm the award except as modified.


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Southern Union Co. v. CSG Systems, Inc., Not Reported in S.W.3d (2005)
2005 WL 171349




                                              BACKGROUND

Beginning in the late 1990's, Southern Union experienced technological difficulties and realized
that its computer system was no longer capable of printing and mailing approximately one million
bills per month to its customers. 1 Southern Union investigated companies to which it could
outsource these operations and then requested proposals from several potential vendors. CSG
responded to Southern Union's request in February 2000. Southern Union selected CSG's bid from
the field of candidates, and the two companies engaged in formal negotiations from April until
September.

A contract was finalized and signed by representatives from both Southern Union and CSG as of
October 13, 2000. The contract contained a “discontinuance fee” provision, obligating Southern
Union to pay a specified amount of damages to CSG in the event that Southern Union terminated
the agreement before its five-year term expired. The parties agree that the provision was intended
as a liquidated damages provision.

After the contract was finalized, CSG provided Southern Union with a written project plan
contemplating December 1, 2000 as the date for CSG to “go live” with the print-and-mail
operations. In the months leading up to that deadline, implementation problems arose on both sides
and the conversion fell behind schedule. The companies continued discussions in an attempt to
solve the problems until the first week of January 2001, when Southern Union ceased work on the
project. Southern Union filed suit against CSG on February 7, asserting breach of contract among
other causes of action.

In its verdict, the jury found that Southern Union and CSG were both in breach of the agreement,
but that CSG's breach was excused, and that CSG would be fairly and reasonably compensated by
an award of $2.1 million for the discontinuance fee; $111,000 for the cost of paper and envelopes
purchased by CSG; $1,045,944 for CSG's lost profits; and $140,000 for the cost of software
licenses provided by CSG to Southern Union. Beneath the last element of damages, the jury wrote
“upon return of 300 licenses to CSG, the answer would be $0.”The trial court determined that, as a
matter of law, it was proper to award liquidated damages in lieu of actual damages, and therefore
entered a final judgment in conformance with the jury's verdict, for a total amount of $2,351,000,
plus interest and attorney's fees.



                                                 ANALYSIS



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Southern Union Co. v. CSG Systems, Inc., Not Reported in S.W.3d (2005)
2005 WL 171349

 *2 On appeal, Southern Union challenges the award of damages to CSG Systems, claiming that
CSG should not be awarded any liquidated damages pursuant to the discontinuance fee provision,
but rather that CSG's recovery should be confined to $1,045,944 in lost profits. Southern Union
first asserts that, based on the timing of its breach, the proper calculation of the fee results in a zero
sum. Alternatively, Southern Union asserts that even if the proper calculation is $2.1 million, CSG
is not entitled to recover the award because that amount constitutes an illegal penalty. Southern
Union also claims that prejudgment interest should not be awarded on CSG's damages for the
discontinuance fee or lost profits. Finally, Southern Union urges that it is entitled to a remittitur
of $140,000 because it returned the software licenses to CSG.


The Discontinuance Fee Provision
Southern Union's first issue, asserting that the timing of Southern Union's breach results in zero
damages for the discontinuance fee, turns on a construction of the provision's terms. We agree
with the parties that the provision is unambiguous. We therefore review this issue as a matter of
law, looking only to the contract's four corners and interpreting its plain meaning. See French
v. Chevron U.S.A., Inc., 896 S.W.2d 795, 796-97 (Tex.1995). The discontinuance fee provision
states:

           The parties have mutually agreed upon the fees for the Services to be provided
           hereunder based upon certain assumed volumes of processing activity, and the
           length of the term of Agreement. Customer 2 acknowledges and agrees that,
           without the certainty of revenue promised by the commitments set forth in this
           Agreement, CSG would have been unwilling to provide the Services at the
           fees set forth in the Agreement. Because of the difficulty in ascertaining CSG's
           actual damages for a termination or other breach of the Agreement by Customer
           resulting in a termination of this Agreement before the expiration of the then-
           current term, Customer agrees that prior to such termination and in addition to
           all other amounts then due and owing to CSG, Customer will pay to CSG (as
           a contract and not as a penalty) an amount equal to a percentage of the total
           Subscriber Statement Minimum for the remaining term of the Agreement, as
           defined in Schedule C, times the then current ESP Processing Fees for the First
           Physical Page, as defined in Schedule C beginning with the calendar month
           in which termination occurs (“Discontinuance Fee”). If any such termination
           occurs prior to the first anniversary of the Effective Date of this Agreement,
           the percentage shall be fifty percent (50%). If between the first and second
           anniversary of the Effective Date it shall be thirty percent (30%) and if following
           the second anniversary of the Effective Date it shall be ten percent (10%).
           Customer acknowledges and agrees that the Discontinuance Fee is a reasonable
           estimation of the actual damages which CSG would suffer if CSG were to fail
           to receive the amount of processing business contemplated by this Agreement.

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Southern Union Co. v. CSG Systems, Inc., Not Reported in S.W.3d (2005)
2005 WL 171349

           Customer shall not be required to pay the Discontinuance Fee if CSG terminates
           this Agreement other than as a result of Customer's breach of its obligations
           hereunder or if Customer terminates the Agreement for a material, uncured
           breach by CSG. The Discontinuance Fee shall be CSG's sole remedy resulting
           from a termination or other breach of this Agreement by Customer resulting
           in a termination of this Agreement before the expiration of the then-current
           term. In the event of a sale or transfer of all or substantially all of Southern
           Union Company's assets to a third party, the percentages used to calculate the
           Discontinuance Fee shall be twenty-five percent (25%), fifteen percent (15%)
           and five percent (5%), respectively.

*3 (Emphasis added.)

The parties agree that, given the plain meaning of the relevant language, the proper way to calculate
the discontinuance fee for a breach within the first year of signing the agreement is to multiply the
applicable “Subscriber Statement Minimum” by the applicable “ESP Processing Fees” and then
take fifty percent of that total. The parties disagree, however, on how to determine one factor of this
equation: the Subscriber Statement Minimum. Southern Union asserts that, pursuant to Schedule
C, the minimum does not accrue until after the “commencement date.” 3 Because Southern Union
breached this agreement prior to the commencement date, 4 it claims that the minimum was zero,
and that the total calculation should therefore be zero.

CSG interprets the provision to mean that, although Schedule C prevents Southern Union from
having to pay the monthly minimum until after the commencement date, that time restriction
does not apply to Southern Union's liability under the discontinuance fee provision. CSG asserts
that Southern Union's interpretation is wrong because it allows Southern Union to breach the
contract without consequence, so long as it does so within ninety days of the commencement date,
regardless of the significant time and money invested by CSG during the implementation phase.
According to CSG, the liquidated damages provision is most necessary during this initial time
period because of the parties' unequal contributions and because of the difficulty in calculating
potential damages before any actual profits have been made.

We agree with CSG's reading of the contract. Nothing in the provision limits its applicability to a
breach occurring after the commencement of services. The provision specifies the circumstances
in which Southern Union is excused from paying the discontinuance fee, and none impose such
a timing limitation. To the contrary, the provision's express terms state that Southern Union shall
be liable for the discontinuance fee, at a rate of fifty percent, should it cause “any termination”
within one year of signing the contract.




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Southern Union Co. v. CSG Systems, Inc., Not Reported in S.W.3d (2005)
2005 WL 171349

Testimony of witnesses from both Southern Union and CSG also supports CSG's assertion that the
provision was intended to apply during the implementation phase, to protect the significant up-
front contributions made by CSG before it had received any profits from the agreement. Pamela
Vanlandingham, CSG's Senior Vice President and General Manager of the statement processing
center, testified that during November and December, the CSG team “worked around the clock” to
complete the project, which included working “very hard over the holidays,” and that “CSG [had]
expended right at 500 to 600 hours” when Southern Union breached the contract. Southern Union
officials confirmed that the nature of this contract required front-loaded efforts by CSG and that,
prior to terminating the agreement, they were aware of the money CSG invested on supplies and
equipment, and of the hours CSG put toward programming, testing, and implementing the new
system. David Kvapil, the Chief Financial Officer for Southern Union, testified that he knew CSG
had worked “well beyond the number of hours they were going to dedicate to the project,” that CSG
had provided a “significant batch of bills” to Southern Union for approval, and that CSG had spent
over $100,000 on envelopes and paper by the end of December 2000. Christine Shores, a business
analyst for Southern Union's mail services division, testified that Southern Union approved the
order for paper and envelopes prior to CSG placing it, and that Southern Union was aware of the
time and money spent by CSG in its efforts to commence live operations.

 *4 Based on the plain meaning of the provision, as supported by the witnesses' testimony,
Southern Union's liability for the discontinuance fee is not limited to a breach occurring after
the commencement of live operations. Southern Union is liable under the discontinuance fee for
its breach of the agreement during the implementation phase. The amount of fair and reasonable
damages pursuant to the discontinuance fee was therefore properly calculated by the jury, and
affirmed by the trial court, as $2.1 million. Southern Union's first issue is overruled.


Liquidated Damages
Southern Union claims in its second issue that, if the discontinuance fee is properly calculated
as $2.1 million, then CSG is not entitled to any recovery of that amount because it constitutes
an improper penalty. For the purposes of this case, the parties agree that the discontinuance fee
should be treated as an award of liquidated damages.

A liquidated damages provision may only be enforced when the court finds “(1) that the harm
caused by the breach is incapable or difficult of estimation and (2) that the amount of liquidated
damages called for is a reasonable forecast of just compensation.”Phillips v. Phillips, 820 S.W.2d
785, 788 (Tex.1991). The party challenging the award of liquidated damages has the burden to
establish that the two-prong test is not satisfied and that, instead, the award of liquidated damages
is an unenforceable penalty. See Dominzo v. Progressive County Mut. Ins. Co., 54 S.W.3d 867, 875
(Tex.App.-Austin 2001, pet. denied). Whether the liquidated damages provision is enforceable is
a question of law. Phillips, 820 S.W.2d at 788.



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Southern Union Co. v. CSG Systems, Inc., Not Reported in S.W.3d (2005)
2005 WL 171349



Difficulty of Estimation
Southern Union seeks to satisfy the first part of its burden by claiming that CSG's damages were
easy to estimate. Southern Union bases this claim on a “price projection” document prepared
by CSG before entering the agreement, which anticipated that CSG would earn a total profit
of $1,045,944 over the five-year term of its contract with Southern Union. Because the jury
ultimately awarded this exact amount to CSG as lost profits, Southern Union argues that CSG was
capable of precisely estimating its damages, and therefore the liquidated damages provision is an
unenforceable penalty from which CSG is not entitled to recover. The record, however, shows
otherwise.

The language of the discontinuance fee provision supports the trial court's determination that an
award of liquidated damages was proper because CSG's actual damages were not easy to estimate.
The provision expressly states that it was included in the contract “[b]ecause of the difficulty in
ascertaining CSG's actual damages for a termination or other breach of the Agreement,” and that
“CSG would have been unwilling to provide the Services at the fees set forth in the Agreement” had
Southern Union not promised “certainty of revenue” by obligating itself to pay the discontinuance
fee in the event that it breached the contract. This provision was a bargained-for exchange,
negotiated and approved by both companies.

 *5 When a provision is mutually bargained for by equally competent parties, we give deference
to its enforcement. See Shel-al Corp. v. American Nat'l Ins. Co., 492 F.2d 87, 94 (5th Cir.1974).
Stanley Mayer, Southern Union's Chief Information Officer, testified that the provision's terms
were negotiated between attorneys representing both companies. From the face of the contract,
Southern Union understood at the time it entered the agreement that CSG's damages would be
difficult to estimate and therefore agreed a liquidated damages provision was necessary.

“[T]he fundamental purpose of a valid liquidated damages provision is to provide a reasonable
measure of compensation in the event of a breach where, at the time the provision is agreed
to the damages are indeterminable or will be otherwise difficult to prove.”24 Williston on
Contracts § 65:3, at 250 (4th ed.2002). It is well established that lost profits can be inherently
difficult to estimate. See Texas Inst., Inc. v. Teletron Energy Mgmt., Inc., 877 S.W.2d 276,
279 (Tex.1994). Frequently, lost profits are too speculative to recover because their calculation
depends on “uncertain and changing conditions, such as market fluctuations,” and this uncertainty
is heightened where no profits have been made at the time the contract is breached. Id. The contract
reflects that Southern Union and CSG sought to avoid such speculation in agreeing to the liquidated
damages provision. The sliding scale of damages recognized the front-loaded value to be provided
by CSG. As argued by CSG, had there not been a discontinuance fee to rely on, in the event of
a breach by Southern Union-particularly early in the contract term-then CSG would have risked
being unable to recover because of the uncertainty in calculating its lost profits.



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Southern Union Co. v. CSG Systems, Inc., Not Reported in S.W.3d (2005)
2005 WL 171349

That CSG prepared a projection of its prices, and that the jury looked to the projection as a
reasonable calculation for lost profits, does not satisfy Southern Union's burden. The purpose of
the document was not to define CSG's potential damages. Rather, as Vanlandingham testified,
the projection was an internal tool used by CSG to outline the prices it anticipated charging for
its print-and-mail services, so that CSG could make an informed bid in response to Southern
Union's request for proposal. Vanlandingham also testified that the projection was prepared with a
“conservative accounting approach to pricing.” CSG excluded several items from its calculations
because, prior to entering the contract, the parties had not assigned a value to these items. This
increased the difficulty of estimating damages. CSG's expert confirmed the difficulty of this
estimation by explaining several different ways that CSG's lost profits could be calculated, with the
results ranging between approximately $1 million to $4 million. After hearing this evidence, the
jury determined that $1,045,944 was a reasonable award of lost profits. But their verdict does not
establish that the estimation was either an easy or precise one to make. Given the mutually agreed-
upon terms of the provision, and the evidence in support of its plain meaning, we are unpersuaded
by Southern Union's assertion that CSG's damages were easy to estimate.


Reasonable Forecast of Just Compensation
 *6 Southern Union seeks to satisfy the second part of its burden by showing that the
discontinuance fee provision is an unenforceable penalty because the amount awarded to CSG
as liquidated damages is unreasonable. Southern Union claims that this is established simply by
the fact that the $2.1 million awarded to CSG pursuant to the discontinuance fee is double the
amount found by the jury as lost profits. A liquidated damages provision will be considered an
unenforceable penalty if the amount awarded is so disproportionate to the actual or anticipated
damages that it in effect punishes the breach, thereby coercing performance of the contract by
making it too costly to not adhere to its terms. 24 Williston on Contracts § 65:3, at 249 (4th
ed.2002); see also Kothe v. R.C. Taylor Trust, 280 U.S. 224, 226, 50 S.Ct. 142, 74 L.Ed. 382
(1930).

But Southern Union fails to cite, and we are unaware of, any cases in support of its claim that a two-
to-one ratio of liquidated-to-actual damages is unreasonable per se.There is, however, authority
to the contrary. In Baker v. International Record Syndicate, Inc., our sister court approved a
liquidated damages award of $51,000, which was more than triple the $15,000 found as actual
damages. 812 S.W.2d 53, 56 (Tex.App.-Dallas 1991, no writ). The Texas Supreme Court also
upheld a trial court's judgment awarding $790,000 in liquidated damages, which was twice the
$395,000 found as actual damages.Sealock v. Texas Fed. Sav. & Loan Assoc., 755 S.W.2d 69,
70 (Tex.1988).

Southern Union seeks to distinguish such cases by urging that, even if it is normally reasonable to
award liquidated damages in an amount that is double the actual damages, this ratio is unreasonable
in a case where the amount at issue involves millions rather than thousands of dollars, as here.

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Southern Union Co. v. CSG Systems, Inc., Not Reported in S.W.3d (2005)
2005 WL 171349

Again, while no cases support Southern Union's claim, there is authority to the contrary. In a case
involving high-end commercial real estate, the Fifth Circuit held that a liquidated damages award
of $5 million was reasonable, despite an internal memorandum stating that the anticipated damages
were $1.4 million.Thanksgiving Tower Partners v. Anros Thanksgiving Partners, 64 F.3d 227,
232 (5th Cir.1995). Thus, as a matter of law, it is not unreasonable per se to award liquidated
damages in an amount that is double the actual damages. Moreover, in this case, the reasonableness
of CSG's award is supported by the record.

The discontinuance fee expressly states that it “is not a penalty” and that it “is a reasonable
estimation of the actual damages which CSG would suffer if CSG were to fail to receive the
amount of processing business as contemplated by this Agreement.”Although parties cannot
avoid a challenge to a liquidated damages provision simply by characterizing it as “reasonable,”
such express language is instructive of the parties' intent when the terms are mutually bargained
for between equally competent parties. See Shel-al Corp., 492 F.2d at 94; Loggins Constr. Co.
v. Stephen F. Austin State Univ. Bd. of Regents, 543 S.W.2d 682, 685 (Tex.App.-Tyler 1976,
writ ref'd). Southern Union's own witnesses testified that the language of the discontinuance fee
provision was bargained for and intended by the parties, and that the amount awarded under the
discontinuance fee was reasonable. In response to questions on cross-examination, Stanley Mayer
agreed that the provision was mutually negotiated, that he approved its terms, and that he knew
Southern Union would be responsible for paying the fee if it breached the contract. When David
Kvapil was asked whether he was aware at the time Southern Union filed suit against CSG “that
the calculation of the discontinuance fee would be approximately $2 million,” he responded that,
“Yeah. I think that's what it calculates to.”Kvapil further agreed that Southern Union understood
the purpose of the discontinuance fee was “to compensate CSG for all the work they have done
and all their expectation” and that this was “fair.”

 *7 The jury was asked to determine what amount would be “fair and reasonable” to award CSG
pursuant to the discontinuance fee, and it responded “$2.1 million.” A jury's findings on damages
should be upheld if there is sufficient evidence in the record to show that the amount is fair and
reasonable compensation. Dillard Dep't Stores, Inc. v. Silva, 148 S.W.3d 370, 371 (Tex.2004).
Here, the jury was entitled to make this finding based on both the express language of the contract
and on the testimony of Southern Union's witnesses. We find that this is sufficient evidence from
which the jury could determine that it was reasonable to award CSG $2.1 million in liquidated
damages. Southern Union's second issue is overruled.


Prejudgment Interest
Southern Union urges in its third issue that, regardless of whether CSG is awarded lost profits or
the discontinuance fee, CSG is not entitled to recover prejudgment interest on either award because
both encompass elements of future damages, and section 304.1045 of the finance code, as amended
in 2004, specifically prohibits recovery of prejudgment interest on awards of future damages.

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Southern Union Co. v. CSG Systems, Inc., Not Reported in S.W.3d (2005)
2005 WL 171349

Tex. Fin.Code Ann. § 304.1045 (West Supp.2004-05). CSG counters that the finance code does
not prevent prejudgment interest in this case because, by its express terms, the provision only
applies to cases involving “wrongful death, personal injury, or property damage.”Tex. Fin.Code
Ann. §§ 304.101, .1045 (West 1998 & Supp.2004-05). Southern Union asserts in response that,
despite its express terms, section 304.1045 prevents prejudgment interest here based on the Texas
Supreme Court's holding that the statutory framework should be applied to all cases, not just those
involving “wrongful death, personal injury, and property damage.”Johnson & Higgins of Tex.,
Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 514, 530 (Tex.1998). CSG argues, however, that
even if section 304.1045 prevents prejudgment interest on future damages in a breach-of-contract
case, it is still proper for CSG to recover prejudgment interest on the amount awarded as the
discontinuance fee because it is an award of liquidated, not future, damages. We review the trial
court's award of prejudgment interest for an abuse of discretion. Purcell Const., Inc. v. Welch, 17
S.W.3d 398, 402 (Tex.App.-Houston [1st Dist.] 2000, no pet.).

Southern Union and CSG agree that the discontinuance fee was intended to be a liquidated
damages provision. Liquidated damages are given in lieu of actual damages and thus they are not
considered “future damages,” even though aspects of the liquidated award may compensate the
party for what would have otherwise been recovered as future losses. See Lafarge Corp. v. Wolff,
Inc., 977 S.W.2d 181, 188 n. 13 (Tex.App.-Austin 1998, pet. denied); Eberts v. Businesspeople
Personnel Servs., Inc., 620 S.W.2d 861, 864-65 (Tex.App.-Dallas 1981, no writ). Liquidated
damages are distinct from future damages because the measure of liquidated damages is stipulated
to before the occurrence of a breach and thus, unlike future damages, the amount of liquidated
damages can be immediately ascertained at the time of the breach. See Phillips, 820 S.W.2d at
788. It is permissible for a trial court to award prejudgment interest when a contract “provides the
conditions on which liability depends and ... fixes a measure by which the sum payable can be
ascertained with reasonable certainty.”Wheat v. American Title Ins. Co., 751 S.W.2d 943, 944-45
(Tex.App.-Houston [1st Dist.] 1988, no writ); see also Sealock, 755 S.W.2d. at 70 (upholding
award of prejudgment interest on liquidated damages); Perry Roofing Co. v. Olcott, 744 S.W.2d
929, 932 (Tex.1988) (Wallace, J., dissenting) (“The Legislature has given contracting parties
notice that if they enter into and subsequently breach agreements in which damages are liquidated
or otherwise ascertainable, they may be held liable for prejudgment interest. Parties to contracts
have always had this corresponding obligation and right....”).

 *8 We decline to reach the issue of whether the finance code prevents recovery of prejudgment
interest on future damages in a breach-of-contract case because we agree with CSG's argument
that liquidated damages are distinct from future damages and, as such, section 304.1045 does not
prohibit the recovery of prejudgment interest on liquidated damages. The trial court therefore did
not abuse its discretion in awarding prejudgment interest to CSG on the $2.1 million it recovered
pursuant to the discontinuance fee.




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Southern Union Co. v. CSG Systems, Inc., Not Reported in S.W.3d (2005)
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Remittitur
In its final issue, Southern Union asserts that the judgment should be modified to remit $140,000
of CSG's damages. The jury expressly stated in the verdict that if Southern Union returned the
software licenses provided to it by CSG, then CSG would be entitled to zero damages for the
licenses. It is undisputed that Southern Union returned the licenses. The trial court awarded CSG
$140,000 for the licenses, over Southern Union's objection. CSG does not oppose a remittitur of
$140,000. Southern Union's fourth issue is sustained and we modify the judgment accordingly. In
all other respects, the trial court's judgment is affirmed.



Justice KIDD not participating.


Footnotes
1    At the time, Southern Union had a contract with Pitney Bowes for that company to package the mailings after Southern Union
       processed and printed them, but that contract was set to expire in December 2001.
2      The provision refers to Southern Union as “Customer.”

3      Schedule C states that, within the first year of the contract, the “minimums begin ninety (90) days ... following the initiation date of
       services (‘Commencement Date’)....” The contract defines the commencement date as “the first day of the calendar month in which
       the Services commence.”Schedule D discusses “services” as including a list of activities related to the printing, inserting and mailing
       of customer bills in a specified carrier envelope, during specified billing cycles.
4      CSG agrees that the commencement date had not yet occurred at the time of Southern Union's breach.


End of Document                                                           © 2015 Thomson Reuters. No claim to original U.S. Government Works.




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Southern Union Co. v. CSG Systems, Inc., Not Reported in S.W.3d



    History (1)

    Direct History (1)
     1. Southern Union Co. v. CSG Systems, Inc.
     2005 WL 171349 , Tex.App.-Austin , Jan. 27, 2005 , rule 53.7(f) motion granted ( Mar
     14, 2005 )




           © 2015 Thomson Reuters. No claim to original U.S. Government Works.              11
State v. Margolis, 439 S.W.2d 695 (1969)




                                             439 S.W.2d 695
                                      Court of Civil Appeals of Texas.
                                                  Austin.

                                     The STATE of Texas, Appellant,
                                                  v.
                                  Harry W. MARGOLIS et al., Appellees.

            No. 11654.        |   March 26, 1969.    |   Rehearing Denied April 16, 1969.

Suit seeking a declaration that plaintiffs, by operating a merchandising conception designed to
avoid restraints of a penal statute making it unlawful for any person to sell certain goods on both
Saturday and Sunday, did not violate state statutes prohibiting monopolies, trusts or conspiracies in
restraint of trade. The 167 District Court of Travis County, Herman Jones, P.J., entered declaratory
judgment in favor of plaintiffs, and state appealed. The Court of Civil Appeals, O'Quinn, J., held
that plaintiffs failed to establish a justiciable controversy between themselves and the state, thus
precluding (on ground an unlawful advisory opinion was being requested) judicial consideration
of the suit, where no evidence was introduced of a bona fide threat by the state to proceed against
plaintiffs in accordance with the aforementioned statutes.

Cause dismissed for want of jurisdiction.


Attorneys and Law Firms

*696 Crawford C. Martin, Atty. Gen., Nola White, First Asst. Atty. Gen., A. J. Carubbi, Jr., Exec.
Asst. Atty. Gen., J. C. Davis, W. O. Shultz, Pat Bailey, Asst. Attys. Gen., Austin, for appellant.

*697 Berman & Fichtner, Harold B. Berman, Dallas, for appellees.

Opinion

O'QUINN, Justice.

Appellees sought and obtained a declaratory judgment in district court holding that they did
not violate State statutes, prohibiting monopolies, trusts, or conspiracies in restraint of trade, by
operating a merchandising conception designed to avoid the restraints of a penal statute making
it unlawful for any person to sell certain goods on both of the two consecutive days of Saturday
and Sunday.




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State v. Margolis, 439 S.W.2d 695 (1969)




The State of Texas, defendant below, has appealed from this judgment and contends that appellees
are engaged in a monopoly or trust that fixes, maintains, affects, or controls prices and that their
activity tends to lessen competition. The State also urges that the statute under which this suit was
brought for a declaratory judgment violates provisions of the State Constitution forbidding the
rendition of advisory opinions by the courts.

Appellees are individuals and corporations engaged in an arrangement under which Sundaco, Inc.,
a retail store entity organized for the purpose of making the arrangement, is open for business only
on Sundays, and the other appellee corporations are open only on Mondays through Saturdays.
The purpose of this system of merchandising is to avoid violation of Article 286a, Vernon's Ann .
Texas Penal Code, which makes unlawful the sale by any person of certain goods on both Saturday
and Sunday. The plan operates by means of contracts under which Sundaco each Saturday night
acquires from the other appellee corporations all merchandise in their stores and, after conducting
business through Sunday, returns the stores to the corporations that operate the remaining days of
the week. Profits made on Sunday are divided between Sundaco and the other corporations.

Appellees brought suit for declaratory judgment under Section 15.12 of the Texas Business and
Commerce Code, V.T.C.A. which purports to authorize suit when petitioner is ‘* * * uncertain
of whether or not his action Or proposed action violates or Will violate the prohibition contained
in Section 15.04 of this code * * *’ (Emphasis supplied). Section 15.04 of the code prohibits all
monopolies, trusts, and conspiracies in restraint of trade and declares such combinations illegal.
 [1] We have decided that because there is absent from the record any showing that a presently
justiciable controversy exists between the State and the appellees, any judgment under the record
would be an advisory opinion the courts are not authorized to render. We do not reach the State's
points of error as to price control and lessening competition, and will notice only briefly the point
under which validity of Section 15.12 is challenged. We will order the cause dismissed.


Appellees alleged the following with regard to the existence of a presenty justiciable controversy:
         ‘The Defendant, The State of Texas, acting under its Attorney General and/
         or District Attorney of Tarrant County, Texas, and other Counties in which a
         corporate Plaintiff has operations, has contended that the actions and/or proposed
         actions of all of the Plaintiffs, their agents and employees, violate or will violate the
         prohibitions contained in Section 15.04 of the Business and Commerce Code. It is
         contended by said Defendant that said actions or proposed actions of the Plaintiffs,
         their employees and agents, constitute a monopoly, trust, and/or conspiracy in
         restraint of trade, as defined in Section 15.01, 15.02, and 15.03, of the Business
         and Commerce Code. That by reason of said actions and/or proposed actions, the
         Plaintiffs are subject to the civil and criminal penalties provided for in Section
         15.29 through Section 15.33 of the Business and Commerce Code. Further, said


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State v. Margolis, 439 S.W.2d 695 (1969)



         Defendant has indicated its intention to *698 proceed against the Plaintiffs
         pursuant to said penalty provisions of said Code, which has given rise to a bona
         fide controversy and created justiciable issues which the Court has authority to
         determine.’


At the trial no evidence was introduced and none was offered by appellees to prove any of the
allegations set out above. If the State had ‘indicated its intention to proceed against the plaintiffs'
and invoke the penalty provisions of the code, as appellees alleged in their petition, such intention
is not reflected in the record. The State filed an answer to the petition, specially denying numerous
allegations, and generally denied each and every allegation in the petition. The State by its answer
did not seek penalties, nor did the State pray for injunctive relief to restrain appellees. The State's
answer was in all respects purely defensive.
 [2] [3] The State's general denial put appellees in the position of having to prove every material
fact of their cause of action. Boswell v. Handley, 397 S.W.2d 213 (Tex.1965). The burden was
upon appellees to establish that the trial court had authority to entertain the suit by proving that
a justiciable controversy existed. Reuter v. Cordes-Hendreks Coiffures, Inc., 422 S.W.2d 193
(Tex.Civ.App., 1967, Houston (14th Dist.), no writ).

 [4] [5] [6] Section 15.12, in which it is provided that a person ‘* * * uncertain of whether or not
his action or proposed action violates or will violate * * *’ Section 15.04 of the code is authorized
to file suit against the state for declaratory judgment, cannot confer upon the courts power to render
an advisory opinion to the person who is ‘uncertain’ as to the legality of his actions or proposed
actions. Even in declaratory actions, the courts may render opinions only if there exists a justiciable
controversy between the parties. California Products, Inc. v. Puretex Lemon Juice, Inc., 160 Tex.
586, 334 S.W.2d 780 (1960); Lee v. Calvert, 356 S.W.2d 840 (Tex.Civ.App., 1962, Austin, writ
ref. n.r.e.). It is the duty of the court to decide whether a justiciable controversy exists. Ainsworth
v. Oil City Brass Works, 271 S.W.2d 754 (Tex.Civ.App., 1954, Beaumont, no writ).

 [7] The Supreme Court recently declared, ‘In the absence of a constitutional provision authorizing
the Texas courts to render advisory opinions, such power does not exist and may not be conferred
by agreement of the parties.’ Firemen's Insurance Company of Newark, New Jersey v. Burch, 12
Tex.Sup.Ct.Jour. 49 (October 11, 1968).


The State contends that Section 15.12 of the Business and Commerce Code is unconstitutional
in providing for declaratory judgments where there is a lack of justiciable controversy. ‘The
provisions of Section 15.12,’ the State argues, ‘which authorize the courts to consider the
prospective actions of an individual expressly negates the necessity of their (there) being a
justiciable controversy ripe for determination.’



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State v. Margolis, 439 S.W.2d 695 (1969)



 [8] [9] We agree with the State that insofar as Section 15.12 purports to empower courts to
pass on prospective actions, the statute contravenes the provisions of Section 1, Article II, of our
State Constitution, Vernon's Ann.St. prescribing separation of powers. The courts of this State,
because of this provision of the Constitution, are prohibited from rendering advisory opinions and
the power may not be conferred by the Legislature. Morrow v. Corbin, 122 Tex. 553, 62 S.W.2d
641, 646 (1933).


Appellees argue in response to the State's contention, that the State's ‘* * * argument is made
* * * after ten continuous months of litigation before the trial court, both in pretrial procedures
and in trial and post trial procedures, after a trial of approximately three and a half days, filling
approximately four hundred and forty-five pages of a statement of facts and after the preparation
of a brief * * *’ in this Court. ‘The justiciable *699 controversy,’ appellees say, ‘between the
appellant had the appellees is obvious from the record before this Court.’

We do not agree with appellees that a justiciable controversy, required to be pleaded and proved,
is obvious from the record. As we have observed, appellees alleged in their petition, as a basis
for showing a justiciable controversy, that the State ‘the indicated its intention to proceed against
the Plaintiffs pursuant to said penalty provisions of said Code, which has given rise to a bona fide
controversy and created justiciable issues which the Court has authority to determine.’

It is obvious from the record that appellees filed their petition seeking advice from the courts
because they were ‘uncertain of whether or not (their) action or proposed action’ in carrying on
the Sundaco scheme ‘violates or will violate’ Section 15.04 prohibiting monopolies, trusts, and
conspiracies in restraint of trade. Even if all but the prospective aspects of Section 15.12 are valid,
and we do not decide that question, the suit for declaratory judgment will not lie unless proof is
made of a bona fide threat of interference by the State invoking the anti-trust laws.

Discretion rests with the Attorney General as to whether anti-trust suits will be brought by the State
to interdict the Sundaco operations and invoke penalties. The record is devoid of any showing
that appellees had been ordered to discontinue their operations. There is no evidence of a threat
to interfere with Sundaco activities as a violation of Section 15.04. No threat of interference by
the State with the rights of appellees appears beyond that implied by the existence of the statute
and the State's answer defending against the petition for declaratory judgment. Appellees may not
compel the Attorney General to exercise his discretion by filing suit for declaratory judgment.

The power of courts to pass upon the ‘uncertainty’ appellees have with regard to their actions will
arise only when the interest of appellees require the use of judicial authority for their protection
against actual interference. A threat that is only hypothetical is not enough. United Public Workers
v. Mitchell, 330 U.S. 75, 67 S.Ct . 556, 91 L.Ed. 754 (1947). In Hitchcock v. Kloman, 196 Md.
351, 76 A.2d 582 (1950) the Court of Appeals of Maryland refused to entertain suit for declaratory


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State v. Margolis, 439 S.W.2d 695 (1969)



judgment in the absence of a threat to interfere with activities of petitioner, although the attorney
general had delivered opinions that similar activities came within the state statute petitioner asked
the court to construe. There it was held that mere existence of the statute did not pose such a threat
as to present a justiciable controversy.

In the absence of proof that there existed a justiciable controversy, the courts are without
jurisdiction. For the reasons we have stated, this cause is dismissed for want of jurisdiction.

Dismissed for want of jurisdiction.

End of Document                                         © 2015 Thomson Reuters. No claim to original U.S. Government Works.




              © 2015 Thomson Reuters. No claim to original U.S. Government Works.                                        5
State v. Margolis, 439 S.W.2d 695



    History (1)

    Direct History (1)
     1. State v. Margolis
     439 S.W.2d 695 , Tex.Civ.App.-Austin , Mar. 26, 1969 , writ refused n.r.e. ( Jul 23,
     1969 )




            © 2015 Thomson Reuters. No claim to original U.S. Government Works.             6
Texas Ass'n of Business v. Texas Air Control Bd., 852 S.W.2d 440 (1993)




                                            852 S.W.2d 440
                                         Supreme Court of Texas.

                  TEXAS ASSOCIATION OF BUSINESS, Appellant,
                                    v.
         TEXAS AIR CONTROL BOARD and Texas Water Commission, Appellees.

           No. C–9556.        |    March 3, 1993.        |   Rehearing Overruled May 5, 1993.

Business association sought declaratory judgment that statutes authorizing administrative agencies
to assess fines for violation of environmental laws are unconstitutional. The 250th District Court,
Travis County, upheld statutes, and direct appeal was taken. The Supreme Court, Cornyn, J., held
that: (1) statutes authorizing Air Control Board and Water Commission to assess fines prior to
judicial review violate open courts guarantee of Texas Constitution, but (2) statutes do not violate
constitutional right to jury trial.

Affirmed in part and reversed in part.

Doggett, Gammage, and Spector, JJ., concurred, dissented, and filed opinions.


Attorneys and Law Firms

*441 R. Kinnan Golemon, James W. Checkley, Jr., Albert R. Axe, Jr., Scott R. Kidd and Douglas
W. Alexander, Austin, for appellant.

Douglas G. Caroom, Mary E. Kelly, Dan Morales, Nancy N. Lynch, William D. Dugat, III and
Amy R. Johnson, Austin, for appellees.



                                                   OPINION

CORNYN, Justice.

The Texas Association of Business (TAB), on behalf of its members, brought this declaratory
judgment action seeking a ruling that statutes empowering two state administrative agencies to
levy civil penalties for violations of their regulations conflict with the open courts and jury trial
provisions of the Texas Constitution. The administrative agencies denied TAB's claims, and along
with two Intervenors, 1 filed counterclaims seeking a declaration *442 that the same statutes and
regulations comport with those constitutional provisions.


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Texas Ass'n of Business v. Texas Air Control Bd., 852 S.W.2d 440 (1993)




Following a bench trial, the trial court denied the relief sought by TAB, and as requested by the
State and Intervenors, declared that section 4.041 of the Texas Clean Air Act, sections 26.136 and
27.1015 of the Texas Water Code, and section 8b of the Texas Solid Waste Disposal Act, as well
as the rules and regulations promulgated under those statutes, are constitutional with regard to the
open courts and jury trial provisions. We affirm the trial court's judgment as it relates to TAB's
jury trial challenge and reverse its judgment as to TAB's open courts challenge.

An overview of the regulatory scheme enacted by the legislature and these agencies is essential to
an understanding of this case. In 1967, the Texas Legislature enacted the Clean Air Act of Texas.
Clean Air Act of Texas, 60th Leg., R.S., ch. 727, 1967 Tex.Gen.Laws 1941. The Clean Air Act was
designed to safeguard the state's air resources without compromising the economic development
of the state. Id. at § 1. The Act created the Texas Air Control Board and granted it the authority
to promulgate regulations to accomplish the Act's goals. Id. at § 4(A)(2)(a). In the event the Air
Control Board determined that a violation of its regulations had occurred, it was authorized to
enforce those regulations in district court. Upon a judicial determination that a violation of the
Air Control Board's regulations had occurred, two cumulative remedies were available, injunctive
relief to prohibit further violations and assessment of a fine ranging from $50 to $1,000 for each
day the violations persisted. Id. at § 12(B).

In 1969, the Texas Legislature enacted the Solid Waste Disposal Act. Solid Waste Disposal Act,
61st Leg., R.S., ch. 405, 1969 Tex.Gen.Laws 1320. The express purpose for this legislation was
to protect public health and welfare by regulating the “collection, handling, storage, and disposal
of solid waste.” Id. at § 1. The Texas Water Quality Board was designated the primary agency to
effectuate the Disposal Act's purpose. Id. at § 4(f). Like the Air Control Board, the Water Quality
Board was authorized to enforce its rules and regulations in state district court. The Solid Waste
Disposal Act provided the same remedies as the Clean Air Act. See id. at § 8(c).

In the last of the relevant statutory enactments, in 1969, the Texas Legislature promulgated a
revised version of the Water Quality Act. Water Quality Act—Revision, 61st Leg., R.S., ch. 760,
1969 Tex.Gen.Laws 2229. By that Act, the Water Quality Board was given the power to develop
a statewide water quality plan, to perform research and investigations, and to adopt rules and
issue orders necessary to effectuate the Act's purposes. Id. at § 3.01–3.10. The Water Quality Act
provided the same remedies as the Solid Waste Management Act and the Clean Air Act. See id.
at § 4.02.

Originally, neither the Water Quality Board nor the Air Control Board had the power to levy civil
penalties directly in the event it determined that its regulations or orders had been violated. Instead,
each board was required first to file suit against the violator in district court. Only the district court
had the power to assess civil penalties.


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Texas Ass'n of Business v. Texas Air Control Bd., 852 S.W.2d 440 (1993)




The legislature substantially changed this enforcement scheme in 1985. That year the Air Control
Board and the Water Commission (formerly the Water Control Board) were granted the power
to assess civil penalties directly of up to $10,000 per day per violation. 2 Both administrative
bodies also retained the option to pursue civil penalties in district court. *443 TEX.HEALTH
& SAFETY CODE §§ 361.224, 382.081; TEX.WATER CODE § 26.123. This was the regulatory
scheme in effect when the district court rendered judgment in this case. 3

After the Air Control Board or Water Commission assesses a penalty, the offender must either
timely pay the penalty or file suit in district court. However, a supersedeas bond or cash deposit
paid into an escrow account, in the full amount of the penalty, is a prerequisite to judicial review.
TEX.HEALTH & SAFETY CODE §§ 382.089(a), (b), 361.252(k), (l ); TEX.WATER CODE
§ 26.136(j). A party who fails to make a cash deposit or file a bond forfeits all rights to judicial
review. TEX.HEALTH & SAFETY CODE §§ 361.252(m), 382.089(c); TEX.WATER CODE §
26.136(k).

TAB alleges that it is a Texas not-for-profit corporation, that its members do business throughout
Texas, and that it is authorized to represent its members on any matter that may have an impact
on their businesses.

TAB filed this suit under the Uniform Declaratory Judgments Act, TEX.CIV.PRAC. &
REM.CODE §§ 37.001–37.011, alleging that some of its members had been subjected to civil
penalties assessed by either the Air Control Board or the Water Commission. TAB further alleged
that all of its other members that operate their businesses pursuant to the pertinent provisions of
the Texas Clean Air Act, the Texas Water Code, or the Texas Solid Waste Disposal Act or any
rules or orders issued pursuant to those provisions were put at “substantial risk (if not certainty)”
of being assessed civil penalties by the Air Control Board or the Water Commission. Thus this
suit does not challenge specific instances of the Air Control Board's or the Water Commission's
exercise, or threatened exercise, of the civil penalty power. Instead, TAB's suit is a facial challenge
to the constitutionality of this administrative enforcement scheme under the Texas Constitution.

The Defendants and Intervenors counterclaimed seeking a declaratory judgment that the statutes,
rules, and regulations challenged by TAB do not, on their face, conflict with the open courts and
jury trial provisions of our constitution. The trial court granted the Defendants' and Intervenors'
requested declaratory judgment and denied TAB's request for a declaratory judgment. The court
also denied TAB's request for injunctive relief.

TAB appealed directly to this court. See TEX.GOV'T CODE § 22.001(c); 4 TEX.R.APP.P. 140.
In this court, TAB has limited its challenges to claims of unconstitutional denial of a jury trial and
violation of our constitution's open courts provision.

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Texas Ass'n of Business v. Texas Air Control Bd., 852 S.W.2d 440 (1993)




                                                   I. Standing

Before we reach the merits of this case, we first consider the matter of the trial court's jurisdiction,
as well as our own; specifically we determine whether TAB has standing to challenge the statutes
and regulations in question. Because TAB's standing to bring this action is not readily apparent,
and because our jurisdiction as well as that of the trial court depends on this issue, we requested
supplemental briefing on standing at the oral argument of this case. In response, the parties insist
that any question of standing has been waived in the trial court and cannot be raised by the court
for the first time on appeal. We disagree.

 [1] Subject matter jurisdiction is essential to the authority of a court to decide a case. Standing
is implicit in the concept of subject matter jurisdiction. The standing requirement stems from two
limitations on subject matter jurisdiction: the separation of powers doctrine and, in Texas, the open
courts provision. Subject matter jurisdiction *444 is never presumed and cannot be waived. 5

 [2] [3] One limit on courts' jurisdiction under both the state and federal constitutions is the
separation of powers doctrine. See TEX.CONST. art. II, § 1; Valley Forge Christian College v.
Americans United for Separation of Church and State, 454 U.S. 464, 471–74, 102 S.Ct. 752, 757–
60, 70 L.Ed.2d 700 (1982); Warth v. Seldin, 422 U.S. 490, 498, 95 S.Ct. 2197, 2204, 45 L.Ed.2d
343 (1975); see also, Antonin Scalia, The Doctrine of Standing as an Essential Element of the
Separation of Powers, 18 SUFFOLK U.L.Rev. 881, 889 n. 69 (1983) (noting that the dicta of
Flast v. Cohen, 392 U.S. 83, 100, 88 S.Ct. 1942, 1952, 20 L.Ed.2d 947 (1968), suggesting that
standing is unrelated to the separation of powers doctrine has since been disavowed). Under this
doctrine, governmental authority vested in one department of government cannot be exercised by
another department unless expressly permitted by the constitution. Thus we have construed our
separation of powers article to prohibit courts from issuing advisory opinions because such is the
function of the executive rather than the judicial department. 6 Firemen's Ins. Co. v. Burch, 442
S.W.2d 331, 333 (Tex.1969); Morrow v. Corbin, 122 Tex. 553, 62 S.W.2d 641, 644 (Tex.1933).
Accordingly, we have interpreted the Uniform Declaratory Judgments Act, TEX.CIV.PRAC. &
REM.CODE §§ 37.001–.011, to be merely a procedural device for deciding cases already within a
court's jurisdiction rather than a legislative enlargement of a court's power, permitting the rendition
of advisory opinions. Firemen's Ins. Co., 442 S.W.2d at 333; United Serv. Life Ins. Co. v. Delaney,
396 S.W.2d 855, 863 (Tex.1965); California Prods., Inc. v. Puretex Lemon Juice, Inc., 160 Tex.
586, 334 S.W.2d 780 (1960).

[4] [5] The distinctive feature of an advisory opinion is that it decides an abstract question of law
without binding the parties. Alabama State Fed'n of Labor v. McAdory, 325 U.S. 450, 461, 65 S.Ct.
1384, 1389, 89 L.Ed. 1725 (1945); Firemen's Ins. Co., 442 S.W.2d at 333; Puretex Lemon Juice,

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Texas Ass'n of Business v. Texas Air Control Bd., 852 S.W.2d 440 (1993)



Inc., 160 Tex. at 591, 334 S.W.2d at 783. An opinion issued in a case brought by a party without
standing is advisory because rather than remedying an actual or imminent harm, the judgment
addresses only a hypothetical injury. See Allen v. Wright, 468 U.S. 737, 751, 104 S.Ct. 3315,
3324, 82 L.Ed.2d 556 (1984). Texas courts, like federal courts, have no jurisdiction to render such
opinions.

 [6] The separation of powers doctrine is not the only constitutional basis for standing. Under
federal law, standing is also an aspect of the Article III limitation of the judicial power to “cases”
and “controversies.” Sierra Club v. Morton, 405 U.S. 727, 731, 92 S.Ct. 1361, 1364, 31 L.Ed.2d
636 (1972). To comport with Article III, a federal court may hear a case only when the litigant has
been threatened with or has sustained an injury. Valley Forge Christian College, 454 U.S. at 471,
102 S.Ct. at 758. Under the Texas Constitution, standing is implicit in the open courts provision,
which contemplates access to the courts only for those litigants suffering an injury. Specifically,
the open courts provision provides:

            All courts shall be open, and every person for an injury done him, in his lands,
            goods, person or reputation, shall have remedy by due course of law.

TEX. CONST. art. I, § 13 (emphasis added). Because standing is a constitutional prerequisite to
maintaining a suit under both federal and Texas law, we look to the more extensive jurisprudential
experience of the federal courts on this subject for any guidance it may yield.

Under federal law, a lack of standing deprives a court of subject matter jurisdiction because
standing is an element of such *445 jurisdiction. Carr v. Alta Verde Indus., 931 F.2d 1055, 1061
(5th Cir.1991); Simmons v. Interstate Commerce Comm'n, 900 F.2d 1023, 1026 (7th Cir.1990);
M.A.I.N. v. Commissioner, Maine Dept. of Human Serv., 876 F.2d 1051, 1053 (1st Cir.1989);
Haase v. Sessions, 835 F.2d 902, 908 (D.C.Cir.1987); Page v. Schweiker, 786 F.2d 150, 153 (3d
Cir.1986); see also Lujan v. Defenders of Wildlife, 504 U.S. 555, 112 S.Ct. 2130, 119 L.Ed.2d 351
(1992); Heckler v. Mathews, 465 U.S. 728, 737, 104 S.Ct. 1387, 1394, 79 L.Ed.2d 646 (1984);
Warth, 422 U.S. at 511, 95 S.Ct. at 2211. Other states have followed this analysis in construing
their own constitutions. 7 See e.g., Prudential–Bache Sec., Inc. v. Commissioner of Revenue, 412
Mass. 243, 588 N.E.2d 639, 642 (1992); Bennett v. Board of Trustees for Univ. of N. Colorado, 782
P.2d 1214, 1216 (Colo.App.1989), cert. denied, 797 P.2d 748 (Colo.1990); Pace Constr. Co. v.
Missouri Highway and Transp. Comm'n, 759 S.W.2d 272, 274 (Mo.App.1988); Terracor v. Utah
Bd. of State Lands & Forestry, 716 P.2d 796, 798–99 (Utah 1986); State by McClure v. Sports and
Health Club, Inc., 370 N.W.2d 844, 850 (Minn.1985), appeal dism'd, 478 U.S. 1015, 106 S.Ct.
3315, 92 L.Ed.2d 730 (1986); Smith v. Allstate Ins. Co., 483 A.2d 344, 346 (Me.1984); Ardmare
Constr. Co. v. Freedman, 191 Conn. 497, 467 A.2d 674, 675 n. 4, 676–77 (1983); Horn v. County
of Ventura, 24 Cal.3d 605, 156 Cal.Rptr. 718, 726, 596 P.2d 1134, 1142 (1979); Stewart v. Board
of County Comm'rs of Big Horn County, 175 Mont. 197, 573 P.2d 184, 186, 188 (1977); State ex
rel. Albritton v. Moore, 238 La. 728, 116 So.2d 502, 504 (1959).

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Texas Ass'n of Business v. Texas Air Control Bd., 852 S.W.2d 440 (1993)




 [7] Subject matter jurisdiction is an issue that may be raised for the first time on appeal; it
may not be waived by the parties. Texas Employment Comm'n v. International Union of Elec.,
Radio and Mach. Workers, Local Union No. 782, 163 Tex. 135, 352 S.W.2d 252, 253 (1961);
RESTATEMENT (SECOND) OF JUDGMENTS § 11, comment c (1982). This court recently
reiterated that axiom in Gorman v. Life Insurance Co., 811 S.W.2d 542, 547 (Tex.), cert. denied,
502 U.S. 824, 112 S.Ct. 88, 116 L.Ed.2d 60 (1991). Because we conclude that standing is a
component of subject matter jurisdiction, it cannot be waived and may be raised for the first time
on appeal. 8

 [8] If we were to conclude that standing is unreviewable on appeal at least three undesirable
consequences could result. First and foremost, appellate courts would be impotent to prevent lower
courts from exceeding their constitutional and statutory limits of authority. Second, appellate
courts could not arrest collusive suits. Third, by operation of the doctrines of res judicata and
collateral estoppel, judgments rendered in suits addressing only hypothetical injuries could bar
relitigation of issues by a litigant who eventually suffers an actual injury. We therefore hold that
standing, as a component of subject matter *446 jurisdiction, cannot be waived in this or any
other case and may be raised for the first time on appeal by the parties or by the court.

We are aware that this holding conflicts with Texas Industrial Traffic League v. Railroad
Commission, 633 S.W.2d 821, 823 (Tex.1982) (per curiam). 9 The analysis that leads us to the
conclusion we reach here, however, compels us to overrule Texas Industrial Traffic League and
disapprove of all cases relying on it to the extent that they conflict with this opinion. 10 Although
our concern for the rule of stare decisis makes us hesitant to overrule any case, when constitutional
principles are at issue this court as a practical matter is the only government institution with the
power and duty to correct such errors. See Payne v. Tennessee, 501 U.S. 808, –––– – ––––, 111
S.Ct. 2597, 2609–11, 115 L.Ed.2d 720 (1991) (observing that reexamination of constitutional
decisions is appropriate when “correction through legislative action is practically impossible”).

Consequently, we proceed to determine here, on our own motion, whether TAB has standing to
bring this suit.

 [9] [10] Because standing is a component of subject matter jurisdiction, we consider TAB's
standing under the same standard by which we review subject matter jurisdiction generally. That
standard requires the pleader to allege facts that affirmatively demonstrate the court's jurisdiction
to hear the cause. Richardson v. First Nat'l Life Ins. Co., 419 S.W.2d 836, 839 (Tex.1967). When
reviewing a trial court order dismissing a cause for want of jurisdiction, Texas appellate courts
“construe the pleadings in favor of the plaintiff and look to the pleader's intent.” Huston v. Federal
Deposit Ins. Corp., 663 S.W.2d 126, 129 (Tex.App.—Eastland 1983, writ ref'd n.r.e. 1984); see



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also W. Wendell Hall, Standards of Appellate Review in Civil Appeals, 21 ST. MARY'S L.J. 865,
870 (1990).

 [11] Here, however, we are not reviewing a trial court order of dismissal for want of jurisdiction,
we are considering standing for the first time on appeal. A review of only the pleadings to
determine subject matter jurisdiction is sufficient in the trial court because a litigant has a right to
amend to attempt to cure pleading defects if jurisdictional facts are not alleged. See TEX.R.CIV.P.
80. Failing that, the suit is dismissed. When an appellate court questions jurisdiction on appeal
for the first time, however, there is no opportunity to cure the defect. Therefore, when a Texas
appellate court reviews the standing of a party sua sponte, it must construe the petition in favor of
the party, and if necessary, review the entire record to determine if any evidence supports standing.

 [12] TAB asserts standing on behalf of its members. The general test for standing in Texas
requires that there “(a) shall be a real controversy between the parties, which (b) will be actually
determined by the judicial declaration sought.” Board of Water Engineers v. City of San Antonio,
155 Tex. 111, 114, 283 S.W.2d 722, 724 (1955). Texas, however, has no particular test for
determining the standing of an organization, such as TAB. See e.g., *447 Touchy v. Houston
Legal Found., 432 S.W.2d 690, 694 (Tex.1968); Texas Highway Comm'n v. Texas Ass'n of Steel
Importers, Inc., 372 S.W.2d 525, 530–31 (Tex.1963). While we agree with the statement of the
general test for standing set out in Board of Water Engineers, we foresee difficulties in relying on
it alone to determine the standing of an organization like TAB. For instance, when members of an
organization have individual standing, but the organization was not established for the purpose of
protecting the particular interest at issue, it is not necessarily in the members' best interest to allow
such a disinterested organization to sue on their behalf. Furthermore, an organization should not
be allowed to sue on behalf of its members when the claim asserted requires the participation of
the members individually rather than as an association, such as when the members seek to recover
money damages and the amount of damages varies with each member.

 [13] The United States Supreme Court has articulated a standard for associational standing that
lends itself to our use. We adopt that test today. In Hunt v. Washington State Apple Advertising
Commission, the Court held that an association has standing to sue on behalf of its members when
“(a) its members would otherwise have standing to sue in their own right; (b) the interests it seeks
to protect are germane to the organization's purpose; and (c) neither the claim asserted nor the
relief requested requires the participation of individual members in the lawsuit.” 432 U.S. 333,
343, 97 S.Ct. 2434, 2441, 53 L.Ed.2d 383 (1977); see also New York State Club Ass'n v. City of
New York, 487 U.S. 1, 9, 108 S.Ct. 2225, 2231, 101 L.Ed.2d 1 (1988); International Union, United
Auto., Aerospace and Agric. Implement Workers of Am. v. Brock, 477 U.S. 274, 282, 106 S.Ct.
2523, 2528, 91 L.Ed.2d 228 (1986). This standard incorporates the standing analysis we adopted
in Board of Water Engineers, yet addresses the additional concerns we have noted.




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 [14] We now apply the Hunt standard to the case before us. Reviewing the record in its entirety
for evidence supporting subject matter jurisdiction, and resolving any doubt in TAB's favor, we
conclude that TAB has standing to pursue the relief it seeks in this case.

The first prong of the Hunt test requires that TAB's pleadings and the rest of the record demonstrate
that TAB's members have standing to sue in their own behalf. This requirement should not be
interpreted to impose unreasonable obstacles to associational representation. In this regard the
United States Supreme Court stated that “the purpose of the first part of the Hunt test is simply to
weed out plaintiffs who try to bring cases, which could not otherwise be brought, by manufacturing
allegations of standing that lack any real foundation.” New York State Club Ass'n, 487 U.S. at 9,
108 S.Ct. at 2232. We are satisfied that TAB has not manufactured this lawsuit. A comparison of
the association's membership roster with the list of businesses subjected to state penalties indicates
individual TAB members have been assessed administrative penalties pursuant to the challenged
enactments. Additionally, TAB has alleged that other of its members remain at substantial risk of
penalty. A substantial risk of injury is sufficient under Hunt. See e.g., Pennell v. City of San Jose,
485 U.S. 1, 7 n. 3, 108 S.Ct. 849, 855 n. 3, 99 L.Ed.2d 1 (1988) (concluding that association of
landlords had standing based on pleadings that individual members would likely be harmed by
rent ordinance). Thus TAB satisfies the first prong of the Hunt test.

The second prong of Hunt requires that TAB's pleadings and the rest of the record demonstrate
that the interests TAB seeks to protect are germane to the organization's purpose. TAB was
chartered to “represent the interests of its members on issues which may impact upon its members'
businesses.” Considering a very similar question in New York State Club Association, the United
States Supreme Court held that: “[T]he associational interests that the consortium seeks to protect
are germane to its purpose: appellant's certificate of incorporation states that its purpose is ‘to
promote the common business interests of its *448 [member clubs].’ ” 487 U.S. at 10 n. 4, 108
S.Ct. at 2232, n. 4 (bracketed language in original). Likewise, the interests TAB desires to protect
are germane to the organization's purpose, and thus the second prong is met.

Under the third and final prong of the Hunt test, TAB's pleadings and the record must demonstrate
that neither the claim asserted nor the relief requested require the participation of individual
members in the lawsuit. The Supreme Court has interpreted this prong as follows:

            [W]hether an association has standing to invoke the court's remedial powers on
            behalf of its members depends in substantial measure on the nature of the relief
            sought. If in a proper case the association seeks a declaration, injunction, or
            some other form of prospective relief, it can reasonably be supposed that the
            remedy, if granted, will inure to the benefit of those members of the association
            actually injured.

Hunt, 432 U.S. at 343, 97 S.Ct. at 2441 (quoting Warth, 422 U.S. at 515, 95 S.Ct. at 2213).


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By seeking damages on behalf of its members, necessitating that each individual prove lost profits
particular to its operations, the organization in Warth lacked standing to sue; rather, each individual
member had to be a party to the suit. These facts are distinguishable from Brock, in which the
union challenged an administrative interpretation of statutory provisions relating to unemployment
compensation. 477 U.S. 274, 106 S.Ct. 2523. Recognizing that the suit raised “a pure question of
law,” and that “the individual circumstances” of any aggrieved member were not in issue, the Court
held that the UAW had standing to challenge the government's actions. Id. at 287–88, 290, 106
S.Ct. at 2531–32, 2533; see also Pennell, 485 U.S. at 7 n. 3, 108 S.Ct. at 855 n. 3 (facial challenge
to rent ordinance does not require participation of individual landlords). Here, TAB seeks only
prospective relief, raises only issues of law, and need not prove the individual circumstances of
its members to obtain that relief, thus meeting the third prong of Hunt.

Having found that TAB meets all three prongs of the Hunt test, we conclude that TAB has standing
to pursue the relief it seeks in this case.



                                                II. Open Courts

TAB contends that the forfeiture provisions of the statutes and regulations in question violate the
open courts provision of the Texas Constitution by unreasonably restricting access to the courts.
After the agency has found a party to be in violation of any of these statutes and regulations, the
offender must either tender a cash deposit or post a supersedeas bond in the full amount of the
penalties assessed, or forfeit the right to judicial review. 11

Historically, we have recognized at least three separate constitutional guarantees emanating
from our open courts provision. First, courts must actually be open and operating, so that, for
example, the legislature must place every county within a judicial district. Runge & Co. v.
Wyatt, 25 Tex.Supp. 294 (1860). Second, citizens must have access to those courts unimpeded by
unreasonable financial barriers, so that the legislature cannot impose a litigation tax in the form
of increased filing fees to enhance the state's general revenue, LeCroy v. Hanlon, 713 S.W.2d
335, 342 (Tex.1986). Finally, meaningful legal remedies must be afforded to our citizens, so
that the legislature may not abrogate the right to assert a well-established common law cause of
action unless the reason for its action outweighs the litigants' constitutional right of redress. Sax
v. Votteler, 648 S.W.2d 661, 665–66 (Tex.1983).

[15] Here the second guarantee is applicable. This is not a question of the abrogation of any
well-established common law *449 cause of action, 12 just as it is not a question of the physical
absence of a court to which a complaint may be brought. The issue before us is access to the
courts. In previous cases involving this issue, we did not predicate our decision on whether the

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party whose access had been restricted was attempting to assert a common law cause of action. In
LeCroy, for example, the court did not permit increased filing fees for statutory causes of action
while denying them for common law claims. 713 S.W.2d 335. Likewise in Dillingham v. Putnam,
when the court struck down a statute requiring a supersedeas bond as a condition of appeal, the
court did not concern itself with whether the particular appeal being restricted involved a common
law or statutory claim. 109 Tex. 1, 14 S.W. 303 (1890). Similarly, in the present case, the issue is
simply whether the prepayment requirement is an unreasonable financial barrier to access to the
courts in light of the state interest involved.

The stated purpose of the regulatory statutes at issue here is to protect our state's natural
resources. 13 There is no question that this is an important state interest. 14 The state argues that
the prepayment provisions further this interest by increasing the deterrent effect of the penalties
and by aiding in their collection. The state maintains that a violator will be less deterred by an
administrative penalty if it can delay payment without bond while appealing the case in the courts.
The state also argues that delay may render the penalty uncollectible, as the violator may become
insolvent.

In considering these rationales, we note that the prepayment provisions actually consist of two
elements. First, the assessed penalty must be paid, or financial security provided, within thirty
days; enforcement is not stayed pending any period of judicial review. 15 Second, if payment is
not made or financial security provided within the thirty-day period, the right to judicial review
is forfeited. We agree that the rationales advanced by the state justify the first of these elements.
Requiring expeditious payment of the administrative penalties increases their effectiveness. The
legislature, however, could have imposed the first element without the second. It could have
provided the agency with the right to collection of assessed penalties unless a supersedeas bond
is posted, yet provided for judicial review. The requirement of immediate payment, without the
corresponding forfeiture provision, would not have implicated the open courts provision, as the
charged party could have obtained judicial review regardless of payment. This approach would
have been in accordance with the usual procedure governing appeals of trial court judgments.
See TEX.R.APP.P. 40. Any litigant may appeal without superseding the trial court's judgment,
but the mere pendency of an appeal does not stay enforcement of the judgment. 16 *450 Our
specific focus for purposes of our open courts analysis, therefore, is not whether the requirement
of immediate payment is reasonable, but whether the forfeiture of the right of judicial review, if
the penalties are not superseded, is reasonable.

We conclude that the forfeiture provision is an unreasonable restriction on access to the courts.
While the requirement of prepayment or the posting of a bond to stay enforcement furthers the
state's important environmental interests by creating a strong incentive for timely payment of
the assessed penalties, the forfeiture provision serves no additional interest. 17 The state may


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accomplish its goals by enforcing the prepayment requirements without infringing on a party's
right to its day in court. Accordingly, we hold that forfeiture sections of the statutes and regulations
at issue facially violate our open courts provision. 18



                                                 III. Jury Trial

TAB also claims that the statutes empowering these agencies to assess civil penalties violate the
right to a jury trial guaranteed by the Texas Constitution. 19 We disagree.

Article I, section 15 of our constitution 20 preserves a right to trial by jury for those actions, or
analogous actions, tried to a jury at the time the constitution of 1876 was adopted. E.g., State v.
Credit Bureau of Laredo, 530 S.W.2d 288, 291 (Tex.1975); White v. White, 108 Tex. 570, 196
S.W. 508 (1917); Hatten v. City of Houston, 373 S.W.2d 525 (Tex.Civ.App.—Houston 1963, writ
ref'd n.r.e.); Hickman v. Smith, 238 S.W.2d 838 (Tex.Civ.App.—Austin 1951, writ ref'd). A jury
trial is not mandated by this provision for any other judicial proceeding. Id.

 [16] In Credit Bureau, we concluded that a suit for civil penalties for violation of an injunction
issued pursuant to the Texas Deceptive Trade Practices Act was analogous to the common law
action for debt, tried to a jury at the time our constitution was adopted. 530 S.W.2d at 293.
Thus, we held that the right to a jury trial for that action remained inviolate. Id. We observed
in Credit Bureau, however, that in certain types of adversary proceedings the constitutional
right to a jury trial does not attach. Among the proceedings we referred to are appeals from
administrative decisions. 21 Id. (citing State v. De Silva, 105 Tex. 95, 145 S.W. 330 (1912),
and *451 Texas Liquor Control Bd. v. Jones, 112 S.W.2d 227 (Tex.Civ.App.—Houston 1937,
writ ref'd n.r.e.)). Consistent with this noted exception in Credit Bureau, we conclude that these
agencies' assessments of environmental penalties are not actions, or analogous actions, to those
tried to a jury at the time the constitution of 1876 was adopted. To hold that these environmental
statutes and regulations promulgated in the late 1960s merely parrot common law and statutory
rights triable to a jury in 1876 would turn a blind eye to the emergence of the modern administrative
state and its profound impact on our legal and social order. In the late 19th century, ours was
primarily a sparsely-populated agrarian society. See generally, T.R. Fehrenbach, Lone Star: A
History of Texas and the Texans, 279–324 (1983). By contrast, concentrated industrial activity and
its by-products, including the wide-spread emission of pollutants, with their resulting potential for
significant damage to our natural resources are phenomena of relatively recent origin. In response
to such phenomena, regulatory schemes, such as those challenged here, were designed to balance
mounting environmental concerns with our state's economic vitality. In 1876 no governmental
schemes akin to these existed. 22 Thus, we conclude that the contested proceedings are not
analogous to any action tried to a jury in 1876. Accordingly, we hold that no right to a jury


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trial attaches to appeals from administrative adjudications under the environmental statutes and
regulations at issue here. 23

We should not be misunderstood to say that the legislature may abrogate the right to trial by
jury in any case by delegating duties to an administrative agency. Here, we simply reaffirm what
this court held almost a half century ago, in Corzelius v. Harrell, 143 Tex. 509, 186 S.W.2d
961 (1945). In Corzelius, we concluded that certain judicial functions, including fact finding,
may be delegated constitutionally by the legislature to administrative agencies in furtherance of
the preservation and conservation of the state's natural resources. The decision in Corzelius was
based on article XVI, section 59(a) of our constitution, which provides in relevant part: “The
conservation and development of all the natural resources of this State ... and the preservation and
conservation of all such natural resources ... are each and all ... public rights and duties; and the
Legislature shall pass all such laws as may be appropriate thereto.” TEX. CONST. art. XVI, §
59(a). “By the use of the broad language used in Article XVI, Section 59(a),” the court stated, “the
Legislature is authorized to enact such laws as are necessary to carry out the purposes for which
such constitutional amendment was adopted.” Corzelius, 186 S.W.2d at 964. 24

 [17] There is no doubt that the legislature delegated the power to assess these civil penalties
to the Air Control Board and the Water Commission as a manifestation of the public's interest
in preserving and conserving the state's air and water resources. That intent is apparent from the
policy statements of the relevant statutes. 25 *452 We conclude, therefore, that the delegation of
the fact-finding function by the legislature to the Air Control Board and the Water Commission
under this statutory scheme was within the legislature's constitutional authority.

Of course, the fact that no jury trial is provided by the legislature to an alleged violator of these
environmental protection laws does not mean that the agencies' power to assess penalties is
unbridled. 26 The Air Control Board and the Water Commission may act only within constitutional
and statutory parameters.

For the reasons set out above, we reverse that portion of the trial court's judgment declaring that
section 4.041 of the Texas Clean Air Act, sections 26.136 and 27.1015 of the Texas Water Code,
and section 8b of the Texas Solid Waste Disposal Act and the rules and regulations promulgated
under those statutes comport with the open courts provision of our constitution, article I, section 13.
We declare that the requirement of a supersedeas bond or cash deposit paid into an escrow account
as a prerequisite to judicial review under TEX.HEALTH & SAFETY CODE §§ 361.252(m)
(first clause), 382.089(c) (first sentence), and TEX.WATER CODE § 26.136(k) (first sentence)
is unconstitutional. We affirm that portion of the trial court's judgment declaring that the listed
statutes, rules, and regulations do not violate the jury trial provision of our constitution, article
I, section 15.


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Concurring and dissenting opinions by DOGGETT, GAMMAGE and SPECTOR, JJ.

HIGHTOWER, J., not sitting.

DOGGETT, Justice, concurring and dissenting.


                                          “Don't Mess With Texas”

—A motto that captures the Texas spirit.

Texans understand the directive “Don't Mess With Texas”; the majority does not. If the mess is
big enough, if the stench is strong enough, no matter how great the danger to public health and
safety, an industrial litterer can “mess” with Texas without fear of immediate punishment or legally
effective citizen action.

And what an occasion for permitting polluters to “mess” with Texas air and water. Our state tops
the nation in total toxic emissions and ranks dead last among the fifty states in important measures
of environmental quality. 1 Although last in air *453 and water cleanliness, Texas today becomes
the first state to strike down the imposition of penalties by administrative agencies to enforce
statutes protecting the environment. I dissent from today's manipulation of the law to paralyze anti-
pollution efforts, tragically announced at a time when protecting the quality of the air we breathe
and the water we drink is so critical.

Today's opinion delivers a double whammy to protection of our natural resources. Polluters are
first shielded from swift punishment for harming our environment, and then the courthouse door
is slammed shut in the face of Texans who organize to object. Incredibly, this second punch was
not even sought by the corporate organization that brought this challenge; it was wholly designed
by the majority during the three years that this cause has lingered in this court. Announced today is
an easily manipulable “friends in, foes out” rule to prevent further actions by those who organize
to protect taxpayers, consumers or the environment.

Through its broad writing designed to eviscerate administrative enforcement of our state's
environmental laws, the majority has also created significant new uncertainties for a wide range
of state governmental activity—tax collection is imperiled, laws to protect nursing home residents
are effectively voided, and even a leading weapon in the war on drugs is threatened. At a time
of budgetary crisis exacerbated by the majority's great misadventure in public school finance, 2
today's opinion raises a substantial question of whether the State will be required to return to those


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who despoil Texas millions of dollars in administrative penalties collected during the almost eight
years this case has wandered through the judicial system.

This major blow to our environment is matched only by the threat to our system of justice
lurking in the arcane language of today's opinion. Hidden within its lengthy legal mumbo-jumbo
is an unprecedented blow to our jury system. The constitutional right of trial by jury, already
suffering at the hands of this majority, is no longer inviolate; it may be abrogated at any time.
Instead of walking into a courthouse, where a jury is guaranteed, citizens may be detoured to
an administrative agency, to explain their problems to bureaucrats not directly answerable to the
community.

Today precedent and tradition have been trampled as the majority's long-standing fear of ordinary
people in our legal system has taken firm hold. The drafters of our Texas Constitution realized
something that the majority has long ceased to appreciate—ordinary Texans can make an
extraordinary contribution to our system of justice. The more their collective voice expressed in
a jury verdict is disregarded, the more new barriers are contrived to shut them out of our system
of justice, the less justice that system will offer.



                                                I. Open Courts

The ability of state agencies to enforce environmental laws through the assessment of
administrative penalties is declared unconstitutional by the majority as contradicting our state
guarantee of open courts. While concluding that TAB certainly has a right to judicial review on
behalf of its members, I disagree that the statutory restrictions it challenges unreasonably restrict
access to the courts.

Access to the courts is unquestionably a fundamental constitutional and common law right. Article
I, section 13 of the Texas Constitution forms the nucleus of this protection:

             *454 The open courts provision specifically guarantees all litigants the right to
            redress their grievances—to use a popular and correct phrase, the right to their
            day in court. This right is a substantial state constitutional right.

LeCroy v. Hanlon, 713 S.W.2d 335, 341 (Tex.1986) (citations omitted). This court has a long
history of assuring that the right of access remains guaranteed to Texas citizens. 3

In Sax v. Votteler, 648 S.W.2d 661 (Tex.1983), we required a litigant alleging an unconstitutional
denial of access to the courts to show that: (1) a cognizable common law cause of action is being
restricted and (2) the limitation is unreasonable or arbitrary when balanced against the purpose


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and basis of the statute. The majority today appropriately eliminates the first showing in certain
cases. In some circumstances the distinction between common law and statutory causes of action
clearly does not affect whether access to the courts has been denied.

The second part of the Sax test, however, continues to be applied in all open courts cases. 4 Thus,
in determining whether the open courts provision of the Texas Constitution is violated by the
requirement that administrative penalties be paid as a prerequisite to judicial review, we must
balance two competing interests: the right of TAB's members to access to the courts and the state's
concern with effective and timely enforcement of its laws protecting the environment. The majority
today restates in rather vague terms this second prong: “whether the prepayment requirement is
an unreasonable financial barrier to access to the courts in light of the state interest involved.” 852
S.W.2d at 449. As we held in LeCroy:


   Because a substantial right is involved, the legislature cannot arbitrarily or unreasonably
   interfere with a litigant's right of access to the courts. Thus, the general open courts provision
   test balances the legislature's actual purpose in enacting the law against that law's interference
   with the individual's right of access to the courts. The government has the burden to show that
   the legislative purpose outweighs the interference with the individual's right of access.
   713 S.W.2d at 341 (citations omitted; emphasis supplied).
Applying this test, we have permitted certain restrictions on access to the courts, while disallowing
others. Compare LeCroy, 713 S.W.2d at 341 (court filing fee unreasonably restricts access to
judicial system), and Dillingham v. Putnam, 109 Tex. 1, 14 S.W. 303 (1890) (supersedeas bond
as prerequisite to appeal, without regard to ability to pay, unconstitutional), with Clanton v.
Clark, 639 S.W.2d 929 (Tex.1982) (court may constitutionally dismiss suit for failure to timely
file cost bond), and Federal Crude Oil Co. v. Yount–Lee Oil Co., 122 Tex. 21, 52 S.W.2d 56
(1932) (requirement that franchise taxes be paid prior to filing suit upheld under article I, § 13);
compare Lucas v. United States, 757 S.W.2d 687 (Tex.1988) (limitations on damages for medical
malpractice unconstitutional), with Rose v. Doctors Hosp., 801 S.W.2d 841 (Tex.1990) (same
limitations upheld under open courts provision in wrongful death cases). I favor a more complete
and predictable open courts analysis designed to discourage such anomalous results.

 *455 Today's implementation of the second prong of the Sax test demonstrates its malleability.
After perfunctorily reciting the purpose of administrative penalties, the majority, without any
further analysis, concludes that: “the forfeiture provision is an unreasonable restriction on access to
the courts,” 852 S.W.2d at 450, and “the forfeiture provision serves no additional [state] interest.”
Id. at 450. Enacted by the Legislature as an important means of enforcing our state's environmental
laws, these penalties are today judicially extinguished. The majority determines that these laudable
legislative objectives are not sufficiently “important” to justify the possibility that the use of
penalties may perhaps someday impose some slight financial strain on some hypothetical polluter.


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Whether examined under either the vague test employed today or my more exacting formulation,
the majority's conclusory analysis suffers from at least three major flaws: (1) a failure to recognize
the compelling interest, grounded in our state constitution, served by administrative penalties,
including prepayment provisions; (2) a disregard of the extensive statutory constraints on penalty
usage which represents the least restrictive means to achieve this purpose; and (3) an assumption
that the prepayment provision interferes with individual access to the courts unsupported by even
a single specific instance of such a restrictive effect.

The balancing required by Sax mandates careful consideration of the rights being affected. The
more significant the right the litigant asserts, the more onerous the government's burden becomes.
TAB has asserted a right to judicial review of penalties imposed against its members. This interest
is encompassed within the right of access to the courts, which we declared a “substantial state
constitutional right.” LeCroy, 713 S.W.2d at 341.

The State has met its burden by demonstrating a compelling interest in employing administrative
penalties reflected in constitutionally-guaranteed protection of our state's natural resources.
Although not critical in overcoming an open courts challenge, a constitutional predicate for the
state's interest is a highly persuasive factor in the balancing process. As declared in article XVI,
section 59(a) 5 :


  [T]he preservation and conservation of all ... natural resources of the State are each and all
  declared public rights and duties; and the Legislature shall pass all laws as may be appropriate
  thereto.
  This very mandate of the people, as well as protection of the public health and safety was
   effectuated in the Clean Air Act, 6 the Texas Water Code, 7 and the Solid Waste Disposal Act, 8
   including the right to assess administrative penalties. Protection of Texas' air, water and land
   is undeniably a compelling interest.
 *456 The form of these particular administrative penalties has certainly been fashioned to serve
this important state interest through the least restrictive means. Penalty usage is substantially
limited and can in no way be said to be arbitrarily imposed. All three statutes at issue require
that, once a violation is established, the agency assessing a penalty must consider such factors as
the seriousness of the violation, including but not limited to the nature, circumstance, extent, and
gravity of the prohibited acts; the hazard or potential hazard created to the public health or safety
of the public; the history of previous violation; the amount necessary to deter future violations; and
efforts to correct the violation. 9 There is thus statutory assurance that the amount of any resulting
penalties will be directly related to the conduct.




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Requiring that assessed penalties be paid, or a bond in the same amount be posted, prior to
challenging the agency action in court is not unreasonable under these circumstances. Unlike the
filing fee held violative of the open courts provision in LeCroy, the legislative purpose is not to
raise money by making it more expensive for citizens to enforce their legal rights. Instead, the
legislative objective is to deter and punish violations of the law that pose an environmental threat.

The wheels of justice grind slowly, with final resolution often years in reaching. Indeed, in
this court they sometimes hardly grind at all. Clearly those willing to profit from polluting our
natural resources will not hesitate to employ the delays in the judicial system to their advantage.
A declaration of bankruptcy by a perhaps deliberately undercapitalized corporation during the
pendency of a suit is likely to relieve the polluter of any responsibility to remedy the damage it
has caused.

Showing no awareness of the purpose of and need for administrative penalties, the majority finds
that “expeditious payment” is adequately guaranteed by the ability of the agency, through the
attorney general, to initiate an enforcement action to collect the amount assessed. 852 S.W.2d at
449 & n. 15. In other words, the purpose of immediate deterrence of violation of environmental
laws is ensured by the filing of a lawsuit that may take as many years to resolve as this case
has. These agencies charged with protecting our natural resources have long had the ability to
bring an enforcement action in state court. See Tex.Water Code § 26.123; Tex.Health & Safety
Code § 382.081; id. § 361.224. The effort of the Texas Legislature to improve the effectiveness
of enforcement through the use of administrative penalties is today rendered a nullity.

Given the time and expense that must be devoted to pursuing an enforcement action in court, the
State will have the capability to proceed against only the most egregious wrongs. The vast majority
of administrative penalties to date have been relatively small, reflecting technical yet important
statutory violations. 10 In the absence of an administrative penalty power, most of these would
have gone unpunished, even though collectively the environmental impact of small violations
could be more profound than a major catastrophe. Relieving polluters from immediate sanctions
dismantles the effectiveness of our laws protecting natural resources; no lesser means has been
identified that provides for prompt enforcement. I would hold that the state has demonstrated a
compelling interest in environmental protection that has been implemented by the least restrictive
means, thus overriding any modest impediment that the prepayment of penalties may impose on
access to the courts.

 *457 Not even the slightest evidence has been provided to this court to suggest any actual
restrictive effect. No affidavit of any member of the Texas Association of Business appears in
the record stating that an inability to pay an administrative penalty has barred judicial review. As
to most of the penalties assessed, $5,000 or less in amount, it is doubtful that such a contention
could be made. The majority necessarily concludes that imposing fines of $2,000 against Exxon


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Chemical Company, Shell Oil Company and Union Carbide Corporation has left those entities
financially unable to pursue an appeal. 11 While the enormity of some future penalty could in
fact unconstitutionally bar judicial access, that is certainly not the case here. See Jensen v. State
Tax Comm'n, 835 P.2d 965, 969 (Utah 1992) (payment of assessed taxes, penalties and interest as
precondition to suit “not unconstitutional in all cases,” but only those in which taxpayer financially
barred from prosecuting appeal); see also Morrison v. Chan, 699 S.W.2d 205, 207 (Tex.1985)
(medical malpractice statute of limitations not unconstitutional as applied to facts of case).

Eliminating the need to prove actual restrictive effect, the majority declares “irrelevant” that “the
affected parties may be able to afford prepayment.” 852 S.W.2d at 450 n. 18. Unexplained is how
this statement can be reconciled with Dillingham, in which this court found of critical importance
the failure to accommodate those financially unable to post a supersedeas bond as a prerequisite
to judicial review. Opining that “the guarantee of constitutional rights should not depend on the
balance in one's bank account,” id., the majority would accord our state's largest businesses the
same treatment as indigents in avoiding financial responsibility for court and other litigation costs.

Nor is the majority restrained by Texas decisional law validating similar requirements. We long
ago upheld against this same type of challenge the condition that a corporation pay its franchise
taxes in order to file a court action. Federal Crude Oil Co. v. Yount–Lee Oil Co., 122 Tex. 21,
52 S.W.2d 56 (1932); accord Rimco Enterprises, Inc. v. Texas Elec. Svc. Co., 599 S.W.2d 362
(Tex.Civ.App.—Fort Worth 1980, writ ref'd n.r.e.). Various statutory requirements that taxes,
penalties and interest be paid prior to contesting them in court have likewise sustained an open
courts challenge. See Filmstrips and Slides, Inc. v. Dallas Central Appraisal Dist., 806 S.W.2d
289 (Tex.App.—Dallas 1991, no writ) (property taxes); Robinson v. Bullock, 553 S.W.2d 196
(Tex.Civ.App.—Austin 1977, writ ref'd n.r.e.), cert. denied, 436 U.S. 918, 98 S.Ct. 2264, 56
L.Ed.2d 759 (1978) (sales taxes).

The majority also ignores the certainty that far more than three statutes are impacted by today's
decision. A broad range of regulatory enforcement programs vital to protection of the public health
and safety will be stripped of their most timely and effective sanctions to deter harmful conduct.
Laws designed to protect the old—residents in nursing homes 12 —the young—our children away
at camp 13 —the sick and the injured, 14 and those we have lost 15 will be substantially weakened.
Others, ensuring the sanitariness of food, drugs and cosmetics, 16 as well as the slaughter and
*458 disposition of dead animals, 17 will be similarly rendered less effective. 18 Even where such
penalties have not been frequently enforced, their potential use may promote law enforcement.

The most widespread damage, however, from today's decision will be in the enforcement of
laws protecting our environment, where the Legislature has determined again and again that such
penalties are the most effective means of assuring compliance and preventing pollution of our


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air, water and land. 19 The majority ensures that those who pollute will be brought to justice very
slowly or not at all.

Other statutes that impose administrative penalties permit the filing of an affidavit of inability to
pay in lieu of prepayment or the posting of a bond. 20 Because the majority's reasoning strikes
down administrative penalties without reference to financial ability, 852 S.W.2d at 451, these
statutes similarly cannot be enforced.

Today's writing poses a potentially crippling effect for collection of taxes. All of our state statutes
in this area require that assessed taxes, penalty and interest be prepaid before a suit challenging
them may be filed. See generally Tex.Tax Code §§ 112.051, 112.101. If such requirements are
unconstitutionally void even to fulfill a constitutional mandate of environmental protection, their
validity for tax collection is certainly subject to question. See R Communications, Inc. v. Sharp,
839 S.W.2d 947 (Tex.App.—Austin 1992, writ granted).

Nor has the majority sought to consider the consequences of its decision for a major weapon in the
war against drugs, forfeiting prior to judicial review money, vehicles and other property alleged to
have been used in violating our criminal laws. Tex.Crim.Proc.Code art. 59.02–.11. Most frequently
invoked to seize assets from drug dealers, such as money and cars that could finance their defense,
this statute provides for the return of property prior to trial only *459 on the posting of a bond
for the full value. Id. art. 59.02(b).

Procedures within our judicial system are also threatened. Why is not the requirement that
corporations and other organizations appear in court only through counsel a violation of the
open courts provision, since the cost of retaining an attorney in most cases exceeds the average
administrative penalty considered here?

Inadequately considered by the majority's opinion is its effect on the millions of dollars
in administrative penalties that have already been paid under the statutes now declared
unconstitutional. Yet, under the general rule that our decisions apply retroactively, past violators of
environmental laws may stand to reap a substantial windfall. 21 In the firm grasp of this majority,
“open courts” may have been rewritten to mean open coffers. While claiming that nothing in
today's writing suggests that a refund is required, the majority apparently once again concludes that
monies extracted by the state under the coercion of an unconstitutional system may be retained.
See Carrollton–Farmers Indep. Sch. Dist., 826 S.W.2d at 515–23 (holding tax unconstitutional,
but requiring taxpayers to continue payment for two years).

The majority today throws a large wrench into the workings of the important administrative
mechanism of our Texas government. By severely limiting enforcement powers, the majority
leaves law enforcers little choice but to forego prosecution of law violators. Our laws designed

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to protect and conserve our natural resources are substantially weakened at the time their strength
is most needed.



                                               II. Trial by Jury

The harm caused to our environment by today's writing is equalled only by the severe blow struck
against our fundamental right of trial by jury. In holding that TAB and its members have no right to
a jury trial, the majority employs an analysis that has far-reaching ramifications. While I recognize
the need to accommodate the evolution of the administrative state, the history of this important
guarantee mandates that only the narrowest of exceptions be permitted.

The ability of each individual to have a case heard by other members of the community is a vital
part of our heritage and law. Long ago, Texans emphasized the paramount importance of this
guarantee, stating in their grievances against the Mexican government:

            It has failed and refused to secure, on a firm basis, the right of trial by jury,
            that palladium of civil liberty, and only safe guarantee for the life, liberty, and
            property of the citizen.

The Declaration of Independence of the Republic of Texas (1836), reprinted in Tex.Const.app.
519, 520 (Vernon 1955). A strong guarantee of this right had been unsuccessfully sought in an
1833 draft constitution, 22 which was submitted to Mexico by Stephen F. Austin 23 and was later
incorporated in the 1836 Texas Independence Constitution. 24

The central role of the jury as a democratic institution was firmly recognized, indeed celebrated,
in our early jurisprudence by the Supreme Court of the Republic of Texas:

            The institution of jury trial has, perhaps, seldom or never been fully appreciated.
            It has been often eulogized in sounding *460 phrase, and often decried and
            derided. An occasional corrupt, or biased, or silly verdict is not enough for
            condemnation; and when it is said the institution interposes chances of justice
            and checks against venality and oppression, the measure of just praise is not
            filled. Its immeasurable benefits, like the perennial springs of the earth, flow
            from the fact that considerable portions of the communities at stated periods are
            called into the courts to sit as judges of contested facts, and under the ministry
            of the courts to apply the laws.... Let us then preserve and transmit this mode of
            trial not only inviolate, but if possible purified and perfected.

Bailey v. Haddy, Dallam 35, 40–41 (Tex.1841). 25


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In 1845, expanding the scope of this right was the subject of spirited debate in the deliberations
over the new constitution for statehood. In addition to the previous guarantee, which was carried
forward in a new Bill of Rights, 26 further protection was included in the Judiciary Article. Tex.
Const. art. IV, § 16 (1845). While under our national Constitution and those of almost all of our
sister states trial by jury is available only for those actions that could have been brought at common
law, the Texas Constitution since 1845 has also preserved that right in cases that historically would
have been brought in equity. Thus, even when a private party seeks injunctive relief that will
inure to the public's benefit, any derogation of the right to a jury nonetheless violates the Texas
Constitution.

Urging support of the additional Judiciary Article guarantee, Convention President Thomas Rusk
declared:

            It is a dangerous principle to trust too much power in the hands of one man.
            Would it not be better to trust a power of this nature in the hands of twelve men,
            than to confide it to the breast of one?

William F. Weeks, Debates of the Texas Convention 268 (1846). He was opposed by John
Hemphill, later the first Chief Justice of this court, who actually “preferred the civil law” system,
id. at 271–73, and Jefferson County delegate James Armstrong, who insisted the new section would
“operate very injuriously.” Id. at 270. He declared:

            It would be better, in my opinion, to leave it to the legislature to apply these
            things; it is enough for us to say in the constitution that the trial by jury shall be
            preserved inviolate. If we intend the jury to determine every thing, it would be
            better to dispense with the judge altogether, as a useless appendage of the court.

Id. Today it is this same fear of juries, fortunately rejected in 1845, that now unfortunately prevails.

The original language providing for trial by jury in the Judiciary Article of 1845 was retained
in later constitutions, Tex. Const. art. IV, § 16 (1861), Tex. Const. art. IV, § 20 (1866), but was
thereafter extended to “all cases of law or equity.” Tex. Const. art. V, § 16 (1869). It took its final
form in our present Constitution of 1876, which continues to afford not one but two assurances
on this vital subject:

            In the trial of all causes in the District Courts, the plaintiff or defendant shall,
            upon application made in open court, have the right to trial by jury....

Tex. Const. art. V, § 10.




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The right of trial by jury shall remain inviolate.
Tex. Const. art. I, § 15. Rather than keeping it “inviolate,” the majority today severely violates
this right.

 *461 Our heritage is now rejected by the majority in favor of a deliberately overbroad writing
that treats trial by jury as a mere anachronism. This is consistent with the majority's increasing
disfavor of decisionmaking by ordinary citizens composed as a jury. 27 Today's opinion insists that
our constitutional assurance of trial by jury does not offer protection against legislative delegation
of factfinding to an administrative bureaucracy. In essence, the majority engages in a massive
redistribution of power from the people to the bureaucratic arm of state government. This extreme
position is totally unjustified in view of the staunch legal and historical underpinnings of our
constitutional commitment to afford Texans a jury of their peers.

Today's opinion accurately describes one element of the dual constitutional protection for this
fundamental liberty:

            Article I, section 15 of our constitution preserves a right to trial by jury for those
            actions, or analogous actions, tried to a jury at the time the constitution of 1876
            was adopted.

852 S.W.2d at 450 (footnote omitted). Then the majority grossly misconstrues this standard while
making selective and misleading use of jurisprudence developed under the further guarantee of
article V.

With its hangnail sketch of Texas history limited to one historian's very generalized description
of Texas in the era “between 1835 and 1861”, 28 852 S.W.2d at 450, the majority ignores our
longstanding concerns regarding threats to our natural resources. As early as 1860, the Legislature
acted to penalize polluters, providing that:


  If any person ... shall in anywise pollute, or obstruct any water course, lake, pond, marsh or
  common sewer, or continue such obstruction or pollution so as to render the same unwholesome
  or offensive to the county, city, town or neighborhood thereabouts, or shall do any act or thing
  that would be deemed and held to be a nuisance at common law, shall be ... fined in any sum
  not exceeding five hundred dollars.... 29
In an early decision considering whether a criminal nuisance was posed by a tallow factory
near Galveston at which cattle were slaughtered and their carcasses and offal were allowed to
accumulate, this court stated:

            It requires no aid of the common law to convince any one accustomed to pure
            air, and who has been brought by accident or necessity within the sickening

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            and malarious influence of one of our modern tallow and beef factories, that
            it is a disgusting and nauseous nuisance, even for miles around it ... [those] so
            offending should be indicted and punished to the extent of the law.

Allen v. State, 34 Tex. 230, 233–34 (1871). How significantly has this court's once vigorous
enforcement of anti-pollution laws waned.

Defilement of the environment was not only made punishable as a crime, but also subject to a
common law action for nuisance. See generally Horace Wood, Wood's Law of Nuisances 501–
21, 576–692 (2d ed. 1883) (discussing nuisance recovery at common law for various forms of air
and water pollution). Such actions were regularly brought in Texas before 1876 to halt activities
harmful to our air and water. In 1856, this court recognized that “[w]hat constitutes a nuisance
is well defined.” 30 *462 Burditt v. Swenson, 17 Tex. 489 (1856). Considering an action to
enjoin operation of a livery stable on Congress Avenue in Austin because “manure and filth has
already accumulated to such an extent, that it now causes an unhealthy and disagreeable effluvia,
exceedingly offensive and prejudicial,” id. at 492, this court concluded such “noisome smells”
constituted a nuisance. Id. at 502–03. In City of Fort Worth v. Crawford, 74 Tex. 404, 12 S.W.
52, 54 (1889), an individual asserted that, because of the dumping of garbage, filth and bodies of
dead animals on city land,


  his home was rendered almost uninhabitable; his family and himself were kept in bad health;
  and he was, in the language of a witness, “a walking skeleton.”
  This court further observed that

               The stench was so offensive that he had to shut the doors to eat and
               sleep.... The testimony shows that the filth on this place of deposit was so
               indescribable, and was so offensive as to make persons sick, and could be
               perceived a mile away.

  Id. Affirming the judgment declaring the dump a common law nuisance, this court declared:

               There is also no doubt that every person has a right to have the air diffused
               over his premises free from noxious vapors and noisome smells....

  Id. 31
The majority's suggestion that “pollutants ... are phenomena of relatively recent origin,” 852
S.W.2d at 451, is contradicted by the nineteenth century legislative response of criminalizing
pollution and the common use of the common law of nuisance to fight soiling of the air and water.
With the ongoing construction of the railroads, the mining of coal and sulphur, the emergence
of industry and the nascence of our oil and gas industry, our state's natural resources were by


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no means pure and unthreatened in 1876. See James C. Cobb, Industrialization and Southern
Society 1877–1984, 128 (1984) (describing pollution relating to increased rail usage, lumbering
and urban sewage); see also Robert A. Calvert & Arnoldo De Leon, The History of Texas 186–191
(1990) (discussing the development of Texas industry in the late 1800's, including lumbering, beef
processing and mining); Louis J. Wortham, 5 A History of Texas (1924) (examining industrial
development in the nineteenth century). Only the scope and depth of the problem has changed.
But even if the fouling of the environment were a recent technological “innovation” of the past
century, that would be irrelevant. As I recently wrote in another context,

            The law is not irretrievably locked in the days before televisions and
            videocameras, nor limited to operators of telegraphs and horse-drawn carriages.

Boyles v. Kerr (Tex.1992) (Doggett, J., dissenting). There is nothing about technological change
that has made trial by jury any less vital. 32

But because there was no modern bureaucracy in 1876, the majority insists: “no governmental
schemes akin to these existed.” Id. at 451. While our laws and society have grown more
complicated, the mandate *463 of our constitution has not. As we concluded in State v. Credit
Bureau of Laredo, Inc., 530 S.W.2d 288, 292 (Tex.1975): “The right to a trial by jury is not
limited to the precise form of action ... at common law.” If there was an analogous cause of action
with a right to jury trial in 1876, then our article I jury trial guarantee requires it today. Yet the
majority ignores the fact that even the earliest of pollution statutes was designed to deter and punish
those who harm our environment. Our jury trial article is thus decreed as dependent on form, not
substance; not analogy, but exactitude. Under the majority's analysis, Credit Bureau was wrongly
decided since a regulatory prohibition against deceptive non-disclosure or ambiguous language
with the capacity to deceive was beyond the “deceptive acts” of common law fraud or deceit as
it existed in 1876.

Seizing upon the rather obvious proposition that the administrative state had not yet been created
in 1876, the majority concludes that there is no right to trial by jury in judicial review of an
administrative proceeding. But under article I it is the nature of the cause of action that controls,
not the procedures under which it is enforced. Each of the three statutes considered today defines
“pollution” of air, water or land to incorporate early nuisance concepts. Tex. Health & Safety
Code § 382.003(3) (contaminants that “are or may tend to be injurious to or to adversely affect
human health or welfare, animal life, vegetation or property [or] interferes with the normal use and
enjoyment of animal life, vegetation, or property”); id. § 361.003(44) ( “contamination of any land
land or surface or subsurface water in the state that renders the land or water harmful, detrimental,
or injurious to humans, animal life, vegetation”); Tex. Water Code § 26.001(13) (contamination
that “renders the water harmful, deterimental, or injurious to humans, animal life, vegetation, or
property”). The majority fails to examine these provisions and makes no attempt to distinguish
their substance from nuisance actions at the time the constitution was adopted. The focus must

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be on the nature of civil and criminal nuisance actions as they existed in 1876, not on whether
administrative agencies existed then to bring such actions. That the creation of some administrative
agency was not contemplated in 1876 does not mean that any type of factfinding transferred to that
agency in 1993 or hereafter is beyond the purview of a jury. With its new approach, the majority
is only clearing the way for a steady expansion of factfinding and decisionmaking by bureaucracy
at the expense of trial by jury.

Concluding that no common law action analogous to the assessment of administrative penalties
existed in 1876, the majority professes a superficial limit on its holding tied to article XVI, § 59(a)
of the Texas Constitution, as interpreted in Corzelius v. Harrell, 143 Tex. 509, 186 S.W.2d 961
(1945). 852 S.W.2d at 451 n. 24. Nothing in this provision affects the determination of whether a
nuisance action for pollution is analogous to an enforcement action for the same conduct. Clearly,
the majority's reasoning rests solely on the fact that no administrative agency was charged in
1876 with protecting the state's resources. Nor does Corzelius in any way address the right to jury
trial. Under the majority's asserted “narrow” holding, the right to trial by jury can be immediately
abrogated in any case in which natural resources are even remotely involved, including private
disputes that this court has held are subject to jury trial, such as those involving mineral ownership,
contract rights, or mineral lease terms. See, e.g., Amarillo Oil Co. v. Energy–Agri Prod., Inc., 794
S.W.2d 20, 26 (Tex.1990).

The constitutional limitation on legislative power to delegate away the people's right to trial by
jury was amply demonstrated by the writing of this court in White v. White, 108 Tex. 570, 196
S.W. 508 (1917). There a husband had his wife, who apparently did not contest that she was a
“lunatic,” committed to a state asylum. Commitment proceedings had been statutorily transferred
to a “commission” appointed by a county judge and comprised of six members, “as many of
[whom] shall be physicians as may be possible.” Act of *464 April 8, 1913, 33rd Leg., ch. 163,
art. 152, 1913 Tex.Gen.Laws 342. Although a review of decisions of other states and of federal
practice indicated substantial support for what appeared to be a quite reasonable legislative attempt
to entrust the determination of mental competency to the expertise of the medical profession, 196
S.W. at 514–15, this Court rightly concluded there that

            trial by jury means something more than a hearing before a commission....

Id. 196 S.W. at 511. Such “a hearing before a commission, in lieu of the time-honored trial by
jury, is invalid.” Id. 196 S.W. at 515. Moreover,

            [contrary] reasoning [in other jurisdictions] as to the right of the legislature to
            dispense with jury trials is not applicable to our judicial system and laws, and it
            is obnoxious to our [Texas] Constitution....”




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Id. I maintain that the wholesale transfer of authority for factfinding from juries to the bureaucracy
announced here is no less offensive to the rights our Constitution guarantees.

Beginning with the constitutional amendment that led to the creation of the Railroad
Commission, 33 the use of administrative agencies in Texas has steadily increased. Today this
arm of government implements broad legislative plans regulating many areas of public concern,
including the conduct of public utilities, the development and conservation of energy resources,
and the protection of the environment.

To preserve the workings of modern government, some exception for administrative proceedings
may be necessary, but it should be drawn narrowly so as not to encompass every conceivable
action that could arguably be assigned to some existing or future administrative body. And that
is precisely what, until today, our Texas courts have usually done. In two decisions concerning
administrative cancellation of a permit to sell liquor, courts narrowly recognized that no “cause
of action” was involved. The court in Bradley v. Texas Liquor Control Bd., 108 S.W.2d 300
(Tex.Civ.App.—Austin 1937, writ ref'd n.r.e.), specifically excluded from its ruling cases “based
upon a civil right of [an individual] to compensation.” Relying on Bradley, 34 the court in Texas
Liquor Control Bd. v. Jones, 112 S.W.2d 227, 229–30 (Tex.Civ.App.—Texarkana 1937, no writ),
noted that unlike other administrative proceedings that might involve rights of the same character
as a “cause of action,” the cancellation of a liquor license is a proceeding brought by the state
pursuant to its police power to protect the “welfare, health, peace ... and safety of the people of
Texas.”

This concern for “the safety of the people of Texas”—the rights and needs of the public, id., is not
dissimilar from the doctrine of “public rights” rather imperfectly employed by the federal courts.
State cancellation of a liquor license essentially represents a “public right.” In Atlas Roofing Co.
v. Occupational Safety & Health Review Comm'n, 430 U.S. 442, 97 S.Ct. 1261, 51 L.Ed.2d 464
(1977), the court distinguished between cases involving governmental action to protect the public
health and safety and those involving only private rights:

            At least in cases in which “public rights” are being litigated—e.g., cases in which
            the government sues in its sovereign capacity to enforce public rights created by
            statutes ... [the constitutional right to a jury trial] does not prohibit ... assign[ment
            of] the factfinding function to an administrative forum with which the jury would
            be incompatible.

Id. at 450, 97 S.Ct. at 1266.




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Bradley and Jones are also consistent with writings in other jurisdictions strictly excluding from
any administrative public rights exception actions invoking private *465 rights for which the
Constitution mandates a right to trial by jury:

            Although the award of general compensatory damages may have substantive
            effect, in that it deters violation of the regulatory scheme ... when the
            damages awarded advance a substantial private interest in remuneration that
            is disproportionate to the concept of public relief, the right to a jury trial is
            implicated and a jury is required.

McHugh v. Santa Monica Rent Control Bd., 49 Cal.3d 348, 261 Cal.Rptr. 318, 344, 777 P.2d
91, 117 (1989) (Panelli, J., concurring); Bishop Coal Co. v. Salyers, 181 W.Va. 71, 380 S.E.2d
238, 246 (1989) (subjective determinations of damages are constitutionally entrusted to juries);
Broward County v. La Rosa, 505 So.2d 422, 424 (Fla.1987) (constitutional right to jury precludes
administrative awards of unliquidated damages).

Fortunately the rights of Texans are not constrained by whether the right to a jury trial was
preserved in analogous actions in 1876. We have written quite clearly that an even broader right
to trial by jury is afforded under article V, section 10 than under article I, section 15. 35 State v.
Credit Bureau of Laredo, Inc., 530 S.W.2d 288, 292 (Tex.1975). Relying on Walsh v. Spencer,
275 S.W.2d 220, 223 (Tex.Civ.App.—San Antonio 1954, no writ), which described the “much
broader guarantee” of the Judiciary Article, and Tolle v. Tolle, 101 Tex. 33, 104 S.W. 1049, 1050
(1907), which said of the provision, “[l]anguage cannot be more comprehensive than this,” we
expressly disapproved of earlier cases “mistakenly” treating the two provisions


  as identical in meaning, that is, as protecting the right of trial by jury only as it existed at common
  law or by statutes in effect at the time of the adoption of the Constitution.
  530 S.W.2d at 292 (citing Hickman v. Smith, 238 S.W.2d 838 (Tex.Civ.App.—Austin 1951,
  writ ref'd), as improperly assigning the two provisions equivalent meaning). We held that the
  Judiciary Article affords a unique right to trial by jury even for causes of action unknown at the
   time of the Constitution's adoption. Id. 36
Instead of heeding this holding, the majority seizes upon a citation to a commentary in that writing
as an excuse to rewrite the Constitution. In the discussion of the article V jury trial guarantee in
Credit Bureau, which involved no administrative action, we noted a few “isolated” proceedings
that do not constitute a “cause” that have been identified on a “case-by-case determination.” Id.
at 293. We made shorthand reference to a commentator's brief list of exceptions carved from the
otherwise inviolate right to trial by jury. Id. (citing Whitney R. Harris, Jury Trial in Civil Cases—
A Problem in Constitutional Interpretation, 7 Sw.L.J. 1, 8 (1953) (listing child custody by habeas
corpus and adoption proceedings, election contests, and contempt proceedings)). Additionally,



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Harris relied upon Jones for the broader proposition that proceedings originally brought before
administrative agencies are excepted from constitutional jury rights. 7 Sw.L.J. at 12–13. 37

 *466 Today the majority overexpands this exception before considering the rule it prefers that
exception to swallow. In Credit Bureau we attributed “broad meaning [to] the word ‘cause.’ ” 530
S.W.2d at 292. In defining it, we did not limit its meaning in the past, but turned to a relatively
contemporary dictionary as well as older authority. Id. Clearly this term must adapt to modern
developments; our understanding of a “cause” is not frozen in 1876. See Davenport v. Garcia, 834
S.W.2d 4, 19 (Tex.1992). Both the text of our Constitution and its historical backdrop demand
that the right to trial by jury remain “inviolate.” When, as here, however, changing circumstances
require reexamination of the scope of this right in order to preserve the evolved workings of
government, we must ensure that any exception does not destroy the guarantee. 38 We should
instead follow the command of our Constitution in light of our contemporary situation, by limiting
any exception in the most narrow way possible without completely undermining the administrative
state.

I would accordingly clarify any existing exception for administrative proceedings to preserve
the right to trial by jury in all suits except those in which the state is enforcing a regulation
or statute protecting the public. If construed too broadly, however, even this exception limited
to “public rights” could destroy our traditional reliance on the jury system. 39 Indeed, despite
the writing in Atlas Roofing, such erosion has already begun at the federal level. 40 Properly
limited, however, a “public rights” administrative exception to the right to trial by jury is both
constitutionally sound and easy to apply. While perhaps far-reaching in other contexts, “public
rights” that conflict with the right of each member of the public to have factual disputes resolved
by a public jury must be narrowly construed. I would not permit the concept of “public rights”
to be perverted to deny such a fundamental right. In this limited circumstance, I would define
proceedings involving “public rights” as those in which the government, as a real party in interest,
enforces a regulatory or statutory scheme. Contrary to the majority, I do not suggest that we follow
its standard preference for copying a “federal test,” 852 S.W.2d at 451 n. 24. Rather, I recommend
a narrow and clear Texas standard that looks to Texas law predating Atlas Roofing, and which
learns from the misapplication of this doctrine in the federal courts.

Here TAB's members are not entitled to a jury trial because the state is enforcing public regulations
by imposing administrative penalties. Although this action is analogous to a common law nuisance
claim, here the state is protecting the public's right to a clean environment rather than an *467
individual's use and enjoyment of private property.

The right to trial by jury is a critical state constitutional guarantee. Denigrating my concern with
protecting this liberty, the majority dismisses my writing as “trumpeting.” 852 S.W.2d at 451 n.


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23. The trumpet call has sounded from the very earliest days of our Republic, heralding our right
to trial by jury, a clarion to our citizens to shout out to preserve their heritage against attack. It
demands that any intrusion on this right be narrow in scope, clearly-announced and thoughtfully
considered. The majority's refusal to define with certainty its erosion of the right to trial by jury
sounds a weak and shaky chord, reflecting a lack of commitment to this fundamental guarantee.
Attempting to let the strong note drown the weak, the majority seeks to hide its equivocation by
reference to my conclusion that a jury trial is not required under these anti-pollution statutes, id.,
and by criticizing the narrow, clear and thoughtful exception I have drawn today. Id.

The inviolate nature of the right to trial by jury demands that this vital guarantee be circumscribed
in only the most extraordinary circumstances and that any exception to it be clearly and narrowly
construed. Although I do not disagree with the result announced by the majority, the analysis
employed is designed to destroy one of our most precious freedoms as Texans. The alternative
I offer would permit our administrative bodies to implement efficiently their regulations, while
ensuring that efficiency concerns do not envelop a fundamental civil liberty. 41



                                                 III. Standing

The issue of standing is a stranger to this litigation. No party before this court has ever asserted that
the Texas Association of Business lacked capacity to challenge the actions of state government.
How rare the occasion when all litigants agree on the proper resolution of an issue, but how truly
extraordinary is such unanimity when the parties are two state regulatory agencies, the Texas
Association of Business, the Sierra Club and the League of Women Voters. This, nonetheless,
is the exceptional circumstance in which we find ourselves today as all of these diverse parties
have urged the court not to decide this matter in the manner adopted. Addressing the question
of standing solely at the belated insistence of the majority, all parties asserted that this issue was
not in dispute; that, under recent precedent, standing had been waived; 42 and, alternatively, that
the record adequately demonstrated the right of the Texas Association of Business under Texas
law to initiate this litigation. Why then does the majority insist on writing? Because it dare not
pass up the opportunity to close access to our courts to those citizens who choose to challenge
environmental degradation, neighborhood destruction and consumer abuse. Through a narrowly
crafted test, the majority extends an invitation to TAB to come into the courts while telling other
public interest groups to stay out.

While devoting over half of today's opinion to a nonissue in this litigation, the majority oddly
limits its inquiry to only one of the three organizations asserting standing here. Nothing is said as
to the League of Women Voters and the Sierra Club, both of which intervened in the trial court
and were aligned as defendants with the State. Asserting the interests of its members in water and
air quality, as well as its involvement in protecting the state's natural resources, the League of

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Women Voters claimed standing to defend the challenged regulations. Similarly, the Sierra Club
 *468 based its standing on its purpose of environmental enhancement and conservation of natural
resources. By completely ignoring whether these groups were proper parties and by embracing a
federal standing test hostile to their participation, the majority erects new barriers to deny Texans
access to Texas courts.

To achieve this result, the majority must overcome what, until recently, was viewed as a
considerable obstacle—Texas law. This court has repeatedly held that the issue of standing may
not be raised for the first time on appeal, either by the parties or by the court. In Texas Industrial
Traffic League v. Railroad Comm'n of Texas, 633 S.W.2d 821, 822–23 (Tex.1982), we concluded:

  A party's lack of justiciable interest must be pointed out to the trial court ... in a written plea in
  abatement, and a ruling thereon must be obtained or the matter is waived.

  No plea challenging the standing of [the party] was filed in the district court. The issue of
  standing was therefore waived, and the court of appeals erred in writing on the issue at all.

(Emphasis supplied). The sole issue presented in Coffee v. William Marsh Rice University, 403
S.W.2d 340 (Tex.1966), was whether the court of appeals erred in dismissing a case, on its own
motion, for want of standing. This court held that, because standing had not been challenged in the
trial court, that issue could not deprive the court of appeals of subject matter jurisdiction. Id. at 347–
48. Assuming that standing was lacking in Sabine River Authority of Texas v. Willis, 369 S.W.2d
348, 349–50 (Tex.1963), 43 this court nonetheless held that dismissal was erroneous, because the
absence of a justiciable interest was not first raised in the trial court. We have repeatedly cited
these decisions with approval. See Central Educ. Agency v. Burke, 711 S.W.2d 7, 8 (Tex.1986)
(per curiam); American General Fire & Casualty Co. v. Weinberg, 639 S.W.2d 688 (Tex.1982);
Cox v. Johnson, 638 S.W.2d 867, 868 (Tex.1982) (per curiam).

Time and time again, the courts of appeals have also refused to consider challenges to standing not
first raised in the trial court. 44 Until today, the only criticism of our prior holdings to this effect
has *469 consisted primarily of writings authored by one appellate judge. 45

The majority has a simple way to deal with this venerable body of law—overrule only one case,
making today's abrupt change in the law appear less drastic, while ignoring the rest. In fact,
six Texas Supreme Court cases must be overruled and no less than twenty-five decisions of the
courts of appeals must be disapproved to reach today's result. The concept of reliance on the prior
decisions of Texas courts has long since ceased to offer the slightest restraint on this majority. 46

Bulldozing a new path through this jurisprudential forest, the majority vaults standing to a new
and remarkable prominence by suddenly discovering that it has not just one but two constitutional


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bases. And what unusual constitutional pillars each of these new finds represents. First, the
proscription of the separation of powers doctrine against issuance of advisory judicial opinions
allegedly requires rigorous enforcement of standing even when no party debates its existence. This
link between standing and separation of powers is not predicated on any directly relevant prior
court decision, 47 but instead is entirely premised on an article openly antagonistic to standing
for environmental groups. 852 S.W.2d at 444, citing Atonin Scalia, The Doctrine of Standing as
an Essential Element of the Separation of Powers, 17 Suffolk U.L.Rev. 881 (1983). The current
majority may be the first in the nation to anchor standing on this constitutional theory.

The authorities addressing the prohibition on advisory opinions cited in support of this proposition,
of course, in no way implicate the question of standing. This precedent-setting concern with
advisory opinions contrasts markedly with the eagerness to issue this very type of writing within
the last year. See Edgewood Indep. Sch. Dist. v. Kirby, 804 S.W.2d 491, 501 (Tex.1991) (Doggett,
J., concurring); Carrollton–Farmers Branch Indep. Sch. Dist. v. Edgewood Indep. Sch. Dist., 826
S.W.2d 489, 537 (Tex.1992) (Doggett, J., dissenting) (advisory opinions issued and retracted as
necessary to thwart efforts to satisfy the constitutional command of equity and efficiency in our
public schools). Writing on an issue not raised by any party, as the majority reaches out to revise
the law of standing today, seems to me the very essence of an “advisory” opinion.

The second newly-announced constitutional basis is equally ironic—our state's vital guarantee
that “[a]ll courts shall be open,” Tex. Const. art. I, § 13, in some inexplicable way, mandates that
they be closed to some and requires continual judicial monitoring of all who attempt to enter. No
authority of any type is cited for this *470 proposition that “open” courts really means “closed”
courts. Nothing in the history or text of the provision justifies this reading nor has any Texas court
previously attempted such converse interpretation. This constitutional guarantee is used today as a
two-edged sword: the majority invokes the open courts provision to bar environmental groups from
seeking judicial assistance in enforcing the laws, while in the very same opinion misinterpreting
this provision to allow continued violation of statutes protecting our precious natural resources. 48

Then, with a final flourish, standing is conveniently classified as a nonwaivable component of
subject matter jurisdiction. Until today, Texas followed the rule, adopted by many of our sister
states considering the issue, that objections to a party's standing are waived if not first raised in
the trial court. 49 No Texas case is cited for the proposition that standing is part of nonwaivable
subject matter jurisdiction because, until today, this court had repeatedly stated precisely the very
opposite—that standing is not jurisdictional. 50

Texas has with good reason determined that standing is not excepted from traditional rules of
appellate procedure. Our appellate system is predicated on the requirement of presentation of
complaints to the lower court coupled with preservation and briefing in the reviewing court. See


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Tex.R.App.P. 52; 74(d), 131(e). Appellate courts face considerable difficulties in deciding an issue
not presented to the trial court; ordinarily, the necessary facts will not be fully developed. The
unstated effect of today's opinion is to require trial courts to develop facts as to undisputed issues
or risk subsequent appellate reversal. This is not an effective use of our limited judicial resources.

The requirement that issues first be presented to the trial court serves another function—preventing
parties from “laying behind the log”:

            The reason for the requirement that a litigant preserve a trial predicate for
            complaint on appeal is that one should not be permitted to waive, consent to,
            or neglect to complain about an error at trial and then surprise his opponent on
            appeal by stating his complaint for the first time.

Pirtle v. Gregory, 629 S.W.2d 919, 920 (Tex.1982). While this court has condemned “trial by
ambush,” *471 Gutierrez v. Dallas Indep. School Dist., 729 S.W.2d 691, 693 (Tex.1987), today
the majority promotes “ambush on appeal.”

Three purported policy justifications for the majority's actions are offered, with not a single
supporting authority. The first concern is that a strict standing rule is necessary to prevent
collusive litigation. Under Texas law, the filing of a fictitious suit constitutes contempt by counsel,
Tex.R.Civ.P. 13, and may serve as the basis for a host of sanctions, including dismissal with
prejudice. Tex.R.Civ.P. 215 2b(5). Nor does our Texas judiciary lack the ability to reject collusive
litigation. Felderhoff v. Felderhoff, 473 S.W.2d 928, 932 (Tex.1971) (“We believe that our laws
and judicial system are adequate to ferret out and prevent collusion....”); cf. Whitworth v. Bynum,
699 S.W.2d 194, 197 (Tex.1985) (refusing to uphold Texas Guest Statute because of danger
of collusion). Adhering to precedent today would in no way undermine the power to dismiss
fraudulent suits.

The second virtue proclaimed for today's holding is the guarantee that the lower courts will be
restrained from exceeding their jurisdictional powers. 852 S.W.2d at 445. This concern is derived
solely from the federal law mandate that a federal appellate court is duty-bound to verify not only
its own jurisdiction but that of the lower courts as well. Federal courts, however, have limited
jurisdiction; Texas courts do not. Our Texas Constitution creates courts of general jurisdiction,
investing them with all of the “judicial power of this State.” Tex. Const. art. V, § 1. The differences
are evident in our procedural rules. While a federal court must affirmatively ascertain jurisdiction
over parties appearing before it, a Texas court's jurisdiction is presumed until proven lacking by
a contesting party. See Tex.R.Civ.P. 120a.

Lastly, the majority expresses concern as to the res judicata effect on other potential litigants
of a judgment rendered in the absence of genuine standing. 852 S.W.2d at 445–446. Aware of
this concern, the very federal judiciary that this majority is so eager to emulate has failed to


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perceive it as a problem of significance. International Union, United Automobile, Aerospace and
Agricultural Implement Workers of America v. Brock, 477 U.S. 274, 290, 106 S.Ct. 2523, 91
L.Ed.2d 228 (1986). If representation is inadequate, or a conflict of interest between members
exists, any judgment will have minimal preclusive effect. Id. Instead of completely barring access
to the courts, procedural safeguards can ameliorate any potentially overbroad effects. See generally
Charles A. Wright, Arthur R. Miller & Edward H. Cooper, 18 Federal Practice & Procedure §
4456 at 490–94 (1981 & Supp.1991).

The manufactured nature of the majority's concerns becomes all the more evident when the real
world experience of Texas is considered. The majority is unable to point to a single example of
collusion during the three decades our Texas rule, which allows the issue of standing to be waived,
has been in place. During this period there have likewise been no examples of lower courts making
a grab for extrajurisdictional power, nor of oppressed litigants shackled by the res judicata effect
of contrived litigation.

In defining state requirements for standing, we are in no way bound by federal jurisprudence
founded upon converse jurisdictional principles from our own. Texas courts can afford their
citizens access to justice in circumstances where they would have been unable to establish standing
in the federal courts. See City of Los Angeles v. Lyons, 461 U.S. 95, 113, 103 S.Ct. 1660, 1671,
75 L.Ed.2d 675 (1983) (“state courts need not impose the same standing ... requirements that
govern federal-court proceedings”); Doremus v. Board of Education, 342 U.S. 429, 434, 72 S.Ct.
394, 397, 96 L.Ed. 475 (1952) (state courts not restrained by “case or controversy” limitations of
Federal Constitution); Greer v. Illinois Housing Development Auth., 122 Ill.2d 462, 120 Ill.Dec.
531, 524 N.E.2d 561 (1988) (“We are not, of course, required to follow the Federal law on issues
of justiciability and standing.”).

The differences between our Texas Constitution and the Federal Constitution not only justify,
but also require, that citizen groups be accorded a broader right of access *472 to our state
courts. The Texas Constitution contains no express limitation of courts' jurisdiction to “cases” or
“controversies,” as provided by the federal charter. U.S. Const. art. III, § 2. Instead, it affirmatively
protects the rights of litigants to gain access to our judicial system:

            All courts shall be open, and every person for an injury done him, in his lands,
            goods, person or reputation, shall have remedy by due course of law.

Tex. Const. art. 1, § 13. As this court has recognized,

            The provision's wording and history demonstrate the importance of the right of
            access to the courts.... The right of access to the courts has been at the foundation
            of the American democratic experiment.



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LeCroy v. Hanlon, 713 S.W.2d 335, 339 (Tex.1986).

This constitutional mandate is reflected in decisions of this court adopting an “open courts”
approach to standing in general and associational standing in particular. On several occasions,
we have recognized the power of the Legislature to exempt litigants from proof of “special
injury.” Scott v. Board of Adjustment, 405 S.W.2d 55, 56 (Tex.1966) (standing may be shown
even in the absence of particular damage); Spence v. Fenchler, 107 Tex. 443, 180 S.W. 597
(1915) (under statute, “any citizen” able to seek injunction, without showing particular interest or
personal damage). 51 In enacting the Uniform Declaratory Judgments Act, the Texas Legislature
has granted a broad right of standing: any person “whose rights, status or other legal relations are
affected by a statute” may seek a declaration of those rights. Tex.Civ.Prac. & Rem.Code § 37.004
(emphasis supplied).

This court has previously extended its “open courts” approach to groups representing the interests
of their members. 52 In Texas Highway Comm'n v. Texas Ass'n of Steel Importers, 372 S.W.2d
525, 530–31 (Tex.1963), we permitted a business association to challenge an administrative order.
Although the order addressed only the import of foreign products for highway construction, this
court recognized standing of an organization whose interest in foreign imports was not so limited:


  Some of [the respondents] are owners of imported foreign manufactured products suitable for
  highway construction purposes. All of them are actively engaged in the sale and use of imported
  manufactured products.... [S]uch parties clearly have the right and litigable interest to have the
  challenged ... Order declared null and void.
  Id. at 531. Similarly, in Touchy v. Houston Legal Foundation, 432 S.W.2d 690 (Tex.1968), the
  court considered whether an organization of attorneys had standing to maintain a suit against
  a charitable corporation to restrain violations of ethical canons governing the practice of law.
  Based solely on “the special interest attorneys have in their profession,” the court held standing
  was established.
The “open courts” approach 53 of Touchy and Texas Highway Commission is quite sufficient to
allow TAB access to the Texas *473 courts. 54 These two associational standing cases are all but
ignored today, brushed aside as setting forth “no particular test.” 852 S.W.2d at 446.

Yet in these cases in which the merits of standing are preserved for appellate court review, the
Texas test applied has not been complicated. We simply look to whether a party has a stake in
the action sufficient to ensure adversarial presentation of the issues and to whether the court's
judgment will have any effect on those before it. See Board of Water Engineers v. City of San
Antonio, 155 Tex. 111, 283 S.W.2d 722, 724 (1955) (“there shall be a real controversy between the



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parties, which ... will be actually determined by the judicial declaration sought.”). Because both
of these considerations are met in the instant case, reference to federal law is wholly unnecessary.

Today, however, to justify meddling with Texas standing law, the majority declares that “we
foresee difficulties” not here with TAB, but in future cases involving organizational standing. 852
S.W.2d at 446. To cure these perceived but as yet totally unrealized woes, the majority imposes
a difficult to meet, easy to manipulate standard drawn from federal law “that lends itself to our
use.” Id. at 447. Never needing an invitation to impose more federal requirements on Texas
citizens, the majority writes into our Texas law books the confused and troubling federal standing
limitations. Not surprisingly, that law has taken a regressive turn, denying standing to public
interest associations, including those seeking to protect the environment. See Gene R. Nichol, Jr.,
Abusing Standing: A Comment on Allen v. Wright, 133 U.Pa.L.Rev. 635, 659 (1985) (“One could
perhaps be forgiven for confusing standing's agenda with that of the New Right.”).

The benefits of permitting an association to represent the concerns of its members are manifest.
As recognized in United Auto Workers, 477 U.S. at 290, 106 S.Ct. at 2533, “[T]he primary reason
people join an organization is often to create an effective vehicle for vindicating interests that
they share with others.” Judicial economy is promoted when one litigant can, in a single lawsuit,
adequately represent many members with similar interests, thus avoiding repetitive and costly
actions. The wider range of resources often available for associations enhances their effectiveness
in litigation:

  Special features, advantageous both to the individuals represented and to the judicial system as
  a whole, ... distinguish suits by associations on behalf of their members.... An association suing
  can draw upon a pre-existing reservoir of expertise and capital. “Besides financial resources,
  organizations often have specialized expertise and research resources relating to the subject
  matter of the lawsuit that individual plaintiffs lack.” ... These resources assist both courts and
  plaintiffs.

Id. at 289–90, 106 S.Ct. at 2532–33. In some cases, an injury that is substantial as to many may have
an individual financial impact too small to make a challenge economically feasible. Associational
representation may be the only means of redressing conduct when the harm is limited in degree but
substantial segments of society are affected. Additionally, in challenging policies of government,
organizations are generally less susceptible than individuals to retaliation by the bureaucrats they
challenge.

These benefits are ignored as the majority declares that henceforth the right of associations to bring
suit in Texas courts will be constricted by a three-part federal test set forth in Hunt v. Washington
State Apple Advertising Comm'n, 432 U.S. 333, 343, 97 S.Ct. 2434, 2441, 53 L.Ed.2d 383 (1977),
requiring that “(a) its members would otherwise have standing to sue in their own right; (b) the
interests it seeks to protect are germane to the organization's *474 purpose; and (c) neither the


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claim asserted nor the relief requested requires the participation of individual members in the
lawsuit.” 55

Yet the Hunt test won't hunt in Texas. It is adopted purportedly because of the similarities between
the state and federal constitutional underpinnings of the standing doctrine. Two critical factors
are ignored: (1) the significant differences between the Texas and United States Constitutions and
(2) the fact that much of federal standing doctrine is not mandated by the federal charter, but is
imposed solely on the grounds of judicial “prudence.” Warth v. Seldin, 422 U.S. 490, 498, 95
S.Ct. 2197, 2205, 45 L.Ed.2d 343 (1975) (“This [standing] inquiry involves both constitutional
limitations on federal-court jurisdiction and prudential limitations on its exercise.”).

The majority works a grave disservice to our Texas Constitution by equating our open courts
provision, affirmatively guaranteeing all Texans access to our judicial system, with an express
federal constitutional limitation on the right to seek redress in court. Despite the fact that the
two provisions are vastly different in language, history and purpose, the majority nonetheless
determines to “look to the more extensive jurisprudential experience of the federal courts” to
determine standing. This is clearly an erroneous course. See Davenport v. Garcia, 834 S.W.2d
4 (Tex.1992, orig. proceeding) (in blindly adhering to federal law, “based on different language,
different history and different cases, “[f]rom our treasured state heritage, law and institutions ...
[we] derive nothing....”).

Even the federal constitutional constraint is a simple one, looking to whether “the plaintiff has
‘alleged such a personal stake in the outcome of the controversy’ as to warrant his invocation of
the court's remedial powers on his behalf.” Warth, 422 U.S. at 498, 95 S.Ct. at 2205, quoting Baker
v. Carr, 369 U.S. 186, 204, 82 S.Ct. 691, 1103, 7 L.Ed.2d 663 (1962). In fact, this bare-bones test
closely resembles the approach that Texas courts have long chosen to follow. To the extent Hunt
constructs additional barriers to access to our judicial system, they are wholly court-created. 56 No
justification for their adoption is contained in the majority opinion.

Moreover, in turning to the federal law of standing, the majority invokes a doctrine that has been
criticized more heavily and justifiably than perhaps any other. See, e.g., Gene R. Nichol, Jr.,
Rethinking Standing, 72 Cal.L.Rev. 68, 68 (1984); Mark V. Tushnet, The “Case or Controversy”
Controversy, 93 Harv.L.Rev. 1698, 1713–21 (1980). Even the United States Supreme Court has
recognized that federal standing requirements have an “iceberg quality,” Flast v. Cohen, 392 U.S.
83, 94, 88 S.Ct. 1942, 1949, 20 L.Ed.2d 947 (1968); yet the majority fails to navigate a course,
not unlike the captain of the Titanic, that would steer Texas well away from this potential disaster.

The concept of standing is “employed to refuse to decide the merits of a legal claim.” Charles
A. Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice & Procedure § 3531, at
338. Critics of the doctrine's complexity and uncertainty have recognized how subject it is to


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manipulation: “standing ... is no more than a convenient tool to avoid uncomfortable issues or
to disguise a surreptitious ruling on the merits.” Id. at 348 (citing commentaries). 57 Important
rights can be left unprotected *475 as a result. Id. at § 3531.3, 416–17 (“Standing decisions
present courts with an opportunity to avoid the vindication of unpopular rights, or even worse to
disguise a decision on the merits in ... opaque standing terminology.... Unarticulated and arbitrary
predilection, cast as standing, defeats rights that deserve judicial protection.”).

Even during the three years that this particular cause has been pending here, the federal courts
have been hard at work to manipulate standing requirements to bar public interest groups from
seeking judicial vindication of rights common to their members. In Lujan v. National Wildlife
Federation, 497 U.S. 871, 110 S.Ct. 3177, 111 L.Ed.2d 695 (1990), a nationally-recognized
environmental group challenged a new development classification for certain federal wilderness
areas that allegedly violated several federal statutes. The suit was dismissed for lack of standing
based upon a rigid construction of the requirement of injury to the association's members. This
decision has been widely criticized as significantly impairing the ability of public interest groups
to represent their members, particularly those that seek to protect this nation's environment and
natural resources. 58 Today the majority eagerly positions itself to give the same treatment to
those Texans who would petition our state courts to protect the public interest. The majority
not only conspicuously relies on Lujan, 852 S.W.2d at 445, but also embraces the extremist
anti-environmental stance propounded in an article openly critical of judicial opinions permitting
citizens to complain of harm inflicted upon our natural resources. Id. at 443–444, citing Atonin
Scalia, The Doctrine of Standing as an Essential Element of the Separation of Powers, 17 Suffolk
U.L.Rev. 881 (1983).

Rather than a careful consideration of our Texas precedent and our unique Texas Constitution,
today Texans are handed yet another unthinking embrace of federal law. Claiming “guidance”
from federal precedent, 852 S.W.2d at 445, the majority overrules all Texas cases treating standing
as a procedural issue, then unnecessarily modifies all Texas precedent addressing the merits of
standing. Without explanation, today's opinion simply photocopies into our Texas law books
the federal law of standing with all of its much-criticized complexities. Once again the majority
chooses more Washington wisdom for Texas when what we need is more Texas thinking in
Washington. See Bexar County Sheriff's Civ. Service Comm'n v. Davis, 802 S.W.2d 659, 665
(Tex.1990) (Doggett, J., dissenting).

While today the corporate members of the Texas Association of Business are permitted to
challenge the bureaucracy, tomorrow this same reasoning will be employed to bar public
interest, neighborhood, environmental and consumer groups from vindicating the rights of their
members. Today's opinion not only repudiates our past “open courts” approach to access to the
judicial system but also eliminates the long-recognized appellate requirement that *476 error be
preserved. The majority has charged well beyond traditional constraints in its writing.


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To the extent this case is about standing, it is about standing still, about closing the courthouse
door, once standing open. For today the majority extends a standing invitation to those who would
harm our environment to act without fear of citizen challenge in the Texas courts.



                                                IV. Conclusion

Today the environment is the immediate victim. Those who pollute our rivers, release toxins into
our air, and damage our land cannot be promptly penalized. Instead, only after the very slow
wheels of our judicial system have creaked to a stop will violators of environmental protection
laws be held accountable.

Yet the environment is not the whole story. Much as a river may seem pure and clear even at the
place where illegal sewage is being pumped into it, the danger from a court's opinion may not
be immediately apparent on its surface. Only after the reasoning is applied in other cases is the
severity of the resulting harm to our system of justice revealed. Today's impairment of the ability
of concerned citizens to vindicate the rights of many in our courts and the majority's knockout
punch to the right of trial by jury will unfold in future cases to bar participation of ordinary citizens
in Texas courts.

The mess in Texas is not only with our environment but with the misinterpretation of the law.


GAMMAGE, Justice, concurring and dissenting.
Though I would prefer not to write separately, I find I am unable to agree entirely with any single
opinion of the court's other members. I must write this concurring and dissenting opinion because,
while I agree with the disposition of this cause, I disagree with substantial portions of the reasoning
and language in the majority's opinion and I agree with part of Justice Doggett's concurring and
dissenting opinion.

I agree with the preliminary portion of Justice Cornyn's majority opinion, which correctly sets
forth the regulatory scheme and basic dispute.

I agree substantially with Part II of Justice Doggett's opinion and his jury trial discussion. In my
view, whether or not a suit is a “cause” for purposes of the right to a jury trial is not controlled
by whether it was first determined by an administrative agency. I also agree with Part III of
Justice Doggett's opinion relating to standing, which I will further address below. I agree with
Part II of Justice Cornyn's majority opinion. The statutes may not condition access to the courts
on prepayment of a penalty. The principle here is the same as for a supersedeas bond. The statute


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may condition the right to restrain the prevailing party (the State) from executing (enforcing) its
judgment (administrative order) on the posting of a bond for the full amount. It may not, however,
condition the right to appeal the judgment on posting of the full penalty imposed. Dillingham v.
Putnam, 109 Tex. 1, 5–6, 14 S.W. 303, 304 (1890). This is true even if that “judgment” takes the
form of an administrative agency decision. Administrative agency decisions, for the most part,
entitle an appellant to only “substantial evidence” as opposed to de novo review. To further burden
those regulated with prepayment of the “judgment” as the only alternative to total loss of even
substantial evidence review violates the basic concept of our constitutional open courts in Texas.

As to the issue (or non-issue) of standing, the majority in effect adopts the position of federal courts
that standing is a jurisdictional question. Otherwise it cannot be fundamental error to be addressed
when no party raises it. Standing was not raised and should not be addressed in this cause.

Even assuming standing is an element of subject matter jurisdiction, the court should not write
on the issue in this case. Even though a judgment is void and subject to collateral attack at any
point if there is an absence of subject matter jurisdiction, see *477 Mercer v. Phillips Natural
Gas Co., 746 S.W.2d 933, 936 (Tex.App.—Austin 1988, writ denied), unassigned error of lack of
jurisdiction should be addressed only if jurisdiction is in fact lacking. Since the majority concludes
there was standing in this case, and since no party raised its existence as an issue, there is no reason
to address it at all, even if it would be fundamental error if lacking.

The basis for the majority's discussion is its sudden revelation that “[s]tanding is implicit in
the concept of subject matter jurisdiction.” 852 S.W.2d at 443. Their opinion then claims this
implication comes from the separation of powers doctrine and the open courts provision of the
Texas Constitution. It is a curiosity of legal scholarship, however, that in the 156 prior years of
its existence, this court never before found standing “implicit” in those constitutional provisions,
but in fact wrote that standing could be waived and hence was not fundamental error. Texas
Indus. Traffic League v. Railroad Comm'n, 633 S.W.2d 821, 823 (Tex.1982). Justice Doggett's
opinion adequately addresses why there is no implication from those provisions that standing is
jurisdictional.

The majority's struggle to put standing in issue whenit is not prompts me to address two statements
in its opinion which strike me as either misleading or just plain wrong. The majority asserts,
without citation to authority, that “[s]ubject matter jurisdiction is never presumed,” 852 S.W.2d at
443–444, and in a footnote repeats that assertion in urging that “Justice Doggett confuses subject
matter jurisdiction with personal jurisdiction. Only the latter can be waived when uncontested. See
TEX.R.CIV.P. 120a.” 852 S.W.2d at 444 n. 5. The majority's claim that subject matter jurisdiction
is never presumed is at its very best misleading.




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Connected with this discussion is the implicit assertion in another footnote that there is a
“jurisdictional standing” that is different from “objections to join a real party in interest or to a
party's capacity to sue rather than jurisdictional standing.” 852 S.W.2d at 445 n. 7. These remarks
are made in an attempt to distinguish the cases cited by Justice Doggett from those of other states
holding that standing is not jurisdictional. I suppose we should be encouraged to find out that there
are some types of “standing” that will not be jurisdictional, but it occurs to me that by using the term
“jurisdictional standing” the court is begging the question—if it is jurisdictional, then it must be
fundamental. The problem is that the Texas cases, at least as I read them, define “standing” in terms
of “the party's capacity to sue,” 1 which is one example we are given of non-jurisdictional standing.
The majority opinion is calculated—no, guaranteed—to cause confusion because apparently this
court will henceforth tell litigants on a case-by-case basis whether the standing problems in their
cases are “jurisdictional” or merely formal.

There is no need to create this confusion. The majority's fomenting it, however, requires that I
address it to some extent. I will discuss the “subject matter never presumed” proposition first, then
weave into the “jurisdictional standing” language.

I agree that subject matter jurisdiction is never presumed in one respect. Subject matter jurisdiction
exists when the nature of the case falls within a general category of cases the court is empowered
to adjudicate under the applicable constitutional and statutory provisions. See Pope v. Ferguson,
 *478 445 S.W.2d 950, 952 (Tex.1969), cert. denied, 397 U.S. 997, 90 S.Ct. 1138, 25 L.Ed.2d
405 (1970); Bullock v. Briggs, 623 S.W.2d 508, 511 (Tex.App.—Austin 1981, writ ref'd n.r.e.),
cert. denied, 457 U.S. 1135, 102 S.Ct. 2962, 73 L.Ed.2d 1352 (1982). In this sense, there is no
presumption because if the case is not one over which the court had constitutional and statutory
authority to act one does not “presume” subject matter jurisdiction to make it valid. If a justice of
the peace grants a divorce, the judgment is void because that is not the type of case the constitution
and legislature entrusts to that court, and appellate courts will not “presume” the justice court had
jurisdiction in order to make the judgment valid.

But what the majority addresses here under the rubric of “standing” is not a court assuming
jurisdiction over a type of dispute for which the statutes do not grant it power. The district court
undoubtedly had jurisdiction over the declaratory judgment and injunction action brought there,
since district courts may entertain declaratory judgment and injunction actions. The question of
standing the majority gratuitously addresses here is related to an incidental party issue.

This court has expressly held that some facts or similar matters relating to party issues are
presumed. For example, for many years the subject matter jurisdiction for certain trial courts
as set by the statutes has included a jurisdictional amount, sometimes as a minimum amount in
controversy and sometimes as both a maximum and minimum. Womble v. Atkins, 160 Tex. 363,
370, 331 S.W.2d 294, 299 (1960). This court has held that jurisdiction, so far as the amount


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in controversy is concerned, is determined by the pleadings unless facts disclose that a party
fraudulently or in bad faith pleaded claims to make it appear there was jurisdiction over the case
where there was not. Brown v. Peters, 127 Tex. 300, 94 S.W.2d 129, 130 (Tex.Comm'n App. B
1936). Despite the supposed requirement that the pleadings demonstrate jurisdiction, we have also
held that unless the pleadings affirmatively show there is no jurisdiction, the court will presume
the existence of jurisdiction in the trial court. Peek v. Equipment Serv. Co., 779 S.W.2d 802, 804
(Tex.1989). 2 This is not the only sense in which subject matter jurisdiction is “presumed” as
to collateral matters. If a defendant contests jurisdiction and alleges in a verified pleading that
plaintiff's fraudulent pleading amount was for the purpose of conferring jurisdiction on the trial
court, but the trial judge still renders judgment in the case, on appeal the fact issue of jurisdiction
is presumed decided against the defendant. Ellis v. Heidrick, 154 S.W.2d 293, 294 (Tex.Civ.App.
—San Antonio 1941, writ ref'd); see also Maddux v. Booth, 108 S.W.2d 329, 331 (Tex.Civ.App.
—Amarillo 1937, no writ) (appeal bond from county court to district court did not show filemark
making the appeal timely, held “the absence of such a question being made in the trial court the
presumption is that the court had jurisdiction”). Further, if the very power of the judge who sits
is in question, that authority too may be presumed. It is presumed that the assignment of a retired
judge was properly made pursuant to all statutory requirements absent an express showing to the
contrary in the record. Texaco, Inc. v. Pennzoil Co., 729 S.W.2d 768, 855 (Tex.App.—Houston
[1st Dist.] 1987, writ ref'd n.r.e.).

There is a type of lack of standing that this court formerly held to be fundamental error. When there
was a joint interest in property involved in the litigation, and the joint owner was not joined as a
party, this court earlier held that the party defect was jurisdictional fundamental error that could be
raised for the first time on appeal. The injustice which that rule caused prompted *479 this court
to reduce those “indispensable ” necessary parties to near nonexistence. Petroleum Anchor Equip.,
Inc. v. Tyra, 406 S.W.2d 891, 893–94 (Tex.1966); see also Cooper v. Texas Gulf Indus., Inc., 513
S.W.2d 200, 203 (Tex.1974). It was no accident that this court listed the case which the majority
today overrules, Texas Indus. Traffic League v. Railroad Comm'n, 633 S.W.2d 821 (Tex.1982),
as one of the cases showing that “[f]undamental or unassigned error is a discredited doctrine”
as applied to these collateral defect-in-party type claims. Cox v. Johnson, 638 S.W.2d 867, 868
(Tex.1982). After more than a hundred years of trying to narrow fundamental error exceptions,
the majority today takes a quantum leap backward.

In an appeal of or other direct attack on a trial court default judgment, it is service on the defendant
and related due process requirements which must affirmatively appear on the record. In such cases
personal jurisdiction cannot be presumed. Capitol Brick, Inc. v. Fleming Mfg. Co., 722 S.W.2d
399, 401 (Tex.1986); Uvalde Country Club v. Martin Linen Supply Co., 690 S.W.2d 884, 885
(Tex.1985); McKanna v. Edgar, 388 S.W.2d 927, 928 (Tex.1965). Lack of personal jurisdiction
can be waived by the party, and personal jurisdiction is presumed in a collateral attack on the
judgment, whereas error in assuming constitutional or statutory jurisdiction not conferred upon


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the court in question can be neither waived nor ignored. See Crawford v. McDonald, 88 Tex. 626,
631–32, 33 S.W. 325, 328 (1895). This court has long recognized that there may be party issues,
i.e., the matter is “a mere matter of procedure” as opposed to the constitutional or statutory power
of a court to render judgment, that may be presumed as to either type of jurisdiction. Id. at 630,
33 S.W. at 327.

The majority should not adopt the federal courts' position that “standing” is jurisdictional. There
is a fundamental difference between federal law and state law that controls here. Federal courts
are courts of limited jurisdiction. Marbury v. Madison, 5 U.S. (1 Cranch) 137, 178–79, 2 L.Ed. 60
(1803). The parties asserting a claim must plead and prove (when not obvious) that jurisdiction
exists. FED.R.CIV.P. 8(a). A party suing under a statute must establish his right to claim under
that statute—his standing —in order to establish jurisdiction. General Comm., Brotherhood of
Locomotive Eng'rs v. Missouri–Kansas–Texas Ry. Co., 320 U.S. 323, 337–38, 64 S.Ct. 146, 152–
53, 88 L.Ed. 76 (1943). Consequently, standing is a part of jurisdiction under federal procedure,
related to the “case” or “controversy” requirement of the federal constitution. Association of Data
Proc. Serv. Orgs. v. Camp, 397 U.S. 150, 151, 90 S.Ct. 827, 829, 25 L.Ed.2d 184 (1970). But
there is no “case” or “controversy” limitation language in the Texas Constitution. In state courts of
general jurisdiction, the power to entertain any suit not prohibited by either the federal constitution
or federal law is presumed. Cincinnati v. Louisville & N. Ry. Co., 223 U.S. 390, 32 S.Ct. 267,
56 L.Ed. 481 (1912). State courts have all residual jurisdiction that federal courts lack. Id.; see
generally 2 CHESTER J. ANTIEAU, MODERN CONSTITUTIONAL LAW § 10:1 at 4–5 (1969).
We should continue to recognize that “standing,” like other procedural issues, may be waived.
There is no reason to overrule the Texas Industrial Traffic League case, or its related progeny.


SPECTOR, Justice, concurring and dissenting.
I agree with the substance of the concurring and dissenting opinion by Justice Doggett. I write
separately, however, to explain why I would uphold the statutory requirement that those who
run afoul of environmental laws make timely payment of administrative penalties before seeking
judicial review.

In two other causes decided today, this court has considered open courts challenges to the statutory
requirement that state mineral lessees prepay administrative deficiency assessments before seeking
judicial review of those assessments. State v. Flag–Redfern Oil Co. and State v. Rutherford Oil
Corp., 852 S.W.2d 480 (Tex.1993) (considering Tex.Nat.Res.Code § 52.137). Our analysis in
those cases focused on the *480 public interest at stake: the State's only interest in the prepayment
requirement, we noted, was its financial interest in immediate access to disputed royalty payments.
Id. at 485. Thus, we concluded that the prepayment requirement of section 52.137 was no different,
in constitutional terms, from the litigation tax disapproved in LeCroy v. Hanlon, 713 S.W.2d 335,
342 (Tex.1986). Id.



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The present case, in contrast, does not involve a litigation tax. The Clean Air Act, the Solid
Waste Disposal Act, and the Water Quality Act embody this state's commitment to protect the
environment; and the prepayment requirements struck down today were intended to give force
to that commitment, not to raise revenue. Without the need to prepay administrative penalties,
polluters will be left with little if any incentive to timely comply with environmental laws and
regulations.

The effects of today's decision, though, extend far beyond the statutes at issue in this case. By
rejecting these prepayment requirements, without regard to the state interest involved, the majority
has struck a severe blow to this state's ability to enforce a broad range of regulations in the
public interest. The similar statutory provisions identified in the opinion by Justice Doggett, 852
S.W.2d at 457, cannot be dismissed as minor technicalities; they are carefully-crafted measures
that the legislature considered vital to protect the public from recalcitrant lawbreakers. Casting
those provisions aside will seriously disrupt the effective operation of our state government.

The Texas Constitution cannot be construed in absolutes. The basic right of access to the courts
must be balanced against the need to protect the public's health and safety. While the restriction at
issue in this case may be substantial, I would hold that the public's interest in clean air and water,
combined with the due process afforded to TAB's members in the administrative process, tips the
balance in favor of the prepayment requirement. I therefore dissent.



Footnotes
1    The League of Women Voters and the Lone Star Chapter of the Sierra Club intervened in the suit and were aligned as defendants with
        the Texas Air Control Board and the Texas Water Commission. Justice Doggett contends that the standing of the Intervenors should
        be addressed along with TAB's. We disagree. Standing concerns a party's faculty to invoke the court's subject matter jurisdiction.
        Once it has been invoked by a plaintiff, a court's subject matter jurisdiction is not affected by the status of defendants or intervenors
        aligned in interest with defendants.
2       Act of June 14, 1985, 69th Leg., R.S., ch. 637, § 33, 1985 Tex.Gen.Laws 2350, 2359 (amending Texas Clean Air Act codified
        at TEX.REV.CIV.STAT.ANN. art. 4.041 (Vernon 1976), currently codified as amended at TEX.HEALTH & SAFETY CODE §
        382.088; Act of June 15, 1985, 69th Leg., R.S., ch. 795, § 6.001, 1985 Tex.Gen.Laws 2719, 2813 (amending Solid Waste Disposal Act
        codified at TEX.REV.CIV.STAT.ANN. art. 4477–7 (Vernon 1976), currently codified as amended at TEX.HEALTH & SAFETY
        CODE § 361.252; Act of June 15, 1985, 69th Leg., R.S., ch. 795, § 5.007, 1985 Tex.Gen.Laws 2719, 2806 (amending TEX.WATER
        CODE § 26.136).
3       Although some amendments have been adopted since, they are not relevant to the issue presented in this case. See Diana C. Dutton,
        ENVIRONMENTAL, 45 SW. L.J. 389 (1991) (summarizing statutory developments).
4       “An appeal may be taken directly to the supreme court from an order of a trial court granting or denying an interlocutory or permanent
        injunction on the ground of the constitutionality of a statute of this state.” TEX.GOV'T CODE § 22.001(c).
5       Justice Doggett confuses subject matter jurisdiction with personal jurisdiction. Only the latter can be waived when uncontested. See
        TEX.R.CIV.P. 120a.
6       The analysis is the same under the federal constitution. See e.g. Correspondence of the Justices, Letter from Chief Justice John Jay
        and the Associate Justices to President George Washington, August 8, 1793 in Laurence H. Tribe, American Constitutional Law 73
        n. 3 (2nd ed. 1988).
7       Of the states listed by Justice Doggett, only Illinois, Iowa, Kentucky, New York, South Dakota, and perhaps Ohio, Pennsylvania and
        Washington actually treat jurisdictional standing as waivable. See 852 S.W.2d at 469. The other state cases cited deal with the waiver



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      of objections to join a real party in interest or to a party's capacity to sue rather than to jurisdictional standing. See International
      Depository, Inc. v. State, 603 A.2d 1119, 1122 (R.I.1992) (addressing real party in interest objection); Princess Anne Hills Civ.
      League, Inc. v. Susan Constant Real Estate Trust, 243 Va. 53, 413 S.E.2d 599, 603 n. 1 (1992) (addressing real party in interest
      objection); Sanford v. Jackson Mall Shopping Ctr. Co., 516 So.2d 227, 230 (Miss.1987) (addressing real party in interest objection);
      Jackson v. Nangle, 677 P.2d 242, 250 n. 10 (Alaska 1984) (addressing real party in interest objection); Poling v. Wisconsin Physicians
      Serv., 120 Wis.2d 603, 357 N.W.2d 293, 297–98 (App.1984) (addressing real party in interest objection); Torrez v. State Farm Mut.
      Auto. Ins. Co., 130 Ariz. 223, 635 P.2d 511, 513 n. 2 (App.1981) (addressing real party in interest objection); Brown v. Robinson,
      354 So.2d 272, 273 (Ala.1977); Cowart v. City of West Palm Beach, 255 So.2d 673, 675 (Fla.1971) (addressing capacity objection).
8     Justice Doggett disagrees that standing is a component of subject matter jurisdiction, yet he declines to explain what role standing
      plays in our jurisprudence. From his harsh critique of the doctrine, it seems that he not only objects to the conclusion that standing
      cannot be waived but also to the conclusion that standing is a requirement to initiate a lawsuit.
9     Texas Industrial Traffic League relied on two cases to support its holding that standing cannot be raised for the first time on appeal:
      Coffee v. William Marsh Rice University, 403 S.W.2d 340, 341 (Tex.1966), and Sabine River Authority v. Willis, 369 S.W.2d 348,
      350 (Tex.1963). We need not overrule these two cases, however, because unlike Texas Industrial Traffic League, we believe that
      standing was present in the trial court in these cases. Our concern is with a party's right to initiate a lawsuit and the trial court's
      corresponding power to hear the case ab initio. Standing is determined at the time suit is filed in the trial court, and subsequent events
      do not deprive the court of subject matter jurisdiction. Carr, 931 F.2d at 1061.
10    Justice Doggett claims that we overrule three additional decisions of this court. See Central Educ. Agency v. Burke, 711 S.W.2d 7
      (Tex.1986) (per curiam); American Gen. Fire & Casualty Co. v. Weinberg, 639 S.W.2d 688 (Tex.1982); Cox v. Johnson, 638 S.W.2d
      867 (Tex.1982) (per curiam). We disagree. These cases hold that matters not raised in the trial court are waived. One exception noted
      by these decisions, however, is a lack of jurisdiction which may be raised by a party, or the court, for the first time on appeal. Justice
      Doggett does not believe that standing falls within that exception because he contends that standing is not jurisdictional.
11    In most other jurisdictions, such prepayment provisions are required only to stay execution of judgments and are not prerequisites
      to the right to appeal itself. See Gary Stein, Expanding the Due Process Rights of Indigent Litigants: Will Texaco Trickle Down?,
      61 N.Y.U.L. REV. 463, 469 (1986).
12    Thus, contrary to Justice Doggett's reading of our opinion, the Sax test is inapplicable.

13    The Clean Air Act was implemented to “safeguard the state's air resources from pollution by controlling or abating air pollution
      and emissions of air contaminants....” TEX.HEALTH & SAFETY CODE § 382.002(a). The Texas Water Code was implemented to
      “maintain the quality of water in the state consistent with the public health and enjoyment ...” TEX.WATER CODE § 26.003.
14    The importance is evidenced by article XVI, section 59(a) of our constitution, which provides in relevant part that: “The conservation
      and development of all the natural resources of this State ... and the preservation and conservation of all such natural resources ... are
      each and all ... public rights and duties.” TEX. CONST. art. XVI, § 59(a).
15    If the person charged does not make payment or post bond within thirty days, the agency may forward the matter to the attorney
      general for enforcement. TEX.HEALTH & SAFETY CODE § 382.089(c), § 361.252(m); TEX.WATER CODE § 26.136(k).
16    It has been argued that our procedure of allowing immediate enforcement of trial court judgments violates federal due process when
      the judgment debtor is financially unable to post a supersedeas bond and immediate enforcement will cause irreparable injury. Texaco,
      Inc. v. Pennzoil Co., 784 F.2d 1133 (2d Cir.1986), rev'd on other grounds, 481 U.S. 1, 107 S.Ct. 1519, 95 L.Ed.2d 1 (1987). A similar
      argument could be fashioned under the Texas open courts provision, but TAB does not assert that argument here. TAB's open courts
      challenge centers not on the requirement of immediate payment, but on the forfeiture of judicial review if payment is not made.
17    Thus, contrary to Justice Doggett's assertion, we do not strike down the penalties themselves. Nothing in this opinion prohibits the
      state's collection of assessed penalties. We hold as violative of our open courts provision only the requirement that the penalties be
      paid as a condition to judicial review. Furthermore, nothing in our opinion requires that penalties already paid be refunded.
18    That the affected parties may be able to afford prepayment is irrelevant. The guarantee of constitutional rights should not depend
      on the balance in one's bank account.
19    TAB claims that the lack of a jury trial before the agency as well as the lack of a trial de novo violate article I, section 15. We limit
      our inquiry to the absence of a trial de novo because, as this court has said: “Trial by jury cannot be claimed in an inquiry that is non-
      judicial in its character, or with respect to proceedings before an administrative board.” Middleton v. Texas Power & Light Co., 108
      Tex. 96, 185 S.W. 556, 561–62 (1916). Even if the right to a jury is denied before an administrative agency, the dispositive question
      is whether a trial de novo and the corresponding right to a jury trial is constitutionally required upon judicial review of the agency's
      decision. See Cockrill v. Cox, 65 Tex. 669, 674 (1886) (“The right of jury trial remains inviolate, though denied in the court of first
      instance [in civil cases], if the right to appeal and the jury trial on appeal are secured.”) (bracketed language in original).
20    Article I, section 15, provides, in pertinent part:




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            The right of trial by jury shall remain inviolate. The Legislature shall pass such laws as may be needed to regulate the same,
            and to maintain its purity and efficiency. * * *.
         TAB has not presented in this court, as it did below, its complaint that the statutes and regulations also violate the right to jury
         trial under article V, section 10 of the Texas Constitution.
21    While the Credit Bureau court specifically referred to the broader jury trial provision in article V, section 10 when it discussed the
      administrative proceeding exception, that exception necessarily also applies to the narrower provision found in article I, section 15.
22    We do not consider nineteenth century criminal nuisance laws comparable to modern environmental regulations. See 852 S.W.2d
      at 461.
23    Despite Justice Doggett's trumpeting of our constitution's guarantee of trial by jury, he agrees that the right does not attach under
      the circumstances of this case.
24    Justice Doggett contends that the basis for our jury trial holding is overbroad. Instead, he would have us adopt the “imperfectly
      employed” federal test first enunciated in Atlas Roofing Co. v. Occupational Safety & Health Review Comm'n, 430 U.S. 442, 97 S.Ct.
      1261, 51 L.Ed.2d 464 (1977). Infra, 852 S.W.2d at 464. The basis for our decision is more limited, arising as it does out of TEX.
      CONST. article XVI, section 59(a) and our decision in Corzelius.
25    The Clean Air Act proclaims:
            The policy of this state and the purpose of this chapter to safeguard the air resources of the state from pollution by controlling
            or abating air pollution and emissions of air contaminants, consistent with the protection of public health, general welfare, and
            physical property of the people, including the aesthetic enjoyment of air resources by the public and the maintenance of adequate
            visibility.
            TEX.HEALTH & SAFETY CODE § 382.002.
            The Texas Water Code proclaims in relevant part:
            It is the policy of this state and the purpose of the subchapter to maintain the quality of water in the state consistent with the
            public health and enjoyment
      .....
            TEX.WATER CODE § 26.003.
26    The actions of the agencies involved in this proceeding are subject to the Administrative Procedure and Texas Register Act (APTRA),
      which specifically affords a “full panoply of procedural safeguards” to a party to contested case before those agencies. Southwestern
      Bell Tel. Co. v. Public Util. Comm'n of Tex., 571 S.W.2d 503, 507 (Tex.1978). These procedural safeguards include the right to
      notice, the making of a full record of the proceeding before the agency, the taking of depositions, the right to subpoena witnesses,
      the application of the rules of evidence, the preparation of proposal for decision and the filing of exceptions and briefs, as well as
      separately stated findings of fact and conclusions of law. TEX.CIV.STAT.ANN. art. 6252–13a § 19 (Vernon Supp.1993). Judicial
      review is provided by section 19(e) under the substantial evidence rule, which directs a reviewing court to reverse and remand the
      agency adjudication if the agency decision is:
            1) in violation of constitutional or statutory provisions;
            2) in excess of the statutory authority of the agency;
            3) made upon unlawful procedure;
            4) affected by other error of law;
            5) not reasonably supported by substantial evidence in view of the reliable and probative evidence in the record as a whole; or
            6) arbitrary and capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion.
         Id.
         We have held that judicial review under APTRA based on the record developed before the agency “furnishes more assurance of
         due process and a surer means of determining whether an agency acted arbitrarily, capriciously and without due regard for the
         evidence.” Imperial Am. Resources Fund, Inc. v. Railroad Comm'n of Tex., 557 S.W.2d 280, 285 (Tex.1977); see also, Southwestern
         Bell Tel. Co., 571 S.W.2d at 509.
1     Statistics compiled from data sent by companies to the Environmental Protection Agency show that in 1990 535.7 million pounds
      of toxic chemicals were released into the Texas environment, more than in any other state. Texas also ranked first in the release of
      chemicals known to cause both cancer and birth defects. See Texas Citizen Action, Poisons in Our Neighborhoods, Toxic Pollution in
      Texas, Sept. 1992, at 1; see also John Sharp, Texas Comptroller of Public Accounts, Texas at Risk: Environmental Hazards Threaten
      State's Air, Land, and Water, Fiscal Notes Aug. 1991 (noting the release of about 800 million pounds of toxic substances in 1989).
      Additionally, only two states ranked below Texas in the American Public Health Association's Pollution Standard Index, based on
      data gathered between 1989 and 1991. See American Public Health Ass'n, America's Public Health Report Card: A State-by-State
      Report on the Health of the Public 59 (1992).




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2     See Carrollton–Farmers Branch Indep. Sch. Dist. v. Edgewood Indep. Sch. Dist., 826 S.W.2d 489, 537 (Tex.1992) (Doggett, J.,
      dissenting).
3     See, e.g., H. Runge & Co. v. Wyatt, 25 Tex.Supp. 291 (1860) (placement of counties within judicial districts); Dillingham v. Putnam,
      109 Tex. 1, 14 S.W. 303 (1890) (striking requirement of supersedeas bond as a prerequisite to appeal); Hanks v. City of Port
      Arthur, 121 Tex. 202, 48 S.W.2d 944 (1932) (requirement that city be notified of street defect within twenty-four hours of accident
      unreasonable restriction on right of access to courts); Sax v. Votteler, 648 S.W.2d 661 (Tex.1983) (striking statute of limitations
      barring action of minor); LeCroy, 713 S.W.2d 335 (Tex.1986) (holding unconstitutional increased filing fees designed to generate
      state revenues).
4     Oddly, the majority asserts that “the Sax test is inapplicable” to today's open courts decision, 852 S.W.2d at 449 n. 12, even as it
      explicitly relies on the analysis used in LeCroy, which in turn applied the Sax test. Nor does the majority attempt to explain how its
      analysis today differs from that employed in Sax and LeCroy.
5     This natural resources provision receives conflicting treatment in today's opinion, amply demonstrating both the malleability of the
      Sax test as applied by the majority and the majority's disdain for the right to trial by jury. While declaring that article XVI, § 59(a)
      will not permit payment of even the most modest penalties under our open courts provision, the majority inexplicably finds that it
      forms an insurmountable barrier to the right to jury trial. The majority makes no attempt to reconcile its inconsistent analysis of these
      constitutional guarantees.
6     Tex.Health & Safety Code § 382.002, provides that:
            It is the policy of this state and the purpose of this Act to safeguard the air resources of the state from pollution by controlling or
            abating air pollution and emissions of air contaminants, consistent with the protection of health, general welfare, and physical
            property of the people, including the aesthetic enjoyment of the air resources by the people and the maintenance of adequate
            visibility.
7     Tex.Water Code § 26.003, provides that:
            It is the policy of this state and the purpose of this subchapter to maintain the quality of water in this state consistent with the
            public health and enjoyment, the propagation and protection of terrestrial and aquatic life, the operation of existing industries,
            and the economic development of the state....
8     Tex.Health & Safety Code § 361.002, declares that:
            It is the policy of this state and the purpose of this Act to safeguard the health, welfare, and physical property of the people, and
            to protect the environment, through controlling the management of hazardous wastes, including the accounting for hazardous
            wastes generated.
9     Tex.Health & Safety Code § 382.088(c)(1–5) (Clean Air Act), § 361.251(c)(1–5) (Solid Waste Disposal Act); Tex.Water Code §
      26.136(c). The Texas Water Code imposes additional considerations, including “the impact of the violation on a receiving stream or
      underground water reservoir, on the property owners ... and on water users,” as well as the extent of previous violations, the degree of
      culpability involved, any good faith effort to correct the violation and any economic benefit gained as a result of the illegal conduct.
      Tex.Water Code § 26.136(c).
10    See Appendices to Brief of Appellees Texas Air Control Board and Texas Water Commission.

11    See Appendices to Brief of Appellees Texas Air Control Board and Texas Water Commission at 27, 44, 55.

12    See Tex.Health & Safety Code § 242.066 (administrative penalty for statutory violations “threaten[ing] the health and safety of a
      resident” of a convalescent or nursing home); id. § 242.069 (penalty must be prepaid or a bond posted prior to judicial review).
13    Tex.Health & Safety Code §§ 141.016–141.018 (providing for administrative penalties for violation of laws regulating youth camps
      and requiring their payment or the posting of a bond prior to judicial review).
14    Tex.Health & Safety Code §§ 773.065–.067 (administrative penalties to enforce Emergency Medical Services Act).

15    Tex.Rev.Civ.Stat.Ann. art. 4582b, § 6G (Vernon Supp.1992) (administrative penalties for violation of statutes governing funeral
      directing and embalming).
16    Tex.Health & Safety Code §§ 431.054–.056 (Texas Food, Drug & Cosmetic Act); id. § 466.043 (regulation of narcotic drug treatment
      programs).
17    Tex.Health & Safety Code §§ 433.094–.096 (Texas Meat & Poultry Inspection Act); id. §§ 144.081–.083 (Texas Renderers' Licensing
      Act).
18    See also Tex.Rev.Civ.Stat.Ann. art. 5069–51.17 (Vernon 1987 & Supp.1992) (administrative penalties for violation of the Texas
      Pawnshop Act).
19    Tex.Rev.Civ.Stat.Ann. art. 1446c, § 73A (Vernon Supp.1992) (permitting assessment of civil penalty for violation of Public Utility
      Regulatory Act “result[ing] in pollution of the air or water of this state or pos[ing] a threat to the public safety”); Tex.Rev.Civ.Stat.Ann.
      art. 4477–3a, § 16 (Vernon Supp.1992) (Texas Asbestos Health Protection Act); Tex.Rev.Civ.Stat.Ann. art. 5920–11, § 30 (Vernon



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      Supp.1992) (Texas Coal Mining and Surface Reclamation Act); Tex.Rev.Civ.Stat.Ann. art. 6053–2 (Vernon Supp.1992) (safety
      standards for transportation of gas and for gas pipeline facilities); Tex.Rev.Civ.Stat.Ann. art. 8905, § 9 (Vernon Supp.1992) (Water
      Well Pump Installers Act); Tex.Nat.Res.Code § 40.252 (Oil Spill Prevention and Response Act); id. § 81.0531–.0533 (assessment of
      penalties for violation of Railroad Commission statutes and rules “which pertain to safety or the prevention or control of pollution”);
      id. § 116.143–.145 (violation of laws relating to compressed natural gas “result[ing] in pollution of the air or water of this state or
      pos[ing] a threat to the public safety”); id. § 131.2661–.2663 (violations of Uranium Surface Mining and Reclamation Act “result[ing]
      in pollution of the air or water of this state or pos[ing] a threat to the public safety”); id. § 141.013–.015 (violation of geothermal
      resources regulations “pertain[ing] to safety or the prevention or control of pollution”); id. Tex.Water Code 13.4151 (regulation of
      water and sewer utilities); id. § 27.1013–.1015 (Injection Well Act); id. § 28.067 (regulation of water wells and mine shafts); id. §
      29.047 (Salt Water Haulers Act); id. § 33.009 (regulation of water well pump installers); Tex.Health & Safety Code § 372.004 (water
      saving performance standards); id. § 401.389 (Texas Radiation Control Act).
20    Tex.Ag.Code § 12.020(l ) (violation of agricultural statutes); id. § 76.1555 (failure to comply with pesticide regulations); Tex.Water
      Code § 34.011 (irrigation regulation); Tex.Rev.Civ.Stat.Ann. art. 41a–1, § 21D(f) (Vernon Supp.1992) (public accounting);
      Tex.Rev.Civ.Stat.Ann. art. 135b–6, § 10B(k) (Vernon Supp.1992) (Structural Pest Control Act); Tex.Rev.Civ.Stat.Ann. art. 5155,
      § 5(h) (Vernon Supp.1992) (labor wage laws); Tex.Rev.Civ.Stat.Ann. art. 5282c, § 23A(k) (Vernon Supp.1992) (Professional
      Land Surveying Practices Act); Tex.Rev.Civ.Stat.Ann. art. 6573a, § 19A(k) (Vernon Supp.1992) (Real Estate License Act);
      Tex.Rev.Civ.Stat.Ann. art. 9100, § 17(m) (Vernon Supp.1992) (Texas Department of Licensing and Regulation).
21    Under recent and highly erratic writings determining retroactivity, of course, anything can happen. See, e.g., Carrollton–Farmers
      Indep. Sch. Dist., 826 S.W.2d at 515–23; Elbaor v. Smith, 845 S.W.2d 240 (Tex.1992) (creating uncertainty by disapproval of a type
      of pre-trial agreements previously upheld by this court).
22    “The right of trial by jury, and the privilege of the Writ of Habeas Corpus shall be established by law, and shall remain inviolable.”
      Proposed Constitution for the State of Texas art. 4 (1833), reprinted in Documents of Texas History, 80 (Ernest Wallace ed., 1963).
23    See Eugene C. Barker, Stephen F. Austin, in The Handbook of Texas 84 (Walter Prescott Webb ed., 1952).

24    Constitution of the Republic of Texas, Declaration of Rights, Section 9 (1836), reprinted in Tex. Const. app. 523, 536 (Vernon 1955),
      provided that “the right of trial by jury shall remain inviolate.”
25    In our time this great constitutional principle continues to be reaffirmed:
            It is fundamental to our system of justice and the intention and policy of the law to permit all persons to have a trial by jury
            of disputed fact issues essential for a determination of [their rights]. The right of trial by jury is a valuable right which should
            be guarded jealously by all state courts.
         Steenland v. Texas Commerce Bank Nat'l Ass'n, 648 S.W.2d 387, 391 (Tex.App.—Tyler 1983, writ ref'd n.r.e.); see also Lopez
         v. Lopez, 691 S.W.2d 95, 97 (Tex.App.—Austin 1985, no writ) (“trial by jury should be granted zealously by all the courts of
         this state”).
26    Tex. Const. art. I, § 12 (1845) (retaining identical language from 1836 provision).

27    See, e.g., May v. United Services, 844 S.W.2d 666, 674 (Tex.1992) (Doggett, J., dissenting); Boyles v. Kerr, 1992 WL 353277
      (Tex.1992) (Doggett, J., dissenting); Leleaux v. Hamshire–Fannett Indep. Sch. Dist., 835 S.W.2d 49, 55–56 (Tex.1992) (Doggett, J.,
      dissenting); Reagan v. Vaughn, 804 S.W.2d 463, 491 (Tex.1991) (Doggett, J., concurring and dissenting); Greater Houston Transp.
      Co. v. Phillips, 801 S.W.2d 523, 527 (Tex.1990) (Doggett, J., dissenting).
28    T.R. Fehrenbach, Lone Star: A History of Texas and the Texans 279 (1983).

29    Act of Feb. 11, 1860, Tex.Gen Laws 97, a later version of which was referenced by this court in Gulf, Colo. & Santa Fe Ry. v. Reed,
      80 Tex. 362, 15 S.W. 1105, 1107 (1891).
30    The court further stated: “The word means, literally, annoyance; in law, it signifies, according to Blackstone, ‘anything that worketh
      hurt, inconvenience, or damage.’.... ‘So closely (says Blackstone) does the law of England enforce that excellent rule of Gospel
      morality, of doing to others as we would they should do unto ourselves.’ ” Id. at 492. Accord Miller v. Burch, 32 Tex. 208, 210 (1869).
31    See also Rhodes v. Whitehead, 27 Tex. 304, 316 (1863) (remanding for trial a complaint against a dam across the San Antonio river,
      recognizing that the creation “of pools of stagnant and putrid water” or the “tendency to cause sickness in [the plaintiff's] family or
      immediate neighborhood,” was sufficient to constitute a nuisance); Jung v. Neraz, 71 Tex. 396, 9 S.W. 344, 344–45 (1888) (nuisance
      properly alleged by claim that “interment of dead bodies in [proposed cemetery] would infect, poison, and injure [plaintiffs'] wells,
      and the use of low grounds, and further injure plaintiffs' health by the foul odors from the decomposition of said bodies.”).
32    Although some critics allege that juries are not competent to deal with complex scientific and technological issues, empirical data
      demonstrates otherwise.




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           Research shows ... that the opportunity exists for meaningful [juror] participation in a wide range of adjudicatory and regulatory
           proceedings.... To the extent that juries encounter difficulties, these difficulties often vex judges as well.... The full potential of
           lay participation in adjudication has not been realized.
         Joe Cecil, Valerie Hans, and Elizabeth Wiggins, Citizen Comprehension of Difficult Issues: Lessons From Civil Jury Trials, 40
         Am.U.L.Rev. 727, 773–74 (1991).
33    See Tex. Const. art. X, § 2 and interp. commentary (Vernon 1955) (noting that the provision was added to authorize the Legislature
      to regulate railroads after the people had issued strong complaints against them).
34    See also State v. De Silva, 105 Tex. 95, 145 S.W. 330 (1912) (also holding that cancellation of liquor license is not a “cause”).

35    In the commentary for recommended article V, section 14(e) of the proposed 1974 Constitution, the significance of holdings regarding
      this more expansive language was also noted:
            [T]he right of trial by jury guaranteed in Article V, Section 10 of the 1876 Constitution is not dependent on the existence of the
            right at the time the Constitution was adopted in 1876. The guarantee extends to any “cause” instituted in the district court. A
            “cause” is defined as a suit or action concerning any question, civil or criminal, contested before a court of justice.
         See Texas Constitutional Revision Commission, A New Constitution for Texas: Text, Explanation, Commentary 120–21 (1973).
36    The Credit Bureau opinion was authored for the court by now former Chief Justice Jack Pope, who had written previously, “[t]he
      struggle for survival by the institution we call the jury is truly the epic of our law.” Jack Pope, The Jury, 39 Tex.L.Rev. 426 (1961).
      That struggle continues today.
37    Though he wrote in unnecessarily global terms regarding this exception, even Harris recognized that
            [t]he plain language of the Judiciary section conferring the right of trial by jury in all causes in the district courts would seem to
            entitle parties to jury trials irrespective of whether that right existed at the time of the adoption of the Constitution.
         Harris, supra, at 6–7.
38    The majority notes the existence of other statutory procedural protections, such as those contained in the Administrative Procedure
      and Texas Register Act, Tex.Rev.Civ.Stat. art. 6252–13a, § 19(e). 852 S.W.2d at 452, n. 26. While important, these measures certainly
      do not constitute a complete substitute for a jury trial. If the Texas Constitution guarantees a right to trial by jury, no lesser protection
      will suffice.
39    To some extent every action legislatively entrusted to an administrative agency involves a public right. At the same time even actions
      by private parties may have incidental regulatory effects and are unquestionably invested with a public interest. See The Dallas
      Morning News, Inc. v. Fifth Court of Appeals, 842 S.W.2d 655, 663 (Tex.1992, orig. proceeding) (Doggett, J., dissenting from
      overruling of motion for leave to file petition for writ of mandamus).
40    The “public rights” concept has been recently muddled by the federal courts. In Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 109
      S.Ct. 2782, 106 L.Ed.2d 26 (1989), the court, although upholding the right to a jury trial for defendants sued for fraudulent conveyance
      by a trustee in bankruptcy, broadened the scope of its “public rights” exception to include all cases “involving statutory rights that
      are integral parts of a public regulatory scheme and whose adjudication Congress has assigned to an administrative agency.” Id. at
      55 n. 10, 109 S.Ct. at 2797 n. 10. See also Thomas v. Union Carbide Agric. Prod. Co., 473 U.S. 568, 586, 105 S.Ct. 3325, 3335,
      87 L.Ed.2d 409 (1985) (rejecting the view that the government must bring suit in order for litigation to involve “public rights”). I
      believe that such an expansive reading of “public rights” would not be consistent with the broad state constitutional protection of
      the right to trial by jury in Texas.
41    In view of recent attacks nationwide on the jury system, a recent study determined that
            Our central conclusion is that the civil jury system is valuable and works well.... It is [not] “broken,” and therefore it need not
            be “fixed.” The jury system is a proven, effective, an important means of resolving civil disputes.
         The Brookings Institution, Charting a Future for the Civil Jury System 2 (1992).
42    As the majority recognizes, “the parties insist that any question of standing has been waived in the trial court and cannot be raised
      by the court for the first time on appeal.” 852 S.W.2d at 443–444.
43    Despite the clear statement in Sabine River that “[w]e assume without deciding that Sabine has no justiciable interest,” 369 S.W.2d
      at 349, the majority today asserts that “standing was present” in the trial court in that case. 852 S.W.2d at 446 n. 9.
44    See, e.g., Espiricueta v. Vargas, 820 S.W.2d 17, 20 (Tex.App.—Austin 1991, writ denied); Integrated Title Data Systems v. Dulaney,
      800 S.W.2d 336 (Tex.App.—El Paso 1990, no writ); State v. Euresti, 797 S.W.2d 296, 299 (Tex.App.—Corpus Christi 1990, no writ);
      Cissne v. Robertson, 782 S.W.2d 912, 917 (Tex.App.—Dallas 1989, writ denied); Broyles v. Ashworth, 782 S.W.2d 31, 34 (Tex.App.
      —Fort Worth 1989, no writ); Horton v. Robinson, 776 S.W.2d 260, 263 (Tex.App.—El Paso 1989, no writ); L.G. v. State, 775 S.W.2d
      758, 760 (Tex.App.—El Paso 1989, no writ); Wilson v. United Farm Workers of America, 774 S.W.2d 760, 764 (Tex.App.—Corpus
      Christi 1989, no writ); Smiley v. Johnson, 763 S.W.2d 1, 4 (Tex.App.—Dallas 1988, writ denied); Ex Parte McClain, 762 S.W.2d
      238, 242 (Tex.App.—Beaumont 1988, no writ); Goeke v. Houston Lighting & Power Co., 761 S.W.2d 835, 837 n. 1 (Tex.App.—
      Austin 1988), rev'd on other grounds, 797 S.W.2d 12 (Tex.1990); Group Medical and Surgical Service, Inc. v. Leong, 750 S.W.2d



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      791, 794–95 (Tex.App.—El Paso 1988, writ denied); City of Fort Worth v. Groves, 746 S.W.2d 907, 913 (Tex.App.—Fort Worth
      1988, no writ); Barron v. State, 746 S.W.2d 528, 530 (Tex.App.—Austin 1988, no writ); Reynolds v. Charbeneau, 744 S.W.2d
      365, 367 (Tex.App.—Beaumont 1988, writ denied); Champion v. Wright, 740 S.W.2d 848, 851 (Tex.App.—San Antonio 1987, writ
      denied); Texas Low–Level Radioactive Waste Disposal Authority v. El Paso County, 740 S.W.2d 7, 8 (Tex.App.—El Paso 1987,
      writ dism'd w.o.j.); S.I. Property Owners' Ass'n v. Pabst Corp., 714 S.W.2d 358, 360 (Tex.App.—Corpus Christi 1986, writ ref'd
      n.r.e.); Gonzales v. City of Lancaster, 675 S.W.2d 293, 294–95 (Tex.App.—Dallas 1984, no writ); Mabe v. City of Galveston, 687
      S.W.2d 769, 771 (Tex.App.—Houston [1st Dist.] 1985, writ dism'd); Develo-cepts, Inc. v. City of Galveston, 668 S.W.2d 790, 793
      (Tex.App.—Houston [14th Dist.] 1984, no writ); Griffith v. Pecan Plantation Owners Ass'n, Inc., 667 S.W.2d 626, 628 (Tex.App.—
      Fort Worth 1984, no writ); City of Houston v. Public Utility Comm'n of Texas, 656 S.W.2d 107, 110 n. 1 (Tex.App.—Austin 1983,
      writ ref'd n.r.e.); Public Utility Comm'n v. J.M. Huber Corp., 650 S.W.2d 951, 955–56 (Tex.App.—Austin 1983, writ ref'd n.r.e.);
      Vaughn Bldg. Corp. v. Austin Co., 620 S.W.2d 678 (Tex.Civ.App.—Dallas 1981), aff'd, 643 S.W.2d 113 (Tex.1982); War–Pak, Inc.
      v. Rice, 604 S.W.2d 498 (Tex.Civ.App.—Waco 1980, writ ref'd n.r.e.).
45    Texas Dep't of Mental Health v. Petty, 778 S.W.2d 156, 166 (Tex.App.—1989, writ dism'd w.o.j.) (opinion by Powers, J.); Public
      Utility Comm'n v. J.M. Huber Corp., 650 S.W.2d 951, 954–56 (Tex.App.—Austin 1983, writ ref'd n.r.e.) (opinion by Powers, J.);
      Hooks v. Texas Dep't of Water Resources, 645 S.W.2d 874 (Tex.App.—Austin 1983, writ ref'd n.r.e.) (opinion by Powers, J.); see
      also Kircus v. London, 660 S.W.2d 869, 872 n. 3 (Tex.App.—Austin 1983, no writ) (opinion by Phillips, C.J.).
46    See, e.g., Boyles v. Kerr (Tex.1992) (Doggett, J., dissenting) (objecting to majority's overruling of landmark Texas Supreme Court
      decision permitting recovery for negligence resulting in emotional distress); Walker v. Packer, 827 S.W.2d 833, 835 (Tex.1992,
      orig. proceeding) (Doggett, J., dissenting) (noting majority's “mass execution of precedent,” encompassing “a dozen or more Texas
      Supreme Court cases and countless decisions of the courts of appeals”); Carrollton–Farmers Branch Indep. Sch. Dist., 826 S.W.2d
      at 539 (Tex.1992) (Doggett, J., dissenting) (discussing rejection by majority of its own decision issued less than one year previously);
      Stewart Title Guar. Co. v. Sterling, 822 S.W.2d 1, 12 (Tex.1991) (Doggett, J., dissenting) (majority disregards its own recent
      precedent, looking instead to overruled case); Rose v. Doctors Hosp., 801 S.W.2d 841, 852 (Tex.1990) (Doggett, J., dissenting)
      (disapproving of rejection of recent controlling precedent).
47    The United States Supreme Court has clearly stated that standing does not implicate separation of powers concerns. See Flast v.
      Cohen, 392 U.S. 83, 100, 88 S.Ct. 1942, 1953, 20 L.Ed.2d 947 (1968) ( “The question whether a particular person is a proper party
      to maintain the action does not, by its own force, raise separation of powers problems related to improper judicial interference in
      areas committed to other branches of ... Government.”).
48    See section I, supra.

49    See, e.g., Brown v. Robinson, 354 So.2d 272, 273 (Ala.1977); Jackson v. Nangle, 677 P.2d 242, 250 n. 10 (Alaska 1984); Torrez
      v. State Farm Mut. Auto Ins. Co., 130 Ariz. 223, 635 P.2d 511, 513 n. 2 (App.1981); Cowart v. City of West Palm Beach, 255
      So.2d 673, 675 (Fla.1971); Lyons v. King, 397 So.2d 964 (Fla.App.1981); Greer v. Illinois Housing Development Auth., 122 Ill.2d
      462, 120 Ill.Dec. 531, 552, 524 N.E.2d 561, 582 (1988); Matter of Trust of Rothrock, 452 N.W.2d 403, 405 (Iowa 1990); Tabor
      v. Council for Burley Tobacco, Inc., 599 S.W.2d 466, 468 (Ky.App.1980); Sanford v. Jackson Mall Shopping Ctr. Co., 516 So.2d
      227, 230 (Miss.1987); Fossella v. Dinkins, 66 N.Y.2d 162, 495 N.Y.S.2d 352, 1019, 485 N.E.2d 1017, 1019 (1985); Public Square
      Tower One v. Cuyahoga County Bd. of Revision, 34 Ohio App.3d 49, 516 N.E.2d 1280, 1281 n. 2 (1986); Federman v. Pozsonyi,
      365 Pa.Super. 324, 529 A.2d 530, 532 (1987); McMullen v. Zoning Board of Harris Township, 90 Pa.Cmwlth. 119, 494 A.2d 502
      (1985); International Depository, Inc. v. State, 603 A.2d 1119, 1122 (R.I.1992); State v. Miller, 248 N.W.2d 377, 380 (S.D.1976);
      Princess Anne Hills Civ. League, Inc. v. Susan Constant Real Estate Trust, 243 Va. 53, 413 S.E.2d 599, 603 n. 1 (1992); Tyler Pipe
      Industries, Inc. v. State Dep't of Revenue, 105 Wash.2d 318, 715 P.2d 123, 128 (1986); Poling v. Wisconsin Physicians Serv., 120
      Wis.2d 603, 357 N.W.2d 293, 297–98 (App.1984). The majority's odd attempt to distinguish some of these cases, all of which are
      predicated in terms of standing, as involving solely the question of whether the litigant was a proper “real party in interest” has never
      been drawn previously in the published decisions of any Texas court addressing the question of standing. See cases cited at notes
      44, supra, and 50, infra.
50    See Texas Industrial Traffic League, 633 S.W.2d at 822–23; Central Educ. Agency v. Burke, 711 S.W.2d at 8; American General Fire
      & Casualty Co. v. Weinberg, 639 S.W.2d 688; Cox v. Johnson, 638 S.W.2d at 868. To avoid overruling these, the majority claims
      all three recognized that lack of subject matter jurisdiction can initially be raised on appeal. True, but ignored is the conclusion of
      each that subject matter jurisdiction cannot be waived while standing can be.
51    Our past acknowledgement of the legislative power to expand access to Texas courts is inconsistent with today's conclusion that
      we must narrowly limit access. See Mark V. Tushnet, The New Law of Standing: A Plea for Abandonment, 62 Corn.L.Rev. 663
      (1977) (because court decisions do not question legislative power to confer standing by statute, they suggest that standing rules are
      not constitutionally grounded).




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52    Despite the participation of associational litigants before this court, we have never before questioned standing on our own motion.
      See, e.g., Austin Indep. Sch. Dist. v. Sierra Club, 495 S.W.2d 878 (Tex.1973).
53    See Safe Water Foundation of Texas v. City of Houston, 661 S.W.2d 190, 193 (Tex.App.—Houston [1st Dist.] 1983, writ ref'd n.r.e.)
      (recognizing precedent of this court as according broad right of standing), app. dism'd, 469 U.S. 801, 105 S.Ct. 55, 83 L.Ed.2d 6
      (1984); Texas Industrial Traffic League v. Railroad Comm'n of Texas, 628 S.W.2d 187 (Tex.App.—Austin) (discussing Supreme
      Court's expansive approach to standing to allow access to Texas courts), rev'd, 633 S.W.2d 821 (Tex.1982) (per curiam), overruled
      by Tex. Ass'n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440 (Tex.1993).
54    Accord Hunt v. Bass, 664 S.W.2d 323, 324 (Tex.1984) (recognizing statutorily-granted standing of litigants to seek mandamus to
      reduce substantial delays in court operations); Safe Water Foundation of Texas v. City of Houston, 661 S.W.2d 190 (Tex.App.—
      Houston [1st Dist.] 1983, writ ref'd n.r.e.), app. dism'd, 469 U.S. 801, 105 S.Ct. 55, 83 L.Ed.2d 6 (1984) (drinking water consumer
      group had standing to contest fluoridation of city water).
55    These requirements are allegedly necessary to protect “the members' best interest.” 852 S.W.2d at 447. Perhaps an organization's
      members are in a better position than this court to determine what is in their best interest.
56    Charles A. Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice & Procedure, § 3531.3, at 418 (“The problems [of
      standing] are difficult enough without the compounding effect of constitutional attribution.”).
57    See also, e.g., Valley Forge Christian College v. Americans United for Separation of Church and State, 454 U.S. 464, 490, 102
      S.Ct. 752, 768, 70 L.Ed.2d 700 (1982) (Brennan, J., dissenting); Abram Chayes, The Supreme Court, 1981 Term—Foreword: Public
      Law Litigation and the Burger Court, 96 Harv.L.Rev. 4, 23 (1982) (Having ritually recited the standing formula, “the Court then
      chooses up sides and decides the case.”); Michael A. Wolff, Standing to Sue: Capricious Application of Direct Injury Standard, 20
      St.L.U.L.J. 663, 678 (standing barrier “raised or lowered based on the degree of hostility to, or favoritism for, consideration of the
      issues on their merits”); Albert Broderick, The Warth Optional Standing Doctrine: Return to Judicial Supremacy? 25 Cath.U.L.Rev.
      467, 504, 516–17 (1976).
58    See Katherine B. Steuer and Robin L. Juni, Court Access for Environmental Plaintiffs: Standing Doctrine in Lujan v. National
      Wildlife Federation, 15 Harv.Envtl.L.Rev. 187, 232–33 (1991); Sarah A. Robichaud, Note, Lujan v. National Wildlife Federation: The
      Supreme Court Tightens the Reins on Standing for Environmental Groups, 40 Cath.U.L.Rev. 443, 470–74 (1991); V. Maria Cristiano,
      Note, In Determining an Environmental Organization's Standing to Challenge Government Actions Under the Land Withdrawal
      Review Program, the Use of Lands in the Vicinity of Lands Adversely Affected by the Order of the Bureau of Land Management
      Does Not Constitute Direct Injury—Lujan v. National Wildlife Federation, 2 Seton Hall Const. L.J. 445 (1991); Michael J. Shinn,
      Note, Misusing Procedural Devices to Dismiss an Environmental Lawsuit, 66 Wash.L.Rev. 893, 904–12 (1991); Lynn Robinson
      O'Donnell, Note, New Restrictions in Environmental Litigation: Standing and Final Agency Action After Lujan v. National Wildlife
      Federation, 2 Vill.Envtl.L.J. 227, 251 (1991); Bill J. Hays, Comment, Standing and Environmental Law: Judicial Policy and the
      Impact of Lujan v. National Wildlife Federation, 39 Kan.L.Rev. 997, 1042–43 (1991).
1     Before it adopts a federal test and federal gloss, the majority asserts the “general test for standing in Texas” is what it quotes from
      Board of Water Engineers v. City of San Antonio, 155 Tex. 111, 114, 283 S.W.2d 722, 724 (1955). The majority overrules the Texas
      Industrial Traffic League case, which addressed standing in the context of “justiciable interest” discussed in the more recent cases
      of Coffee v. William Marsh Rice University, 403 S.W.2d 340 (Tex.1966), and Sabine River Authority v. Willis, 369 S.W.2d 348
      (Tex.1963). The context of the cases differed from Board of Water Engineers, of course. The precise meaning of “standing” in fact
      depends on the context. The majority adopts a federal gloss, and the federal courts have stated, “Generalizations about standing to
      sue are largely worthless as such.” Association of Data Proc. Serv. Orgs. v. Camp, 397 U.S. 150, 151, 90 S.Ct. 827, 829, 25 L.Ed.2d
      184 (1970). Using “standing” to mean a party's legal capacity to sue is my best description of the labyrinth of different cases the
      majority uses interchangeably.
2     Richardson v. First Nat'l Life Ins. Co., 419 S.W.2d 836 (Tex.1967), relied upon by the majority for the proposition that pleadings
      must “affirmatively show that the court has jurisdiction to hear the cause,” 852 S.W.2d at 446, was expressly distinguished in Peek.
      This unanimous opinion written for the Court by Chief Justice Phillips explained that Richardson really meant that if the pleadings
      affirmatively showed there was no jurisdiction, then the case should be dismissed, but otherwise there was a presumption that the
      amount omitted from the pleading would support jurisdiction. Peek, 779 S.W.2d at 804.


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Texas Ass'n of Business v. Texas Air Control Bd., 852 S.W.2d 440



    History (1)

    Direct History (1)
        1. Texas Ass'n of Business v. Texas Air Control Bd.
     852 S.W.2d 440 , Tex. , Mar. 03, 1993 , rehearing of cause overruled ( May 05,
     1993 )




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Texas Dept. of Public Safety v. Moore, 985 S.W.2d 149 (1998)




                                             985 S.W.2d 149
                                         Court of Appeals of Texas,
                                                  Austin.

                     TEXAS DEPARTMENT OF PUBLIC SAFETY, Appellant
                                           v.
                              Charles V. MOORE, Appellee.

                              No. 03–98–00135–CV.              |   Nov. 30, 1998.

Unsuccessful candidate for promotion to position of Assistant Commander of the Criminal
Intelligence Service sued Department of Public Safety for reverse discrimination under Human
Rights Act, and later amended complaint to seek declaration under Uniform Declaratory
Judgments Act (UDJA) that Department acted outside statutory authority in filling position and
three others without competitive examination. The 250th Judicial District Court, Travis County,
Paul R. Davis, Jr., J., granted cross-motions for summary judgment, dismissing discrimination
claim for failure to exhaust administrative remedies, declaring Department failed to comply with
statutory hiring procedure, ordering the four positions vacated, and awarding attorney fees to
candidate. Department appealed. The Court of Appeals, Kidd, J., held that: (1) claim presented
a justiciable controversy sufficient to invoke jurisdiction under UDJA; (2) claim was not barred
by sovereign immunity; (3) Commander and Assistant Commander positions within Department
had to be filled by competitive examination; but (4) injunctive relief should not have been made
retrospective.

Affirmed in part and reversed in part.


Attorneys and Law Firms

*151 Dan Morales, Attorney General, Martin J. Thompson, Jr., Assistant Attorney General,
Austin, for Appellant.

*152 Paul Dodson, White, Huseman & Pletcher, Corpus Christi, for Appellee.

Before Justices POWERS, JONES and KIDD.

Opinion

MACK KIDD, Justice.




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Texas Dept. of Public Safety v. Moore, 985 S.W.2d 149 (1998)



Appellant, the Texas Department of Public Safety (the “Department”), failed to recommend
appellee Charles Moore for promotion to the position of Assistant Commander of the Criminal
Intelligence Service. Moore sued under the Human Rights Act claiming reverse discrimination
and, by later amendment, under the Uniform Declaratory Judgments Act (the “UDJA”) seeking
a declaration that the Department acted outside its statutory authority in filling four high-ranking
positions without examining applicants based on merit. The trial court granted summary judgment
against Moore on the discrimination claim. The trial court also granted partial summary judgment
in favor of Moore, declaring that the Department acted outside its statutory authority in filling the
four positions, and ordered those positions vacated. The Department appeals. In its points of error,
the Department challenges (1) the trial court's jurisdiction under section 411.007 of the Texas
Government Code and the UDJA; (2) the trial court's decision to order the four positions vacated;
and (3) the trial court's discretion in awarding attorney's fees. We will affirm the trial court's order
in part and reverse in part.



                                               BACKGROUND

In October 1993, the Department announced a vacancy in the position of Assistant Commander
of the Criminal Intelligence Service. Commander Don Plemons, the officer charged with making
the recommendation for appointment to fill the vacancy, orally interviewed seven candidates.
Among these candidates were Charles Moore, a white male, and Enrique Garcia, an Hispanic
male. Plemons recommended Garcia, and Garcia was appointed to the position. Moore sued in
district court.

[1]    Moore originally brought suit under the Human Rights Act claiming he was the victim
of reverse racial discrimination when he was denied promotion in favor of Garcia. 1 Moore
later amended his petition to include a declaratory judgment claim based upon the Department's
alleged failure to comply with section 411.007(b) of the Texas Government Code, which
requires that the Department make promotions or appointments based upon merit determined
by examination. See Tex. Gov't Code Ann. § 411.007(b) (West 1998). The trial court granted
cross motions for summary judgment; declaring that the Department failed to comply with all
the requirements of section 411.007(b) in promoting Garcia to Assistant Commander of the
Criminal Intelligence Service, and dismissing Moore's discrimination claim for failure to exhaust
the necessary administrative remedies. 2 Moore does not appeal the dismissal of his discrimination
claim.

Before the trial court rendered final judgment, the Department filled the positions of Commander
of the Criminal Intelligence Service, Commander of Narcotics, and Assistant *153 Commander
of Narcotics; also by appointment, and also, allegedly, without a competitive examination. The
trial court allowed amendment of Moore's petition to ask for declaratory relief regarding these

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Texas Dept. of Public Safety v. Moore, 985 S.W.2d 149 (1998)



three additional positions. Subsequently, the trial court rendered final judgment declaring that
the Department failed to comply with the competitive examination requirements of section
411.007(b) in hiring the four aforementioned positions, and ordered them vacated and filled
through competitive examination. The trial court also awarded Moore attorney's fees. The
Department brings this appeal.



                                                 DISCUSSION

 [2] The Department initially challenges the trial court's jurisdiction to hear Moore's claim.
Specifically, the Department argues that section 411.007(b) only establishes norms for the
Department in promoting its employees, and fails to create any cause of action in Moore.
Additionally, the Department contends that the UDJA likewise fails to create a cause of action in
Moore, and cannot be used as a vehicle to interpret section 411.007(b) of the Labor Code. The
determination of jurisdiction under the UDJA is a question of law. See Ainsworth v. Oil City Brass
Works, 271 S.W.2d 754, 760 (Tex.Civ.App.—Beaumont 1954, no writ). We will look first to the
jurisdiction of the trial court before deciding whether the court erred in entering its order.


Jurisdiction and the Declaratory Judgments Act
 [3] Enacted in 1943, the UDJA confers on Texas courts the authority to “declare rights, status,
and other legal relations whether or not further relief is or could be claimed.” Tex. Civ. Prac. &
Rem.Code Ann. § 37.003 (West 1997). The Legislature intended the UDJA to be remedial, to
settle and afford relief from uncertainty and insecurity with respect to rights, and to be liberally
construed. Tex. Civ. Prac. & Rem.Code Ann. § 37.002 (West 1997). Describing the subject matter
available for relief, the UDJA provides:

            A person interested under a deed, will, written contract, or other writings
            constituting a contract or whose rights, status, or other legal relations are
            affected by a statute, municipal ordinance, contract, or franchise may have
            determined any question of construction or validity arising under the instrument,
            statute, ordinance, contract, or franchise and obtain a declaration of rights, status,
            or other legal relations thereunder.

Tex. Civ. Prac. & Rem.Code Ann. § 37.004 (West 1998) (emphasis added).

 [4] [5] [6] [7] [8] [9] A suit under the UDJA is not confined to cases in which the parties
have a cause of action apart from the Act itself. Transportation Ins. Co. v. Franco, 821 S.W.2d 751,
754 (Tex.App.—Amarillo 1992, writ denied). A declaratory judgment, however, is appropriate
only if (1) a justiciable controversy exists as to the rights and status of the parties; and (2) the
controversy will be resolved by the declaration sought. See Bonham State Bank v. Beadle, 907

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Texas Dept. of Public Safety v. Moore, 985 S.W.2d 149 (1998)



S.W.2d 465, 467 (Tex.1995) (citing Texas Ass'n of Bus. v. Texas Air Control Bd., 852 S.W.2d 440,
446 (Tex.1993)); see also City of Austin v. L.S. Ranch, Ltd., 970 S.W.2d 750, 754, (Tex.App.—
Austin 1998, no pet.). A justiciable controversy is one in which a real and substantial controversy
exists involving a genuine conflict of tangible interest and not merely a theoretical dispute. See
Beadle, 907 S.W.2d at 467. A justiciable controversy must be distinguished from an advisory
opinion, which is prohibited under both the Texas and federal constitutions. See Texas Air Control
Bd., 852 S.W.2d at 444. A judgment under the UDJA depends on a finding that the issues are not
hypothetical or contingent, and the questions presented must resolve an actual controversy. Empire
Life Ins. Co. v. Moody, 584 S.W.2d 855, 858 (Tex.1979). A justiciable controversy, however, does
not necessarily equate with a fully ripened cause of action:

            It is not necessary that a person who seeks a declaration of rights under this
            statute shall have incurred or caused damage or injury in a dispute over rights and
            liabilities, but it has frequently been held that an action for declaratory judgment
            would *154 lie when the fact situation manifests the presence of ‘ripening
            seeds of a controversy.’ Such appear where the claims of several parties are
            present and indicative of threatened litigation in the immediate future which
            seems unavoidable, even though the differences between the parties as to their
            legal rights have not reached the state of an actual controversy.

Ainsworth, 271 S.W.2d at 761.

The crux of this appeal concerns the application of section 411.007(b) to the advancement
of personnel within the Department through appointment or promotion. In the section entitled
“Officers and Employees,” section 411.007(b) provides:

            Appointment or promotion of an officer or employee must be based on merit
            determined by examination under commission rules that take into consideration
            the applicant's age, physical condition, experience, and education. Each person
            who has an application on file for a position in the department shall be given
            reasonable written notice of the time and place of those examinations.

Tex. Gov't Code Ann. § 411.007(b) (West 1998). The Department originally contends that section
411.007(b) creates no cause of action in Moore, and, therefore, the trial court had no jurisdiction
to hear the case. The trial court received its jurisdiction from the controversy created by the
Department's application of section 411.007(b) to Moore, not from the words of the statute itself.
The UDJA provides for a declaration of rights for persons “whose rights, status, or other legal
relations are affected by a statute....” Tex. Civ. Prac. & Rem.Code Ann. § 37.004 (West 1998).
Jurisdiction under the UDJA primarily depends on the nature of the controversy; whether the
controversy is merely hypothetical or rises to the justiciable level. See Empire Life Ins., 584 S.W.2d
at 858.


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Texas Dept. of Public Safety v. Moore, 985 S.W.2d 149 (1998)




Moore's interest in being treated according to statute when applying for vacant positions in the
Department clearly implicates the UDJA's purpose of clarifying rights affected by statute. The
controversy lies not in the actions of the Department in reviewing Moore's application for Assistant
Commander of Criminal Intelligence, but in the Department's application of its promotional rules
to future appointment vacancies. The Department has already taken an adverse stance to Moore's
position by allegedly not requiring competitive examinations when filling the initial vacancy. The
Department's repetition of the same behavior in filling three subsequent positions emphasizes the
actuality of the controversy. There is clearly a justiciable controversy sufficient to invoke the
court's jurisdiction through the UDJA to clarify Moore's, and any other applicant's, rights as they
pertain to the Department's hiring procedure. Furthermore, the trial court's declaration resolves
the controversy by informing the Department that its actions in filling Assistant Commander
and Commander positions without examining applicants based on merit falls outside its statutory
authority.

 [10] [11] The Department next argues that sovereign immunity shields the Department as an
agency of the state. The Department argues that the UDJA does not act to waive the State's ordinary
immunity from liability. Suits challenging an agency's action as being outside the scope of its
delegated authority are not suits against the State requiring legislative or statutory authority. Public
Util. Comm'n v. City of Austin, 728 S.W.2d 907, 911 (Tex.App.—Austin 1987, writ ref'd n.r.e.).
Because Moore's suit under the UDJA sought a declaration that the Department acted outside its
statutory authority in appointing various high-level positions without examining applicants based
on merit, no explicit waiver by the State was necessary. Therefore, Moore's suit was not barred
by sovereign immunity. We hold the trial court had jurisdiction to hear Moore's claim under the
UDJA and overrule the Department's points of error in that regard.


The Requirement of “Merit–Based” Promotion
 [12] We must now determine whether the trial court erred in holding that the Department
acted outside its statutory authority when filling the four vacancies. The enabling statutes of
the Department clearly provide for merit-based promotion and appointment. See *155 Tex.
Gov't Code Ann. § 411.007(b) (West 1998). That same section further provides for a competitive
examination of some sort, and provides that all applicants “shall receive notice of the time and
place of such examinations.” Id. While it is true that the statute, under the section entitled “Duties of
Director,” reserves for the Director's discretion some positions to be filled by “direct appointment,”
the section limits these direct appointments to chiefs of bureaus. See Tex. Gov't Code Ann. §
411.006(6) (West 1998) (emphasis added). 3 No other positions are mentioned.

[13] Pursuant to section 411.004(3), the Public Safety Commission (the “Commission”)
promulgated rules governing appointments and promotions. See Tex. Gov't Code § 411.004(3)


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Texas Dept. of Public Safety v. Moore, 985 S.W.2d 149 (1998)



(West 1998). 4 These rules include the policy that the Department shall make all appointments
based on merit. See 37 Tex. Admin. Code § 1.21(a) (1998). In keeping with the policy of making
appointments based on merit, the rules provide that “examinations will be conducted for all
positions excepting unskilled labor, trades, and direct appointments made by the Director.” 37 Tex.
Admin. Code § 1.27 (1998) (emphasis added). Reading the rule in conjunction with the statute, the
rule exempts from competitive examination only unskilled labor, trades, and the chiefs of bureaus.
However, despite the language of the statute restricting directorial appointments to bureau chiefs,
and despite the Department's own rules advocating the policy of promotions based on merit, the
Department seeks in its General Manual to expand the number of director appointments exempted
from competitive examination:


   Positions of major division chief, assistant major division chief, division chief, regional
   commander, commander, assistant commander, senior Ranger captain, assistant supervisor of
   Rangers, Director and Assistant Director of Personnel and of Training, other positions deemed
   necessary and appropriate by the Director and positions of the Director's staff will be filled by
   direct appointment of the Director.
   Texas Department of Public Safety General Manual, Chap. 7, § 26.04(4).
 [14] [15] The Department argues that the Assistant Commander and Commander positions are
exempt from competitive examination by virtue of the discretion granted the Department by statute
coupled with the listing of director appointments found in the Department's General Manual. In
the alternative, the Department argues that, should the Assistant Commander position be subject
to competitive examination, the oral interview by Commander Plemons given to applicants should
suffice. While we agree with the Department that the statute does provide discretion to the
Commission and the Department to create its own rules and to define examination based on merit
for purposes of promotional appointments, we reject the notion that the Assistant Commander and
Commander positions are exempt, or that the oral interview could fulfill the statutory requirement
of a competitive examination. The language of the statute, and that of the Department's own
rules, clearly envisions a merit-based promotional system for all those positions not specifically
exempted as director appointments. And, according to statute and the rules promulgated by the
Commission, Assistant Commander and Commander are not positions so exempted. Furthermore,
the mere existence of section 26.04(4) in the Department's General Manual expanding the number
of exemptions beyond statutory limits both exceeds the Department's authority and belies the
Department's argument that the oral interviews given applicants fulfilled the requirement of a
competitive examination.

 [16] Moore argues that the statute contemplates written examinations as the proper manifestation
of competitive examinations. To the extent that Moore seeks affirmation from this Court for his
position, we reject it. The Department maintains the discretion to *156 create procedures for
competitive examinations regarding promotive appointments, provided such procedures make


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Texas Dept. of Public Safety v. Moore, 985 S.W.2d 149 (1998)



a good faith effort to comply with the statutory and agency requirement of “merit-based”
promotions. The Department should bear in mind, however, that the written notice requirements of
the statute regarding a stated time and location for the competitive examination seem to mandate
some type of formalized and structured examination. 5 See Tex. Gov't Code Ann. § 411.007(b)
(West 1998).


The Injunctive Order
 [17] The Department next contends that even if the trial court had jurisdiction to declare that
the Department failed to comply with section 411.007(b) in hiring Garcia and the others without
resort to competitive examination, the trial court had no jurisdiction, or, alternatively, abused its
discretion, in ordering the Department to vacate the four positions contested by Moore. We note
initially that actions under the UDJA are sui generis; they are unique in that the declarations of
“rights, status and other legal relations” are not truly legal or equitable. See Cobb v. Harrington,
144 Tex. 360, 190 S.W.2d 709, 713 (Tex.1945); see also Texas Liquor Control Bd. v. Canyon
Creek Land Corp., 456 S.W.2d 891, 895 (Tex.1970). We further note that, at the time of the
trial court's rendition of final judgment, Moore's discrimination claim had been dismissed through
summary judgment; thus the trial court's authority to act was based on the UDJA alone. Moore
argues that the UDJA allows the trial court to grant the injunctive relief requested, namely the
vacation of the four positions, as ancillary to the declaratory relief awarded. See Tex. Civ. Prac.
& Rem.Code § 37.011 (West 1998); see also Davis v. Pletcher, 727 S.W.2d 29, 35 (Tex.App.—
San Antonio 1987, writ ref'd n.r.e.). Under the facts presented here, we disagree.

 [18] As Moore suggests, the UDJA allows for injunctive relief ancillary to a declaration of rights
in some situations: “[F]urther relief based on a declaratory judgment or decree may be granted
whenever necessary or proper. The application must be by petition to a court having jurisdiction
to grant relief.” Tex. Civ. Prac. & Rem.Code. Ann. § 37.011 (West 1998). 6 This power to grant
ancillary relief is conditioned on such relief being necessary and proper. For the following reasons,
such relief in this case is inappropriate.

 [19] Regarding Moore's original reverse discrimination claim, filing a complaint with the Human
Rights Commission and exhausting administrative remedies was a mandatory prerequisite to filing
a civil action alleging a violation of the Human Rights Act under the Texas Labor Code. Schroeder
v. Texas Iron Works, Inc., 813 S.W.2d 483, 488 (Tex.1991). The rationale for this result is that
the Human Rights Act provides the exclusive remedy for alleged discrimination in administrative
agency personnel decisions. See Stinnett v. Williamson County Sheriff's Dep't, 858 S.W.2d 573,
577 (Tex.App.—Austin 1993, writ denied). Thus, Moore's failure to exhaust his administrative
remedies was a jurisdictional bar to filing a discrimination claim in district court, and the trial
court properly granted summary judgment against Moore's claim. Schroeder, 813 S.W.2d at 488.



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Texas Dept. of Public Safety v. Moore, 985 S.W.2d 149 (1998)



 [20] [21] [22] This procedural posture becomes important with regard to the trial court's
award of injunctive relief based solely on jurisdiction under the UDJA because it allows
Moore to circumvent the exclusive remedies provided for, and the purposes contained in, the
Human Rights Act. *157 The Human Rights Act includes a provision for injunctive relief
from unlawful employment practices. See Tex. Labor Code Ann. § 21.210 (West 1996). This
provision represented Moore's exclusive injunctive remedy until his administrative remedies had
been exhausted. Moore could have sought an injunction to halt the Department from promoting
Garcia and the other three appointments had he followed the proper administrative procedures.
He failed to do so. He sought and received in district court a declaration that the Department
had misinterpreted and misapplied section 411.007(b). This declaration clarified Moore's rights
and status regarding future vacancies in the Department. However, the order by the trial court
retroactively vacating the four Assistant Commander and Commander positions rewarded Moore
for failing to follow the exclusive remedies provided for him by law. Declaratory relief creates
no substantive rights. State v. Morales, 869 S.W.2d 941, 947 (Tex.1994). It provides a procedural
device for the determination of controversies which are already within the jurisdiction of the court.
Id. The remedy afforded by the UDJA is additional and does not supplant any existing remedy.
Cobb, 190 S.W.2d at 713; Crow v. City of Corpus Christi, 146 Tex. 558, 209 S.W.2d 922, 924
(Tex.1948). Because the exclusive remedy available to Moore regarding his reverse discrimination
claim is the Human Rights Act, which contains the right to injunctive relief, the trial court erred in
vacating the positions in the Department based solely on the ancillary injunctive power contained
in the UDJA.

Furthermore, the trial court's order undercut the purpose of the Human Rights Act to create a
comprehensive administrative review. See Stinnett, 858 S.W.2d at 577. The Human Rights Act
was intended to embody the policies embedded in Title VII, 42 U.S.C. § 2000e et seq., including
“administrative procedures involving informal conference, conciliation and persuasion, as well as
judicial review of administrative action.” Schroeder, 813 S.W.2d at 487. Allowing the jurisdiction
created by the UDJA to circumvent the procedures and remedies provided by the Human Rights
Act could create a back door to district court not contemplated by the Legislature. The proper
remedy for Moore is prospective. His declaratory judgment carries preclusive effect in any future
lawsuit, whether administrative or judicial, should the Department fail to offer him notice and
the opportunity for merit-based promotion as required by section 411.007(b). See Valley Oil
Co. v. City of Garland, 499 S.W.2d 333, 335 (Tex.Civ.App.—Dallas 1973, no writ). Thus, the
retroactive injunctive relief ordered by the trial court was not “necessary and proper” as required
under the UDJA before ancillary injunctive relief could be awarded. We reverse the trial court's
order vacating the Department's appointments of Assistant Commander of Criminal Intelligence
Service, Commander of Criminal Intelligence Service, Commander of Narcotics, and Assistant
Commander of Narcotics.


Attorney's Fees

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Texas Dept. of Public Safety v. Moore, 985 S.W.2d 149 (1998)



 [23] The trial court awarded Moore attorney's fees under the UDJA. The UDJA provides that
“[i]n any proceeding under this chapter, the court may award costs and reasonable and necessary
attorney's fees as are equitable and just.” Tex. Civ. Prac. & Rem.Code Ann. § 37.009 (West
1997). The Texas Supreme Court has expressly held that “by authorizing declaratory judgment
actions to construe the legislative enactments of governmental entities and authorizing awards of
attorney fees, the [U]DJA necessarily waives governmental immunity for such awards.” Texas
Educ. Agency v. Leeper, 893 S.W.2d 432, 446 (Tex.1994). The grant or denial of attorney's fees
in a declaratory judgment lies within the discretion of the trial court, and its judgment will not be
reversed on appeal absent a clear showing that it abused that discretion. Oake v. Collin County,
692 S.W.2d 454, 455 (Tex.1985).

 [24] [25] The Department argues that the UDJA may not be used solely as a vehicle for attorney's
fees. See HECI Exploration Co. v. Clajon Gas Co., 843 S.W.2d 622, 637 (Tex.App.—Austin
1992, writ denied). Since we have held that the trial court had jurisdiction to construe section
411.007(b) and that the trial court's construction of that statute favors Moore, Moore has achieved
a declaration *158 of rights entitling him to seek the additional relief of attorney's fees. See
Tex. Civ. Prac. & Rem.Code Ann. § 37.009 (West 1997). The Department's argument fails. The
Department also objects to the award of attorney's fees in the final judgment based upon affidavits
of the competing parties, claiming that the affidavits do not represent competent evidence that
the attorney's fees were reasonable and necessary. See Stewart Title Guar. Co. v. Sterling, 822
S.W.2d 1, 10 (Tex.1991). We refuse to hold that this procedure for determining attorney's fees
rises to the level of an abuse of discretion. We overrule the Department's point of error regarding
attorney's fees.



                                                         CONCLUSION

We affirm the order of the trial court declaring that the Department acted outside its statutory duty
pursuant to section 411.007(b) in filling four Assistant Commander and Commander positions
without examining applicants based on merit. We further affirm the order of the trial court
awarding attorney's fees. We reverse the order of the trial court vacating the four Assistant
Commander and Commander positions and hold that Moore's only injunctive relief must be
prospective.



Footnotes
1    The relevant statute provides:
            An employer commits an unlawful employment practice if because of race, color, disability, religion, sex, national origin, or
            age the employer:
            (1) fails or refuses to hire an individual, discharges an individual, or discriminates in any other manner against an individual in
            connection with compensation or the terms, conditions, or privileges of employment; or



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Texas Dept. of Public Safety v. Moore, 985 S.W.2d 149 (1998)


            (2) limits, segregates, or classifies an employee or applicant for employment in a manner that would deprive or tend to deprive
            an individual of any employment opportunity or adversely affect in any other manner the status of an employee.
         Tex. Labor Code Ann. § 21.051 (West 1996).
2     An employee of the State of Texas who alleges employment discrimination must file a complaint with the Texas Commission on
      Human Rights not later than the 180th day after the date the alleged unlawful employment practice occurred. Tex. Labor Code Ann.
      § 21.202 (West 1996). Furthermore, any federal complaint of employment discrimination shall be filed with the Equal Employment
      Opportunity Commission within 180 days; except that if the employee files with a state agency then the employee has 300 days to
      file. 42 U.S.C.S. § 2000e–5(c) (1989).
         A plaintiff's failure to file a complaint and pursue administrative remedies creates a jurisdictional bar to his claim. See Schroeder
         v. Texas Iron Works, 813 S.W.2d 483, 488 (Tex.1991).
3     The relevant section of the statute provides: “The director shall: ... appoint, with the advice and consent of the commission, the chiefs
      of bureaus provided for by this chapter.” Tex. Gov't Code Ann. § 411.006(6) (West 1998).
4     The relevant section of the statute provides: “The commission shall ... adopt rules necessary for carrying out the department's work.”
      Tex. Gov't Code Ann. § 411.004(3) (West 1998).
5     We reject, for example, the suggestion made by the Department at oral argument that an official with the Department could discharge
      the Department's responsibility to offer a competitive examination by merely examining the personnel records of the applicants.
6     Several courts, including this one, have interpreted section 37.011 of the UDJA as allowing parties to combine a request for declaratory
      relief with a request for injunction. See Weaver v. AIDS Servs. of Austin, Inc., 835 S.W.2d 798, 803 (Tex.App.—Austin 1992, writ
      denied) (AIDS services group seeking declaration of rights and injunction barring protestors from interfering with workshops); Davis,
      727 S.W.2d at 35 (purchaser of real property seeking declaration interpreting various property conveyances and injunction to halt
      triggering of acceleration clause).


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Texas Dept. of Public Safety v. Moore, 985 S.W.2d 149



    History (1)

    Direct History (1)
        1. Texas Dept. of Public Safety v. Moore
     985 S.W.2d 149 , Tex.App.-Austin , Nov. 30, 1998 , rehearing overruled ( Mar 11,
     1999 )




            © 2015 Thomson Reuters. No claim to original U.S. Government Works.         11
Transcontinental Realty Investors, Inc. v. Orix Capital..., 353 S.W.3d 241 (2011)




                                                353 S.W.3d 241
                                            Court of Appeals of Texas,
                                                      Dallas.

                TRANSCONTINENTAL REALTY INVESTORS, INC., Appellant,
                                      v.
                       ORIX CAPITAL MARKETS, LLC, Appellee.

    No. 05–10–00655–CV.                 |    Oct. 19, 2011.       |   Rehearing Overruled Nov. 21, 2011.

Synopsis
Background: Note holder brought declaratory judgment action against guarantor seeking
declaration that guaranty was valid and enforceable, and that guarantor was obligated to pay note
holder all expenses, attorney fees, and other costs incurred at all levels of litigation between note
holder and guarantor's subsidiary. The 134th Judicial District Court, Dallas County, James M.
Stanton, J., granted a declaratory judgment in favor of note holder, and guarantor appealed.



[Holding:] The Court of Appeals, O'Neill, J., held that District Court was without jurisdiction to
declare guaranty valid.


Judgment vacated.


Attorneys and Law Firms

*242 Mitchell Madden, Thomas V. Murto, III, The Law Offices of Mitchell Madden, Dallas,
TX, for Appellant.

Talmage Boston, Winstead, Secrest & Minick, P.C., Kent B. Pearson, Winstead PC, Nicola
Hobeiche, Gregory D. May, Dallas, TX, for Appellee.

Before Justices MORRIS, O'NEILL, and FILMORE.



                                                      OPINION

Opinion By Justice O'NEILL.



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Transcontinental Realty Investors, Inc. v. Orix Capital..., 353 S.W.3d 241 (2011)



Appellant Transcontinental Realty Investors, Inc. appeals a declaratory judgment granted in favor
of Orix Capital Markets, LLC. In three issues, Transcontinental generally contends: (1) the trial
court erred in granting declaratory relief because no justiciable controversy existed and because
Orix had previously filed, but abandoned, a breach of contract claim raising the same contentions,
(2) the declaratory judgment act did not authorize the award of attorneys' fees in this case, and (3)
the attorneys' fees award was improper because Orix did not segregate the fees expended on the
declaratory judgment claim from fees expended on the abandoned breach of contract claim. For
the following reasons, we vacate the trial court's judgment and dismiss the cause.

This suit involves a Guaranty in which Transcontinental guaranteed payment of attorneys' fees
Orix expended in a suit against a Transcontinental subsidiary, TCI 9033 Wilshire Boulevard, Inc.
(TCI). TCI was the owner of commercial real estate subject to a mortgage loan serviced by Orix.
A dispute arose as to whether Orix could require that TCI purchase terrorism insurance. Orix
demanded that TCI purchase *243 such insurance and TCI refused. Orix then declared the loan
in default and began charging interest at the default rate. TCI filed suit for breach of contract and
declaratory relief. Orix counterclaimed—also for breach of contract and declaratory relief.

Meanwhile, a third party sought to purchase the TCI property. The mortgage documents required
Orix to consent to any sale of the property. Before Orix would consent, it required TCI's parent
company, Transcontinental, to guarantee any attorneys' fees that might be awarded to Orix in the
TCI litigation, which was to continue. To facilitate the sale, Transcontinental agreed and signed
the Guaranty.

Orix ultimately prevailed in the underlying litigation and obtained a judgment against TCI that
included $241,380.39 in attorneys' fees as well as appellate costs and fees in the event TCI
unsuccessfully appealed. TCI did appeal that judgment. A few months later, while the appeal
was pending, Orix filed the instant suit. In its original petition, Orix alleged Transcontinental
breached the Guaranty. Specifically, Orix contended that after the TCI judgment was signed, it
made a demand upon Transcontinental to “comply with its obligations” under the agreement,
but Transcontinental refused to “accept” its responsibilities and indebtedness created under the
Guaranty. As damages, it alleged the $241,380.39 that had been awarded, as well as any additional
appellate attorneys' fees that might later be incurred in the TCI appeal if Orix prevailed.

Transcontinental answered with a general denial and also asserted the affirmative defense of
duress asserting the Guaranty was unenforceable. Transcontinental also filed a motion to abate
or stay asserting the trial court should not determine the validity of the Guaranty until the TCI
appeal was resolved because no determination could be made as to whether it was liable until
Transcontinental's liability was first finally resolved.




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Transcontinental Realty Investors, Inc. v. Orix Capital..., 353 S.W.3d 241 (2011)



Orix responded by amending its petition to abandon its breach of contract claim and replace it
with a claim for declaratory relief. In its First Amended Petition, Orix sought a global declaration
that the Guaranty was valid and enforceable and that Transcontinental was obligated to pay Orix
all expenses, attorneys' fees, and other costs incurred at all levels of litigation of the TCI lawsuit
as well as in any separate proceeding.

Orix filed a motion for summary judgment asserting the Guaranty was valid as a matter of law and
was not procured by duress. Orix stated it was seeking a determination that Transcontinental was
liable for the attorneys' fees ultimately awarded if they were affirmed on appeal. It asserted the
pendency of the appeal in the underlying judgment should not prevent it from obtaining declaratory
relief because it was not seeking to recover any attorneys' fees from the TCI lawsuit yet, but was
only seeking a declaration of liability for such fees (and all additional appellate fees in that case)
“if and when” the TCI appeal was concluded in Orix's favor. Orix also expressly requested the
trial court to “extinguish” all affirmative defenses to the Guaranty. Transcontinental responded to
the motion asserting the trial court lacked jurisdiction because whether any controversy about the
Guaranty existed was not ripe for review.

The trial court granted declaratory relief declaring the Guaranty “valid and enforceable” to
which Transcontinental had “no viable affirmative defense.” The court also declared that
Transcontinental was obligated to pay all attorneys' fees and costs awarded to Orix in the TCI
litigation at all levels. In this appeal, Transcontinental asserts the trial court erred in *244 granting
declaratory relief because validity of the Guaranty did not present a justiciable issue. We agree.

 [1] A person interested under a deed, will, written contract, or other writings constituting a
contract or whose rights, status, or other legal relations are affected by a statute, municipal
ordinance, contract, or franchise may have determined any question of construction or validity
arising under the instrument, statute, or ordinance, contract or franchise and obtain a declaration
of rights, status, or other legal relations thereunder. TEX. CIV. PRAC. & REM.CODE ANN. §
37.004(a) (West 2008). The purpose of the Declaratory Judgments Act is “to settle and afford relief
from uncertainty and insecurity with respect to rights, status, and other legal relations.” TEX. CIV.
PRAC. & REM.CODE ANN. § 37.002(b) (West 2008). It is “remedial” and “is to be liberally
construed.” Id.

 [2] [3] [4] The Declaratory Judgments Act cannot be used to obtain an advisory opinion, which
Texas courts lack subject-matter jurisdiction to give. Tex. Ass'n of Bus. v. Tex. Air Control Bd., 852
S.W.2d 440, 444 (Tex.1993). Declaratory judgment is appropriate only when a real controversy
exists between the parties and the entire controversy may be determined by the judicial declaration.
Brooks v. Northglen Ass'n, 141 S.W.3d 158, 163–64 (Tex.2004); OAIC Commercial Assets, L.L.C.
v. Stonegate Village, L.P., 234 S.W.3d 726, 745 (Tex.App.-Dallas 2007, pet. denied). The Act
does not give a litigant the right to try a case piecemeal. United Servs. Life Ins. Co. v. Delaney,


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Transcontinental Realty Investors, Inc. v. Orix Capital..., 353 S.W.3d 241 (2011)



396 S.W.2d 855, 858 (Tex.1965); SW Airlines Co. v. Tex. High–Speed Rail Auth., 863 S.W.2d
123, 125 (Tex.App.-Austin 1993, writ denied).

 [5] [6] [7] Ripeness is a requirement of justiciability. Perry v. Del Rio, 66 S.W.3d 239,
249 (Tex.2001); Patterson v. Planned Parenthood of Houston & Se. Tex., Inc., 971 S.W.2d
439, 442 (Tex.1998). The ripeness doctrine conserves judicial time and resources for real and
current controversies, rather than abstract, hypothetical, or remote disputes. Mayhew v. Town of
Sunnyvale, 964 S.W.2d 922, 928 (Tex.1998); TCI West End, Inc. v. City of Dallas, 274 S.W.3d
913, 918 (Tex.App.-Dallas 2008, no pet.). The doctrine prohibits suits involving “uncertain or
contingent future events that may not occur as anticipated, or indeed may not occur at all.”
Patterson, 971 S.W.2d at 442. A case is not ripe if its resolution depends on contingent facts or
upon events that have yet to come to pass. See id. at 443.

 [8] The declaration sought in this case concerned validity of a Guaranty for payment for attorneys'
fees awarded to Orix from TCI in underlying litigation. The Guaranty obligated Transamerica to
pay these fees to Orix if TCI did not. Because Transcontinental's liability under the Guaranty in this
case would arise only if TCI was found liable for attorney's fees, its liability can be compared to
liability that arises in indemnity cases. In Firemen's Insurance Co. v. Burch, 442 S.W.2d 331, 332
(Tex.1968), the Texas Supreme Court held that a trial court cannot determine a claim for indemnity
before liability is established in the underlying case because any such opinion would be purely
advisory. See also State Farm Lloyds v. C.M.W., 53 S.W.3d 877, 893 (Tex.App.-Dallas 2001, pet.
denied). The Court later limited this holding in Farmers Texas County Mutual Insurance, Co. v.
Griffin, 955 S.W.2d 81, 84 (Tex.1997), concluding that, under limited circumstances, a claim for
indemnity could be litigated while the underlying litigation remained pending. Specifically, the
Court held “the duty to indemnify is justiciable before the insured's liability is determined in the
liability *245 lawsuit when the insurer has the duty to defend and the same reasons that negate
the duty to defend likewise negate any possibility the insurer will ever have a duty to indemnify.”
Griffin, 955 S.W.2d at 84 (emphasis in original). It reasoned that under those circumstances, “no
facts could be developed” in the underlying tort suit that could alter the court's conclusion no duty
to indemnify existed. Id.

Here, Orix was seeking a general declaration of validity of the Guaranty and lack of viable
defenses. Orix pleaded it was entitled to declaratory relief because Transcontinental had failed
to “acknowledge” its liability under the Guaranty and because, in response to its abandoned
breach of contract claim, it had pleaded duress. It was not seeking guidance with respect to what
was then currently required under the Guaranty. Indeed, in oral argument Orix conceded that
Transcontinental was not obligated until appeals concluded and admitted it sought declaratory
relief to make collection efforts more expedient “if and when” the judgment was finally affirmed.




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Transcontinental Realty Investors, Inc. v. Orix Capital..., 353 S.W.3d 241 (2011)



The issue presented in determining justiciability is whether all the facts surrounding the Guaranty
and defenses to it were sufficiently developed such that Transcontinental's liability could not have
been affected by subsequent events. In its motion for summary judgment, Orix admitted that
Transcontinental's liability was triggered “assuming the Final Judgment is affirmed on appeal.”
It complained Transcontinental did not “acknowledge” its responsibility “in the event” the trial
court's judgment is affirmed. Orix thus admits that if the underlying judgment was reversed,
the entire proceedings—in the trial court and in this court—would be completely meaningless.
Further, the declaration sought—and the declaration given—was that Transcontinental was
responsible for any fees awarded in the TCI litigation at all trial and appellate levels. Thus, the trial
court declared Transcontinental's liability for fees that had yet to even be expended. Moreover,
this case concerned a guarantee of payment for fees TCI incurred and was liable for. Future events
could certainly alter TCI's willingness or ability to pay its fees itself. Any such payment by TCI
would effect Transcontinental's liability on the Guaranty.

 [9] Finally, and perhaps most importantly, Orix's attempt to “extinguish” any defenses to the
Guaranty and get a declaration that no defenses existed was not proper. According to Orix's
rationale, Transcontinental should be forced to litigate any potential defenses it might have to
liability before liability has even been established. A defendant may not use a declaratory judgment
to prematurely adjudicate defenses to liability that may not yet exist. Cf. Calderon v. Ashmus,
523 U.S. 740, 118 S.Ct. 1694, 140 L.Ed.2d 970 (1998) (under federal constitution, party may not
use a declaratory judgment to get advance ruling on an affirmative defense); see also Cohen v.
Orthalliance New Image, Inc., 252 F.Supp.2d 761, 766 (N.D.Ind.2003) (assessing the success of a
defense to a potential claim (breach-of-contract or otherwise) is generally the type of hypothetical
question federal courts endeavor to avoid). Not all affirmative defenses depend upon facts that
exist at the time of contract formation. Any determination that no defenses could exist would be
completely advisory. Even if we could say Transcontinental's answer pleading duress may have
put that specific defense in controversy, the declaratory judgment was not intended to permit
the piecemeal trial of lawsuits. Delaney, 396 S.W.2d at 858. We conclude the trial court had no
jurisdiction to declare the Guaranty valid and that Transcontinental had no defenses to *246 it.
Consequently, we vacate the trial court's judgment and dismiss this cause.


End of Document                                                 © 2015 Thomson Reuters. No claim to original U.S. Government Works.




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Transcontinental Realty Investors, Inc. v. Orix Capital Markets, LLC, 353 S.W.3d 241



    History (3)

    Direct History (2)
      1. Orix Capital Markets, LLC v. Transcontinental Realty Investors, Inc.
    2010 WL 2024918 , Tex.Dist. , Apr. 26, 2010


       Judgment Vacated, Cause Dismissed by

      2. Transcontinental Realty Investors, Inc. v. Orix Capital Markets, LLC
      353 S.W.3d 241 , Tex.App.-Dallas , Oct. 19, 2011 , rehearing overruled ( Nov 21,
      2011 ) , review denied ( Mar 02, 2012 )



    Related References (1)
    3. Orix Capital Markets, LLC v. Transcontinental Realty Investors, Inc.
    2009 WL 6490081 , Tex.Dist. , Dec. 15, 2009




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Triton 88, L.P. v. Star Electricity, L.L.C., 411 S.W.3d 42 (2013)




                                                  411 S.W.3d 42
                                            Court of Appeals of Texas,
                                              Houston (1st Dist.).

        TRITON 88, L.P. f/k/a Triton 88, L.L.C. and Triton 2000, L.L.C., Appellants
                                            v.
              STAR ELECTRICITY, L.L.C. d/b/a Startex Power, Appellee.

                                 No. 01–10–00601–CV.                |   Aug. 13, 2013.

Synopsis
Background: Retail electricity provider (REP) brought action against commercial electric
customer for breach of electric services agreement (ESA) and quantum meruit. The District Court,
Harris County, Patricia J. Kerrigan, J., entered summary judgment in favor of provider, granted
provider's motion for a turnover order, and appointed a receiver. Customer appealed.



Holdings: The Court of Appeals, Evelyn V. Keyes, J., held that:

[1] REP conclusively established its right to recover over $105,000 from customer for breach of
ESA;

[2] customer was not excused from performance of ESA by REP's use of estimated billing;

[3] it was impossible to determine the actual harm that would have been caused to REP by
customer's early termination, as required for liquidated damages clause to be enforceable;

[4] when viewed as of the time the ESA was executed, ESA's method for calculating liquidated
damages was reasonable;

[5] early termination fee in ESA did not violate statute;

[6] attorney's affidavit in support of attorney fees award was sufficient to support claims such that
REP was entitled to statutory presumption that fees were reasonable; and

[7] excessive demand exception to REP's statutory right to attorney fees did not apply.


Affirmed.


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Triton 88, L.P. v. Star Electricity, L.L.C., 411 S.W.3d 42 (2013)




Attorneys and Law Firms

*46 Anthony L. Laporte, Benjamin C. Wilson, Kent M. Hanszen, Hanszen Laporte, L.L.P.,
Houston, TX, for Appellants.

Joshua Huber, Rodney Lee Drinnon, Ronald Edward Wright, Jr., Drinnon & Wright, PLLC,
Houston, TX, for Appellee.

Panel consists of Justices KEYES, SHARP, and HUDDLE.



                                                        OPINION

EVELYN V. KEYES, Justice.

Appellants, Triton 88, L.P. f/k/a Triton 88, L.L.C. and Triton 2000, L.L.C. (collectively, “Triton”),
appeal the trial court's grant of summary judgment and a receivership order entered in favor of
appellee, Star Electricity, L.L.C. d/b/a StarTex Power (“StarTex”). Triton presents fourteen issues
for appellate consideration. In its first seven issues, Triton argues that (1) the trial court erred in
granting summary judgment in favor of StarTex on its breach of contract claim because (2) the
trial court misinterpreted and misapplied the law applicable to the claims and defenses asserted
by the parties; (3) StarTex's summary judgment evidence did not establish that it was entitled
to judgment as a matter of law on its breach of contract claim; (4) Triton's summary judgment
evidence raised genuine issues of material fact as to one or more elements of StarTex's breach of
contract claim; (5) genuine issues of material fact existed as to Triton's claims for offset and credit
based on StarTex's use of improper and incorrect billing and StarTex's use of estimated billing; (6)
genuine issues of material fact existed as to StarTex's billing practices and procedures and whether
those procedures constituted a breach by StarTex of the parties' contract; and (7) genuine issues
of material fact existed regarding whether Triton objected *47 to StarTex's billing practices and
procedures and to invoices submitted to Triton by StarTex and whether StarTex failed to fulfill its
legal obligations for handling such complaints.

Triton further argues that (8) StarTex's failure to comply with the legal requirements for handling
complaints concerning retail electric service and Triton's pending complaint against StarTex
before the Texas Public Utility Commission acted to stay the judgment and enforcement of the
judgment. Triton attacks the trial court's damages award, arguing that the trial court erred in
awarding StarTex (9) liquidated damages pursuant to the early termination provisions in the
contract because such an award constitutes an impermissible and unenforceable penalty; (10)
early termination fee damages based on unidentified and unproven monthly billings; (11) early


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Triton 88, L.P. v. Star Electricity, L.L.C., 411 S.W.3d 42 (2013)



termination fee damages based on estimated billing and billings for periods outside the term of the
contract that Triton allegedly terminated early; and (12) attorney's fees because the fees awarded
were excessive and unreasonable, were for legal services not proven to be necessary, and were
not properly proven by the summary judgment evidence. Finally, Triton appeals the order of the
trial court appointing a receiver, arguing that (13) the trial court erred in appointing a receiver
and ordering Triton to turn over to the receiver confidential records and all proceeds and revenue
generated by Triton's businesses and that (14) Triton is entitled to immediate relief from the order
appointing a receiver and is entitled to recover all records and revenue turned over pursuant to
the order, including all funds that have been disbursed, paid, relinquished, distributed, or in any
way disposed of by the receiver.

We affirm.



                                                      Background

Texas deregulated its electric utility market beginning in 1999. See TEX. UTIL.CODE ANN. §
39.051(a) (Vernon 2007) (“On or before September 1, 2000, each electric utility shall separate
from its regulated utility activities its customer energy services business activities that are
otherwise also widely available in the competitive market.”); Tex. Indus. Energy Consumers v.
CenterPoint Energy Houston Elec., LLC, 324 S.W.3d 95, 97 (Tex.2010). The Utilities Code
provides that electric utilities must separate their business activities from one another into three
units: (1) a power generation company; (2) a retail electric provider; and (3) a transmission and
distribution utility. TEX. UTIL.CODE ANN. § 39.051(b).

Retail electric providers, like StarTex, essentially buy electricity from a transmission and
distribution utility and resell it to Texas consumers. See AEP Tex. N. Co. v. Pub. Util. Comm'n
of Tex., 297 S.W.3d 435, 439 (Tex.App.-Austin 2009, pet. denied) (citing Tex. Util.Code Ann.
§ 39.051). The transmission and distribution utility's rates are still regulated by the Texas Public
Utility Commission (“PUC”). Tex. Indus. Energy Consumers, 324 S.W.3d at 97. Transmission and
distribution utilities provide metering services, charge retail electric providers for “nonbypassable
delivery charges” under rates approved by the PUC, and may also bill retail customers directly
at the request of the retail provider. Id. at 97–98. Thus, Texas's electric utilities have “voluntarily
interconnected their transmission systems” to form a single grid managed by the Electric
Reliability Council of Texas (“ERCOT”). Pub. Util. Comm'n of Tex. v. City Pub. Serv. Bd. of
San Antonio, 53 S.W.3d 310, 312 (Tex.2001). Electricity is produced by a generating facility,
transmitted to a point of interconnection with the ERCOT grid, *48 and then distributed to end
users who purchase it from retail electric providers.




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Triton 88, L.P. v. Star Electricity, L.L.C., 411 S.W.3d 42 (2013)



It is in this context that Triton, as owner of five commercial buildings, entered into an Electric
Services Agreement (“ESA”) in May 2006 with StarTex, a retail electricity provider. StarTex
agreed to supply Triton with electricity, and Triton agreed to pay at a fixed rate for a term of twelve
months. Regarding invoicing and payment, the ESA provided that

             [StarTex] shall render to Customer [Triton] on a monthly basis, or as mutually
             agreed by [StarTex] and Customer but not less frequent than monthly, an invoice
             that is due and payable fifteen (15) days from the date of the invoice. If the
             payment of all undisputed amounts is not received by the due date, Customer
             will be charged a late fee equal to five percent (5%) of the past due amount.
             Customer must provide to [StarTex] written notice setting forth in particular
             detail any disputed amount, including the calculations with respect to any errors
             or inaccuracies claimed. If it is subsequently determined that Customer owes
             [StarTex] any portion of the disputed amount, Customer shall remit to [StarTex]
             within five (5) business days following such resolution the outstanding balance
             plus interest .... Any amounts that may have been overpaid or underpaid shall
             be applied to the next monthly invoice.

The ESA also contained the following language:

   Early Termination Fee. In the event that Customer terminates this agreement or Customer
   defaults as described [below], then an Early Termination Fee will be assessed. The Early
   Termination Fee shall be equal to the greater of a) the three months highest bills for Customer or
   b) any mark to market costs. For purposes of this fee the mark to market costs shall be calculated
   by multiplying the difference between the initial cost of power procured to satisfy the ESA and
   the final net liquidated value of said power at the time of termination by the total amount of
   power procured from the Customer Location for the remainder of the original term of the ESA....

   ....

   Customer Acknowledgments. Customer acknowledges that [StarTex's] ability to invoice
   Customer is dependent on the [transmission and distribution provider (TDSP) ]'s or ERCOT's
   ability to furnish [StarTex] all necessary information including meter readings or recorded data,
   as applicable. In the absence of such information from the TDSP or ERCOT, [StarTex] may
   invoice Customer based on estimated meter reading according to the Usage Profile. As soon as
   practical, and after receipt of Customer's Energy Consumption and settlement charges from the
   TDSP and/or ERCOT, [StarTex] will reconcile on the next invoice any difference(s) between
   estimated and actual consumption and settlement charges.

   ....




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Triton 88, L.P. v. Star Electricity, L.L.C., 411 S.W.3d 42 (2013)




   Event of Default. An Event of Default occurs upon:

      a. failure of Customer to pay amounts due under the ESA within 5 business days of receipt
         of written notice of payment due;

      b. failure of either Party to perform a material term of this ESA[.]

         ....

In April 2007, Triton and StarTex extended their agreement, under modified terms, for another
twelve months (“First Amendment”). Triton elected to replace the fixed-rate pricing schedule with
the Market Clearing Price of Energy *49 (“MCPE”). The First Amendment provided:

   1. PRICE FOR ENERGY: The term for this Amendment shall commence upon the Customer's
   normal meter read during the month of May 2007, and continue through the Customer's normal
   meter read during the month of May 2008. Customer agrees to purchase electricity from
   STARTEX at a variable rate based on the Electric Reliability Council of Texas (“ERCOT”)'s
   Balancing Energy price (“Contract Price”) for the Congestion Zone in which the Customer's
   location resides. The price calculated by ERCOT in the market for Balancing Energy is referred
   to as the Market Clearing Price for Energy (“MCPE”) in the ERCOT protocols....

   2. Except as herein changed and amended, the Agreement [ESA] shall remain in full force and
   effect as written. Any changes made in this Amendment that are disputed by Customer will be
   replaced by the original Agreement's terms and conditions.

In 2008, the parties again extended their agreement under the MCPE pricing terms for a term of
thirty-six months (“Second Amendment”). The Second Amendment contained language identical
to that in the First Amendment, except that the term of the Second Amendment commenced “upon
the Customer's normal meter read during the month of May 2008 and continued through the
Customer's normal meter read during the month of May 2011.”

Triton objected to some of StarTex's billing practices. This eventually led to Triton's terminating
its contract with StarTex in October 2008 and seeking electricity from a different retail electricity
provider.

On September 14, 2009, StarTex filed suit against Triton alleging breach of contract, and, in
the alternative, suit on a sworn account and quantum meruit. StarTex asserted that Triton owed
it $319,094.11, consisting of unpaid utility service and contractual fees, interest, and liquidated
damages. StarTex also sought attorney's fees under Civil Practice and Remedies Code chapter
38. StarTex attached to its petition an affidavit from Robert Verhage, its Collections Manager,



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Triton 88, L.P. v. Star Electricity, L.L.C., 411 S.W.3d 42 (2013)



copies of the ESA and First and Second Amendments, copies of its unpaid invoices, and a claim
presentment letter from its counsel to Triton demanding payment of the unpaid amounts.

On October 12, 2009, Triton answered. Triton generally denied StarTex's allegations and asserted
that the liquidated damages provision was invalid and unenforceable and that the attorney's fees
sought were not reasonable and necessary.

Triton also asserted that

             the account on which [StarTex] sues ... is not just and true, and all just and
             lawful offsets, payments, and credits have not been applied to [Triton's] account.
             [Triton] does not owe [StarTex] $319,094.11 in damages, because [StarTex]
             seeks to recover $197,323.95 in damages based on an invalid liquidated damages
             provision. Furthermore, based on the inaccuracies in [StarTex's] billing and
             estimates since 2007, [Triton] also challenge[s] [StarTex's] allegation that [it
             owes] $105,034.18 to [StarTex] for services rendered.

Attached to its answer, Triton provided the affidavit of Bill Bird, who averred:

             I am responsible for and have knowledge of Triton's business dealings with
             Plaintiff [StarTex]. Triton began doing business with Plaintiff in 2006. In the
             summer of 2007, Plaintiff began providing usage estimates to Triton, which
             reflected very high usage. Triton brought this issue to Plaintiff's attention,
             and the *50 issue was not resolved. Triton contests the validity of Plaintiff's
             account, and denies that it owes $105,034.18 to Plaintiff for services rendered.

On January 20, 2010, StarTex moved for summary judgment on its breach of contract claim.
StarTex argued that the parties had a valid contract and that the First and Second Amendments of
the contract required Triton to pay for the electricity received under the MCPE pricing schedule
through May 2011. Copies of the ESA and First and Second Amendments were attached as
summary judgment evidence. StarTex stated that “[t]he MCPE is a variable rate plan wherein the
price changes every fifteen (15) minutes to reflect the supply and demand for power in a particular
market.”

StarTex argued,

             Due to the numerous price changes involved in an MCPE contract, StarTex
             had to customize its purchase to fit the particular consumption needs of Triton.
             Every customer's consumption needs differ, and StarTex must carefully time
             its purchases so that it has sufficient power for the customer during their peak
             usage hours and so that it does not over-purchase during down times. This is

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Triton 88, L.P. v. Star Electricity, L.L.C., 411 S.W.3d 42 (2013)



             referred to in the industry as the “shape” of a particular customer, and like a
             fingerprint, no two customers have an identical “shape.” Triton's meters are
             located at commercial office buildings, and therefore, the “shape” of StarTex's
             purchase was designed to accommodate heavy usage from the hours of 8:00 a.m.
             to 5:00 p.m., with a slight decrease during the lunch hour, and minimal usage for
             the remaining hours of the day. Therefore, in order to service Triton's Contract,
             not only did StarTex commit to purchase sufficient power to cover the life of
             the Contract, but it also committed to make purchases every fifteen (15) minutes
             that mirror the kWh used by Triton during each fifteen (15) minute interval.

This argument was supported by the affidavit of Stephen Madden, the Senior Vice–President of
Supply for StarTex.

StarTex asserted that it provided power to Triton throughout the term of the contract and submitted
invoices to Triton “based on meter reads performed by CenterPoint Energy (“CenterPoint”), the
Transmission and/or Distribution Services Provider (“TDSP”) for the Houston area.” StarTex
further argued that:

             On several occasions, StarTex was required to generate [Triton's] monthly
             invoice using estimated reads based on historical usage. This was a result of
             CenterPoint being unable to gain access to [Triton's] meters to obtain the actual
             usage amounts. All such estimated reads were reconciled on subsequent invoices
             once CenterPoint obtained access to the meters, such that the final invoice
             reflected only actual usage. All estimated reads and subsequent reconciliations
             were detailed on [Triton's] monthly invoices.

StarTex provided invoices and the affidavit of Robert Verhage, the Director of Credit and
Collections for StarTex, substantiating these arguments. Verhage averred that the invoices
attached as summary judgment evidence were true and correct copies of Triton's monthly invoices.
Verhage testified that, after Triton terminated the ESA on approximately October 19, 2008,
“StarTex generated one final invoice that contained the final, outstanding balance that was
reconciled to correct all estimated reads.” The final invoice reflected that Triton owed $155,034.18,
and Verhage averred that Triton subsequently made $50,000.00 in payments, leaving $105,034.18
due and owing. Thus, StarTex argued that Triton breached the ESA *51 when it failed to pay for
$105,034.18 worth of electricity provided under the ESA and subsequent amendments.

StarTex also asserted that Triton breached the ESA when it terminated the ESA early. StarTex
stated in its motion, and Madden averred in his affidavit, that when StarTex entered into the Second
Amendment extending the terms of the ESA through May 2011, it contracted with the electricity
producer “to purchase enough power to service the entire thirty-six (36) month term of the Second
Amendment and the purchases were tailored to fit Triton's particular ‘shape’.” Thus, the ESA

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contained a liquidated damages clause for early termination of the contract which entitled StarTex
to $197,323.95 in liquidated damages after Triton unilaterally terminated the contract on October
10, 2008, approximately thirty-one months before the contract term was set to expire in May 2011.

StarTex argued, based on Madden's statements in his affidavit, that this early termination clause
was a valid liquidated damages provision because, “[i]n the case of an MCPE contract, it is
impossible to calculate the total damages that stem from an early termination until the term of the
breached contract has expired and StarTex has been able to complete its attempts at mitigating
the damages.” StarTex argued that it “must continue to purchase Triton's power from its supplier
until May of 2011” and that it was required to “purchase this power in Triton's particular ‘shape’
” even though StarTex did not have another customer to sell it to because StarTex “would have
to find a new customer who not only wants an MCPE contract, but has the exact same term and
volume requirements and ‘shape’ as Triton.” StarTex thus calculated its liquidated damages as
$197,323.25, based on the sum of Triton's three highest monthly bills because the mark-to-market
losses were incapable of calculation until May 2011.

Finally, StarTex argued that it was entitled to attorney's fees on its breach of contract claim. It
argued that, under its fee agreement with its counsel, it would incur attorney's fees “in an amount
equal to twenty-five percent (25%) of all amounts recovered from [Triton],” or $75,589.36, and
that this amount was reasonable and necessary. The summary judgment motion was accompanied
by the affidavit of Rodney Drinnon, counsel for StarTex, who averred to the specific services
provided by his firm and stated that the services described were reasonable and necessary and that
“twenty-five percent (25%) is a reasonable contingency fee for the services provided.”

On January 28, 2010, Triton amended its answer, adding claims that StarTex “materially breached
the contract, which was modified by agreement,” that Triton “complied with the terms of the
modified contract,” that Triton was “discharged from performing under the contract after [StarTex]
materially breached same,” and that StarTex failed “to mitigate its damages as required under
applicable law, limitation of warranty, limitation of liability, laches, and waiver.” Triton also
sought a continuance of the summary judgment hearing, which the trial court granted.

On April 5, 2010, Triton responded to StarTex's summary judgment motion. Triton did not contest
StarTex's statements that the ESA and subsequent amendments were valid contracts. However,
Triton asserted that StarTex “made several promises to [Triton] and [orally] modified the terms of
the parties' agreements.” Triton argued that Michael Gary, Triton's property manager, “had several
discussions with John Bejger, a representative of StarTex, relating to StarTex's estimated usage
and Triton's disputes over *52 the StarTex invoices.” As supported by Gary's affidavit in Triton's
summary judgment evidence, Gary represented to Bejger that the practice of estimating electricity
usage for several consecutive months was causing damage to Triton because Triton could not
bill its tenants based on estimated billing. Gary also averred that Triton had “done everything


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in its power” to give CenterPoint access to the meters and that Triton would not continue the
business relationship with StarTex “if the estimations and errors in billing continued on a month
to month basis.” Gary further averred that Bejger represented that the errors would be corrected,
that StarTex was attempting to resolve the allegations that CenterPoint did not have access to
Triton's meters, and “that StarTex's previous practice of estimating usage of consecutive months
would not continue.” Gary stated that Triton entered into the Second Amendment based on these
representations by Bejger. Triton's response asserted that Gary's affidavit about his discussions
with Bejger raised a disputed issue of material fact as to whether there was a meeting of the minds
in reaching a valid modification.

Triton also argued that it was excused from performing under the ESA based on StarTex's material
breach of the agreements “when it failed to provide [Triton] with accurate and correct billings for
the electricity that it actually delivered.” Triton's motion referenced the invoices sent by StarTex
and provided details regarding which specific invoices were based on estimated usage, including
several instances in which it was invoiced based on estimated usage in consecutive months.

Triton presented Gary's affidavit, averring that Gary first contacted StarTex to resolve the
billing problems during the original term of the ESA and that StarTex responded by saying
that CenterPoint could not access and read the electricity meters in Triton's buildings. Triton
included in its summary judgment evidence various e-mails between Gary and StarTex in which
Gary raised questions and disputes over the amounts billed in the invoices and StarTex provided
information reconciling its charges. Gary's e-mails did not contain any specific calculations or
amounts with regard to the alleged errors or inaccuracies. StarTex's e-mail reflects that it sent
Triton a spreadsheet demonstrating how StarTex reconciled the bills and comparing Triton's
usage and rates. Triton also included an e-mail from CenterPoint to StarTex, received in response
to StarTex's inquiry regarding the difficulty of getting actual meter readings. The CenterPoint
representative stated,

             I disagree that CenterPoint is at fault for the estimations. Triton does not provide
             us unencumbered, permanent, ongoing access to our meters. The estimation
             reasons are specific to each address, but on some accounts Triton has their meters
             locked inside a mechanical room to which we're supposed to go track down
             an employee and a key, apparently unsuccessfully at times, perhaps because
             the right employee can't be found. On other accounts, we're supposed to enter
             through a locked gate where the gate code we have on record has been changed.
             Triton has a responsibility to keep us updated if access arrangements change.

Triton's summary judgment evidence also included the affidavit of Jim Phillips, the Vice President
of IEA Engineering, an energy engineering company. Phillips stated that he reviewed StarTex's
billing invoices and Triton's historical electricity usage. He averred that he found


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   various and repeated errors and irregularities in the billings for the Triton *53 buildings. These
   errors include, without limitation:

   • several errors in math (multiplication of energy consumption by the cost of energy);

   • excessive estimated energy readings;

   • estimated energy readings at one site (meter) while the next site (meter) was actually read in
      the same month, again repeatedly;

   • three meters had a monthly load factor greater than 100%, which is an impossibility (LF is
      the maximum demand used over hours of the month—over 100% is more hours than in that
      month);

   • several examples where the ending energy reading of one month did not match the beginning
      reading of the next month;

   • energy costs are not consistent across meters in the same month;

   • multiple corrections from earlier months' estimated energy reading make analysis difficult; and

   • it is improbable that back to back months would have the same exact energy consumption
      readings and that demand would remain the same for several months in a row.

Phillips provided his opinion about other errors and problems with StarTex's billing practices,
without providing specific contested amounts, and concluded:

             In summary, the total value of the errors I analyzed came to almost $97,000.00.
             This is not an inclusive value and with additional time to review the invoices
             and billing, this amount should significantly increase. The numbers and values
             I used assume that StarTex's numbers were correct; however, I found that some
             of these numbers and values were not correct when compared to each other. To
             this amount and the other uncalculated errors, taxes must be added since they
             are a percentage of the energy and [TDSP] charges. The error value is therefore
             compounded.

Thus, Triton argued that it “created a fact issue on each element of [its] affirmative defense” of
prior material breach and that it raised a fact issue regarding whether StarTex conclusively proved
the proper amount of damages.




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Triton further responded to StarTex's summary judgment motion by arguing that StarTex violated
the ESA “by estimating Triton's electricity usage for no apparent justifiable reasons” and by
estimating Triton's usage over consecutive months.

Triton also argued that summary judgment on the liquidated damages issue was not proper
“because (1) a reasonable basis for estimating just compensation in an event of default does exist
under the circumstances, and (2) there are factual issues that must be resolved before the legal
question of liquidated damages is determined.” Finally, Triton argued that StarTex was not entitled
to recover attorney's fees because it “made an excessive demand on [Triton] before filing its
lawsuit.”

Triton also objected to Drinnon's affidavit, arguing that it “wholly fails to describe the time that
was required and expended in prosecuting [StarTex's] claim, the hourly rate usually charged by
[StarTex's] counsel, the novelty and difficulty of the questions involved in this lawsuit, and the
skill required to perform the legal service properly under the circumstances.” Triton also objected
because Drinnon's affidavit was not supported by any documents other than the engagement letter.

On April 13, 2010, StarTex replied to Triton's response. StarTex presented the affidavit of John
Bejger, contesting Gary's representations that the parties entered *54 into an oral modification
of their agreement. StarTex also argued that, “because the TDSP [CenterPoint], not StarTex, is
solely authorized by the State of Texas to provide actual and estimated readings [,] Bejger would
not have made” any representations regarding discontinuing the use of estimated meter readings in
the monthly invoices. Finally, StarTex argued that the parties entered into the Second Amendment
after the alleged oral representations and thus Triton's argument that Texas law allows modification
of a written agreement by later oral representations was inapplicable.

StarTex also argued that it did not breach the ESA. Specifically, StarTex argued that Phillips,
Triton's energy engineer expert, did not specifically identify any breach by StarTex. StarTex
argued that it was permitted by the ESA and Texas law to bill Triton based on estimated usage;
that, under the terms of the ESA, it is irrelevant why CenterPoint provided Triton's estimated usage
rather than actual usage; and that Triton did not follow the contractual provisions requiring it to
pay undisputed portions of the invoice and to set forth in detail “calculations with respect to any
errors or inaccuracies claims.”

StarTex again argued that the liquidated damages provision was enforceable. Finally, StarTex
argued that its original demand to Triton was not excessive, and thus that ground did not preclude
it from recovering attorney's fees.

On April 16, 2010, following the summary judgment hearing, Triton filed its “Supplemental
Response” to StarTex's summary judgment motion. StarTex objected to the supplemental response


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and asked the trial court to strike it from consideration because it was filed outside the time
permitted by Texas Rule of Civil Procedure 166a and without leave of the trial court. Triton also
objected to the affidavit of John Bejger, attached to StarTex's reply to Triton's response.

On April 26, 2010, the trial court granted StarTex's motion. The trial court's order stated that it
considered “the Motion, the response, the pleadings, the affidavits, other evidence on file with
the Court, and arguments of counsel.” The trial court awarded StarTex $105,034.18 “as actual
damages for [Triton's] failure to pay for electricity provided by [StarTex].” The trial court awarded
StarTex $197,323.25 “as liquidated damages for [Triton's] early termination of the [ESA].”
Finally, the trial court awarded StarTex $12,000 as reasonable and necessary attorney's fees, as
well as additional attorney's fees conditioned on an unsuccessful appeal by Triton.

On May 12, 2010, StarTex moved for a turnover order.

On May 25, 2010, Triton moved for reconsideration or a new trial. Triton supported this motion
with new affidavits from Jim Phillips, Michael Gary, and Montague Morgan, attorney for Triton,
who attempted to authenticate documents attached to Phillips' affidavit. StarTex objected to and
moved to strike these affidavits on the ground that Triton did not timely file them and on the
ground that Gary's affidavit was not based on his personal knowledge and was made in bad faith.
The trial court granted StarTex's motion and struck the affidavits of Phillips, Gary, and Morgan
that were attached to Triton's motion for new trial. 1

 *55 On June 21, 2010, the trial court denied Triton's motion for reconsideration/new trial and
stated that it did not consider the stricken affidavits. On July 6, 2010, the trial court signed a
modified order stating:

   On this day, after hearing [Triton's] Motion for Reconsideration/New Trial (“Motion”), the
   Court, relying solely [on] the summary judgment evidence on file, arguments of counsel and
   without considering the stricken, untimely supplement filed by [Triton], is of the opinion that
   [Triton's] Motion should be, in all things, DENIED.

   It is therefore ORDERED, ADJUDGED and DECREED that [Triton's] Motion is denied and
   that the Court's order of April 26, 2010, granting Plaintiff's Traditional Motion for Summary
   Judgment is hereby, in all things, REAFFIRMED.

On July 28, 2010, the trial court signed an order granting StarTex's motion for a turnover order
and appointing a receiver. On September 9, 2010, the trial court signed another order requiring
the receiver to pay to StarTex as the judgment creditor the balance of the rents collected during
his receivership and any rents collected in the future until the full amount of the judgment is paid.




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                                                 Summary Judgment

A. Standard of Review
 [1] [2] [3] [4] [5] We review the trial court's summary judgment de novo. Valence Operating
Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex.2005). The movant must establish that no material
fact issue exists and that it is entitled to judgment as a matter of law. M.D. Anderson Hosp. &
Tumor Inst. v. Willrich, 28 S.W.3d 22, 23 (Tex.2000). Thus, for a plaintiff to prevail on its motion
for summary judgment, it must show that it is entitled to prevail on each element of its cause of
action. Hourani v. Katzen, 305 S.W.3d 239, 248 (Tex.App.-Houston [1st Dist.] 2009, pet. denied)
(citing MMP, Ltd. v. Jones, 710 S.W.2d 59, 60 (Tex.1986)). Only if the movant conclusively
establishes its cause of action does the burden shift to the nonmovant to respond to the summary
judgment. Willrich, 28 S.W.3d at 23. When reviewing a motion for summary judgment, we take
the nonmovant's evidence as true, indulge every reasonable inference in favor of the nonmovant,
and resolve all doubts in favor of the nonmovant. Id.

In its first through seventh issues, Triton argues that the trial court erred in granting summary
judgment in favor of StarTex on its breach of contract claim. The trial court awarded StarTex
summary judgment on both grounds of StarTex's breach of contract claim against Triton: that
Triton breached (1) by failing to pay the invoices for electricity provided and (2) by wrongfully
terminating the contract early.


B. Summary Judgment on StarTex's Breach of Contract Claim for Triton's Failure to Pay
for Invoiced Electricity
In its first and second issues, Triton argues that the trial court erred in granting summary judgment
because it misinterpreted and misapplied the law applicable to StarTex's breach of contract claim
and to Triton's defenses. In its third issue, Triton argues that StarTex's summary *56 judgment
evidence did not establish that it was entitled to judgment as a matter of law.

 [6] [7] To prevail on a breach of contract claim, a plaintiff must prove: (1) the existence of a valid
contract; (2) the plaintiff's performance or tender of performance; (3) the defendant's breach of
contract; and (4) the plaintiff's damages as a result of the breach. Prime Prod., Inc. v. S.S.I. Plastics,
Inc., 97 S.W.3d 631, 636 (Tex.App.-Houston [1st Dist.] 2002, pet. denied). The interpretation
or construction of an unambiguous contract is a matter of law to be determined by the court.
See Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex.2003). Thus, StarTex had to
conclusively establish that a valid contract existed between it and Triton, that it performed under
that contract, that Triton breached the contract, and that StarTex suffered damages as a result of
Triton's breach.



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1. Evidence Establishing Elements of StarTex's Claim
Attached to its summary judgment motion, StarTex included copies of the ESA and First and
Second Amendments. Neither party disputes that these documents constitute a valid contract
between them.

StarTex also provided summary judgment evidence, including multiple invoices and the affidavits
of two corporate representatives, that it provided electricity to Triton. Triton does not dispute that
StarTex provided it with electricity up until Triton terminated the ESA.

StarTex provided invoices and affidavits demonstrating that Triton owed $105,034.18 under the
unpaid invoices. The account summary on the final invoice showed that Triton owed $155,034.18
as of November 15, 2008. Verhage's affidavit testimony provided that Triton subsequently made
$50,000.00 in payments, leaving $105,034.18 due and owing.

[8] We conclude that StarTex conclusively established its right to recover $105,034.18 from
Triton for Triton's breach of contract by failing to pay the invoices. Thus, the burden shifted to
Triton to respond to the motion for summary judgment and present evidence raising a fact issue
on at least one of the elements of StarTex's claim or to present a valid defense. See Willrich, 28
S.W.3d at 23.


2. Triton's Response
In its fourth issue, Triton argues that it presented summary judgment evidence controverting
StarTex's evidence and raising genuine issues of material fact as to one or more elements of
StarTex's breach of contract claim. Triton does not dispute that StarTex provided electricity to its
buildings throughout the term of the contract up until Triton terminated the agreement. Neither
does Triton dispute that it did not pay amounts invoiced by StarTex for the electricity provided.
However, Triton disputes (1) the terms of the contract as presented by StarTex, alleging that the
parties orally modified their agreement; (2) StarTex's satisfactory performance under the contract
and its own excuse from performance by StarTex's prior material breach; (3) the sufficiency of
StarTex's evidence to support the amount of damages awarded by the trial court; and (4) the trial
court's implicit determination that it was not entitled to any offsets or credits.



                              (a) The alleged oral modification of the contract

Triton argues that, according to Gary's affidavit testimony, the agreement between the parties was
orally modified by representations Bejger made prior to execution of the Second Amendment that
invoices based on estimated usage would no longer be used. Gary testified that he *57 represented


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to Bejger that the practice of estimating electricity usage for several consecutive months was
causing damage to Triton because Triton could not bill its tenants based on estimated billing
and that Triton would not continue the business relationship with StarTex if it continued to use
estimations and make errors in the monthly invoices. Gary averred that Bejger represented that the
errors would be corrected, that StarTex was attempting to resolve the allegations that CenterPoint
did not have access to Triton's meters, and “that StarTex's previous practice of estimating usage
of consecutive months would not continue.” Gary stated that Triton entered into the Second
Amendment based on these representations by Bejger. Thus, on appeal, Triton argues that it agreed
to the Second Amendment “only after receiving assurances that the billing errors and repeated use
of estimated billing would be addressed and corrected by [StarTex].”

 [9] [10] A written agreement not required by law to be in writing may be modified by a later
oral agreement. Double Diamond, Inc. v. Hilco Elec. Coop., Inc., 127 S.W.3d 260, 267 (Tex.App.-
Waco 2003, no pet.); Mar–Lan Indus., Inc. v. Nelson, 635 S.W.2d 853, 855 (Tex.App.-El Paso
1982, no writ). However, this principle does not apply here. The statements Gary related in his
affidavit as being made by Bejger and orally modifying the contract were made before the parties
entered into the Second Amendment. Thus, the statements Triton asserts as oral modifications are,
at most, extraneous evidence of negotiations prior to entering a written contract, which constitutes
parol evidence. 2

 [11] [12] [13] “An unambiguous contract will be enforced as written, and parol evidence will
not be received for the purpose of creating an ambiguity or to give the contract a meaning different
from that which its language imports.” David J. Sacks, P.C. v. Haden, 266 S.W.3d 447, 450
(Tex.2008). Whether a contract is ambiguous is a question of law. Id. at 451. We may not use
extrinsic evidence to contradict or vary the meaning of the explicit language of a written contract.
Nat'l Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 521 (Tex.1995).

 [14] Here, the Second Amendment expressly provided that, except for the extension of the term
of the contract and the pricing scheme outlined in paragraph one, the ESA “shall remain in full
force and effect as written.” This includes the “Customer Acknowledgments” section of the ESA,
which expressly stated that StarTex's “ability to invoice Customer is dependent on the [TDSP's]
ability to furnish ... meter readings” and that StarTex “may invoice Customer based on estimated
meter reading.” As matter of law, we conclude that the Second Amendment is not ambiguous. It
extended the terms of the ESA, including the express provision allowing StarTex to invoice Triton
based on estimated meter readings, to the new 36–month term.

Triton failed to establish that the parties orally modified the contract.




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             (b) Triton's entitlement to be excused from performing under the contract

Triton also argues it was excused from performance under the ESA and the subsequent *58
amendments by StarTex's prior material breach.

 [15] [16] “[T]he contention that a party to a contract is excused from performance because
of a prior material breach by the other contracting party is an affirmative defense....” See City
of The Colony v. N. Tex. Mun. Water Dist., 272 S.W.3d 699, 746 (Tex.App.-Fort Worth 2008,
pet. dism'd). The burden of proving an affirmative defense is on the party asserting it. See Am.
Petrofina, Inc. v. Allen, 887 S.W.2d 829, 830 (Tex.1994). Thus, Triton had to present evidence
raising a fact question on each element of its defense to defeat StarTex's motion for summary
judgment. See id. (holding, where “response was in the nature of an affirmative defense,” that
party asserting defense “could only have defeated summary judgment with sufficient evidence to
raise a fact question for each of the elements” of defense).

 [17] [18] [19] “It is a fundamental principle of contract law that when one party to a contract
commits a material breach of that contract, the other party is discharged or excused from further
performance.” Mustang Pipeline Co. v. Driver Pipeline Co., 134 S.W.3d 195, 196 (Tex.2004). A
breach of contract occurs when a party fails to perform an act that it has expressly or impliedly
promised to perform. Henry v. Masson, 333 S.W.3d 825, 835 (Tex.App.-Houston [1st Dist.] 2010,
no pet.). The materiality of a breach—the question of whether a party's breach of a contract will
render the contract unenforceable—generally presents a dispute for resolution by the trier of fact.
Id. Here, however, because we determine that StarTex's actions did not breach the contract as a
matter of law, we need not consider whether Triton raised a fact issue on materiality.

 [20] To raise a material fact issue on every element of its affirmative defense, Triton had to raise
a fact question on StarTex's prior breach of contract. Triton argues that StarTex's use of estimated
billing was not proper under the contract because StarTex did not establish that the conditions
precedent to using estimated billing had occurred because StarTex did not prove that CenterPoint
was unable to access Triton's meters.

The ESA provides:

   Customer Acknowledgments. Customer acknowledges that [StarTex's] ability to invoice
   Customer is dependent on the [transmission and distribution provider (TDSP) ]'s or ERCOT's
   ability to furnish [StarTex] all necessary information including meter readings or recorded data,
   as applicable. In the absence of such information from the TDSP or ERCOT, [StarTex] may
   invoice Customer based on estimated meter reading according to the Usage Profile. As soon as
   practical, and after receipt of Customer's Energy Consumption and settlement charges from the


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   TDSP and/or ERCOT, [StarTex] will reconcile on the next invoice any difference(s) between
   estimated and actual consumption and settlement charges.

Thus, the plain, unambiguous language of the ESA provided that StarTex could invoice Triton
based on estimated usage in the absence of actual meter readings or other necessary information
from CenterPoint, the TDSP. This contract provision is consistent with the legislatively mandated
division of business activities in the electric utility market. See TEX. UTIL.CODE ANN. §
39.051(b) (providing that electricity utilities must separate their business activities into three units
—power generation company, retail electric provider, and transmission and distribution utility);
Tex. Indus. Energy Consumers, 324 S.W.3d at 97–98 *59 (observing that transmission and
distribution service providers are responsible for providing metering services).

StarTex provided the affidavit of Robert Verhage, who averred that, on several occasions, it had
to rely on estimated usage because CenterPoint did not provide Triton's actual meter usage. The
summary judgment evidence also contained an e-mail from a CenterPoint representative stating
that Triton was to blame for CenterPoint's failure to obtain actual meter readings. This e-mail
shows that CenterPoint acknowledged that it provided StarTex with estimated usage rather than
actual readings on several occasions and that StarTex was not at fault for CenterPoint's inability
to access and read the meters.

The ESA expressly permits invoicing based on estimated usage. Triton did not present any
summary judgment evidence that StarTex used estimates in its invoices on occasions when
CenterPoint had provided actual meter readings. Thus, this argument is without merit.

 [21] Triton also argues that, even if StarTex was permitted to use estimates in invoicing Triton
for its electricity usage, StarTex was required to reconcile any charges based on estimated usage
on the next bill. However, the plain language of the contract provides that StarTex must reconcile
the estimated usage with the actual usage “[a]s soon as practical, and after receipt of Customer's
Energy Consumption and settlement charges from the TDSP.” Triton's argument that the actual
usage was required to be reconciled on the next month's bill is not supported by the plain language
of the contract.

Therefore, we conclude that Triton has not raised a fact issue on any element of its claim that
StarTex committed a prior material breach of the contract.



                                (c) StarTex's alleged failure to prove damages




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In its fifth, sixth, and seventh issues, Triton argues that the invoices relied on by StarTex in
establishing the amount of damages were inadequate estimates and were properly objected to and
disputed by Triton. Thus, Triton argues that StarTex failed to prove its damages as a matter of law.

StarTex acknowledges that it used estimates in some of its bills, and we have already concluded
that it was permitted to do so by the plain language of the contract. Furthermore, StarTex presented
the actual invoices it sent Triton and Verhage's affidavit stating that the final invoice relied on in
calculating the amount due and owing “contained the final, outstanding balance that was reconciled
to correct all estimated reads.”

Triton presented Gary's affidavit testimony that he disputed several invoices and objected to
numerous charges. It also presented e-mail correspondence between Gary, Triton's property
manager, and StarTex, in which Gary made general objections to several invoices without
providing specific amounts or portions of the invoices that he believed were inaccurate. Triton also
presented an expert affidavit pointing out general complaints about the invoices without specifying
particular amounts in controversy.

Triton argues that StarTex was legally obligated to address Triton's objections to StarTex's billing
practices before collecting on the unpaid invoices and that this evidence raises a fact question
regarding the amount Triton owed to StarTex.

 [22] The contract provides a method for disputing charges on invoices. The ESA provides that the
“Customer must provide to [StarTex] written notice setting forth in particular detail any disputed
 *60 amount, including the calculations with respect to any errors or inaccuracies claimed.” The
record contains no evidence that Triton complied with this procedure. Neither Gary's and Phillips'
affidavit testimony nor the e-mails sent to StarTex contain specific amounts or calculations. Triton
did not produce any evidence that it provided StarTex with written notice articulating the particular
disputed amount or calculations regarding claimed inaccuracies.

Thus, Triton failed to present evidence raising a fact issue on the accuracy of the invoices StarTex
used to support its claim for the unpaid amounts for electricity usage.



                                 (d) Triton's entitlement to offsets and credits

Triton also argues that it was entitled to $97,000 in offsets and credits, based on Phillips' affidavit.

 [23] “The right of offset is an affirmative defense.” Brown v. Am. Transfer & Storage Co., 601
S.W.2d 931, 936 (Tex.1980). Triton must show its entitlement to an offset and the amount. See
id. (holding that party asserting right of offset bears burden of pleading offset and proving facts


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Triton 88, L.P. v. Star Electricity, L.L.C., 411 S.W.3d 42 (2013)



necessary to support it). Thus, Triton must present evidence raising a fact question on its offset
defense to defeat StarTex's motion for summary judgment. See Am. Petrofina, 887 S.W.2d at 830.

 [24] Triton presented Phillips' affidavit, in which Phillips, as an electricity engineer, stated that the
invoices contained errors entitling Triton to offsets and credits worth at least $97,000. However,
as we have already stated, Triton did not provide a proper challenge to any particular charge or
invoice. Phillip's conclusory statements in his affidavit, by themselves, do not support Triton's
claim for offsets and credits. See TEX.R. CIV. P. 166a(f) (providing that supporting affidavit must
set forth facts that would be admissible in evidence); Wadewitz v. Montgomery, 951 S.W.2d 464,
466 (Tex.1997) (holding that expert's testimony will support summary judgment only if it is “clear,
positive and direct, otherwise credible and free from contradictions and inconsistencies, and could
have been readily controverted” and that conclusory statements by an expert are insufficient to
support or defeat summary judgment).

Thus, we conclude that Triton failed to raise a fact issue on any element of StarTex's breach
of contract claim against Triton for failure to pay the invoices. The trial court did not err in
determining that Triton was entitled to summary judgment on this issue as a matter of law.


C. Summary Judgment on StarTex's Breach of Contract Claim for Triton's Early
Termination of the Contract
In parts of its first through seventh issues, Triton also argues that the trial court erred in granting
summary judgment on StarTex's breach of contract claim for Triton's wrongful early termination
of the agreement.


1. Evidence Establishing Elements of StarTex's Claim
As we have discussed, StarTex established the existence of a valid contract between itself and
Triton, and it established that it performed under that contract. StarTex provided a copy of the
Second Amendment, which provided that the parties agreed to extend the ESA through May 2011.

The ESA contained the following early termination provision:

   Early Termination Fee. In the event that Customer terminates this agreement *61 or Customer
   defaults as described [in the ESA], then an Early Termination Fee will be assessed. The Early
   Termination Fee shall be equal to the greater of a) the three months highest bills for Customer
   or b) any mark to market costs.

StarTex presented Verhage's affidavit testimony that Triton terminated the agreement on October
10, 2008, approximately thirty-one months earlier than the Second Amendment's contractual



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Triton 88, L.P. v. Star Electricity, L.L.C., 411 S.W.3d 42 (2013)



termination date of May 2011, and Triton's final invoice reflecting a termination date in the middle
of October 2008.

StarTex likewise provided Madden's affidavit testimony that StarTex was harmed by Triton's early
termination. Madden averred that when StarTex entered into the Second Amendment extending
the terms of the ESA through May 2011, it contracted with its electricity producer “to purchase
enough power to service the entire thirty-six (36) month term of the Second Amendment and the
purchases were tailored to fit Triton's particular ‘shape’.” After Triton unilaterally terminated the
contract on October 10, 2008, StarTex was still obligated to continue to purchase power from its
supplier through May 2011 “in Triton's particular ‘shape,’ ” even though StarTex no longer had a
customer to whom to sell it. Madden testified that it was almost impossible to sell that electricity
to another customer because StarTex “would have to find a new customer who not only wants
an MCPE contract, but has the exact same term and volume requirements and ‘shape’ as Triton.”
According to Madden, these particular characteristics of a MCPE payment arrangement made it
very difficult to calculate the mark-to-market losses because StarTex had no way of knowing what
the exact cost of the future electricity would be. StarTex thus calculated its liquidated damages as
$197,323.25 based on the sum of Triton's three highest monthly bills.


2. Triton's response
Triton does not contest that it terminated the contract in October 2008, approximately thirty-one
months before the termination date provided in the Second Amendment. Triton again argues that
its early termination was excused by StarTex's prior breach by billing based on estimated usage.
We have already concluded that StarTex did not breach the ESA when it invoiced Triton based
on its estimated usage.

Triton also raises several issues specific to the early termination clause and the trial court's award
of liquidated damages. In its ninth issue, Triton argues that the early termination fee clause is
unenforceable as an impermissible penalty. Triton argues in its tenth and eleventh issues that
even if the early termination fee clause is enforceable as a matter of law, StarTex did not present
summary judgment evidence establishing the amount of the early termination fee in compliance
with the contract's terms.



                                (a) Enforceability of early termination clause

Triton argues that the early termination fee clause constitutes an impermissible penalty. Triton
argues that it is impermissible both under the common law standard set out in Phillips v. Phillips,
820 S.W.2d 785 (Tex.1991), and under the Texas Business and Commerce Code.



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Triton 88, L.P. v. Star Electricity, L.L.C., 411 S.W.3d 42 (2013)



 [25] [26] [27] [28] Whether a contractual provision is an enforceable liquidated damages
provision or an unenforceable penalty is a question of law for the court to decide. Dorsett,
164 S.W.3d at 664 (citing Phillips, 820 S.W.2d at 788). Valid liquidated damages clauses “fix
in advance the compensation to a party accruing from the failure to *62 perform specified
contractual obligations.” Dorsett, 164 S.W.3d at 664. To enforce a liquidated damages clause,
the court must find that (1) the harm caused by the breach is incapable or difficult of estimation
and (2) the amount of liquidated damages called for is a reasonable forecast of just compensation.
Phillips, 820 S.W.2d at 788; GPA Holding, Inc. v. Baylor Health Care Sys., 344 S.W.3d 467, 475
(Tex.App.-Dallas 2011, pet. denied). The party asserting that the provision is unenforceable bears
the burden of proof. GPA Holding, 344 S.W.3d at 475.

 [29] Triton argues that the harm caused by its breach is not incapable or difficult of estimation.
Triton argues that StarTex “could determine the amount of electricity that would have been
purchased by Triton but for the purported breach ... and determine what the electricity was sold for
to an alternate customer versus what it would have been sold for to Triton.” However, StarTex's
Senior Vice–President of Supply, Stephen Madden, provided affidavit testimony that it is almost
impossible to know what the cost of Triton's future energy use would have been because of the
constantly fluctuating prices involved in the MCPE pricing structure. He averred that the price
of electricity changes as often as every fifteen minutes, that StarTex committed to buy electricity
in fifteen minute increments to meet its obligation to provide electricity conforming to Triton's
unique “shape” of energy consumption, and thus it would be very difficult to find another consumer
to use that energy. Accordingly, it was not possible to determine, at the time of Triton's early
termination, the cost of the energy that would have been purchased by Triton but for the breach,
and it was also very difficult for StarTex to predict whether it would find another consumer to
purchase the electricity according to Triton's unique usage pattern, and if so, how much such a
consumer would pay.

Triton did not present any evidence regarding the parties' ability to estimate actual damages when
the contract was formed, and it did not controvert Madden's description of the pricing model
applicable to the ESA and Second Amendment. Thus, we conclude that it was impossible to
determine the actual harm that would be caused by early termination. See Phillips, 820 S.W.2d
at 788.

Triton also appears to argue that the amount of the liquidated damages was not a reasonable
forecast of StarTex's actual damages because it was unreasonably large. The ESA provided that
the early termination fee “shall be equal to the greater of a) the three months highest bills for
Customer or b) any mark to market costs.” In this instance, due to the length of the term remaining
on the terminated contract and the uncertainties of pricing, the “mark to market costs” could not
be calculated. Thus, Madden testified that StarTex calculated its damages based on Triton's three
highest monthly bills, which totaled $197,323.25.


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Triton 88, L.P. v. Star Electricity, L.L.C., 411 S.W.3d 42 (2013)




 [30] Triton did not present any evidence regarding what a reasonable forecast of damages would
have been at the time the contract was formed, nor did it present any evidence of StarTex's actual
damages. Thus, we conclude that, when viewed as of the time the contract was executed, the ESA's
method for calculating the amount of liquidated damages provided a reasonable forecast of just
compensation. See id.

 [31] This same reasoning also demonstrates that Triton failed to show that the early termination
fee violated Business and Commerce Code section 2.718. Section 2.718 provides that a liquidated
damages clause is unenforceable if (1) the *63 agreed amount is unreasonable in light of the
anticipated or actual harm caused by breach, (2) the proof of actual harm is not difficult, (3)
obtaining an adequate remedy for breach is not inconvenient or not feasible, or (4) the agreed
amount is unreasonably large. See TEX. BUS. & COM.CODE ANN. § 2.718 (Vernon 2009).
As we have already discussed, the proof of actual harm is difficult, and obtaining an adequate
remedy for breach is not feasible because StarTex could not have calculated the future cost of
the electricity, nor could it predict the extent to which it could mitigate its damages. And, the
agreed amount was not unreasonably large or unreasonable in light of the anticipated or actual
harm. StarTex was obligated to buy thirty-one months' worth of electricity that it had no ability
to resell. In that light, liquidated damages calculated from Triton's three highest monthly invoices
are not unreasonable.

Triton failed to raise a fact question on its claim that the early termination fee clause constituted
an impermissible penalty.



                                   (b) StarTex's proof of liquidated damages

Triton also argues that StarTex failed to prove the amount of liquidated damages permitted under
the ESA. Several of Triton's arguments on this issue again challenge the accuracy of StarTex's
billing and StarTex's use of estimates in its invoices. However, we have already determined that
Triton has failed to raise a fact question regarding the accuracy or propriety of StarTex's invoices.
Thus, we do not address those arguments again.

Triton argues that StarTex failed to identify which three invoices it relied on in calculating the
liquidated damages. It also argues that no three invoices from the term of the Second Amendment
add up to $197,323.95, and, thus, StarTex improperly used invoices dated prior to the execution
of the Second Amendment to calculate the early termination fee. However, the early termination
fee provision did not limit the time period from which the three highest bills could be taken, and
Triton failed to present these arguments to the trial court. See TEX.R. CIV. P. 166a(c) (“Issues
not expressly presented to the trial court by written motion, answer or other response shall not


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Triton 88, L.P. v. Star Electricity, L.L.C., 411 S.W.3d 42 (2013)



be considered on appeal as grounds for reversal.”); City of Houston v. Clear Creek Basin Auth.,
589 S.W.2d 671, 678 (Tex.1979) (holding that nonmovant could not raise for first time on appeal
additional fact issue that was not raised in its response).

We hold that the trial court did not err in granting summary judgment and awarding StarTex
$105,034.18 on its claim that Triton failed to pay for electricity provided under the ESA and
$197,323.25 as liquidated damages on its claim for Triton's early termination of the ESA as
extended by the Second Amendment.

We overrule Triton's first through seventh, ninth, tenth, and eleventh issues.



                                                    Attorney's Fees

In its twelfth issue, Triton argues that the trial court erred in awarding StarTex $12,000 in attorney's
fees because that amount was not properly proven and was excessive and unreasonable. Triton
also argues that StarTex was not entitled to recover attorney's fees because it made an excessive
demand prior to filing this lawsuit.


A. Standard of Review
 [32] [33] [34] The prevailing party in a breach of contract suit is entitled to attorney's fees.
TEX. CIV. PRAC. & REM.CODE ANN. § 38.001(8) (Vernon 2008); Haden v. *64 David J.
Sacks, P.C., 332 S.W.3d 503, 510 (Tex.App.-Houston [1st Dist.] 2009, pet. denied). An award
of attorney's fees must be supported by evidence that the fees are reasonable and necessary.
See Stewart Title Guar. Co. v. Sterling, 822 S.W.2d 1, 10 (Tex.1991). A trial court determines
the reasonableness of an attorney's fees award by considering the factors enumerated in Arthur
Andersen & Co. v. Perry Equipment Corp. 945 S.W.2d 812, 818 (Tex.1997) (holding that evidence
of contingency fee agreement alone does not support award of reasonable and necessary attorney's
fees and that trial court must still consider other factors). The reasonableness of attorney's fees is
generally a fact issue. Haden, 332 S.W.3d at 512. We review attorney's fees awards for an abuse
of discretion. Ridge Oil Co., Inc. v. Guinn Invs., Inc., 148 S.W.3d 143, 163 (Tex.2004).

 [35] [36] An attorney's affidavit constitutes expert testimony that will support an award of
attorney's fees in a summary judgment proceeding. Haden, 332 S.W.3d at 513; see TEX.R. CIV.
P. 166a(c); Gensco, Inc. v. Transformaciones Metalurgicias Especiales, S.A., 666 S.W.2d 549,
554 (Tex.App.-Houston [14th Dist.] 1984, writ dism'd). Civil Practice and Remedies Code section
38.003 provides that “usual and customary attorney's fees” are presumed to be reasonable. TEX.
CIV. PRAC. & REM.CODE ANN. § 38.003 (Vernon 2008). Although the statutory presumption
that usual and customary fees are reasonable is rebuttable, see id., once triggered by an attorney's


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Triton 88, L.P. v. Star Electricity, L.L.C., 411 S.W.3d 42 (2013)



supporting affidavit, the presumption of reasonableness remains in effect when there is no evidence
submitted to challenge the affidavit proof of the summary judgment movant. Haden, 332 S.W.3d
at 513.


B. Analysis
 [37] In its motion for summary judgment, StarTex sought $75,589.36 in attorney's fees, and
its attorney, Rodney Drinnon, submitted an affidavit in support of an award for attorney's fees.
Drinnon averred that the contingency fee agreement awarding twenty-five percent of damages
recovered from any successful trial award constituted usual and customary attorney's fees; he
provided a list of specific tasks he and his law practice undertook during the course of representing
StarTex; and he stated that his fee was supported by several, listed Arthur Andersen factors.
Drinnon's description was “ ‘clear, positive, and direct, otherwise credible’ and [was] neither
internally inconsistent nor [contradictory]” and could have been readily controverted by Triton.
See id. at 514. Based on Drinnon's affidavit, submitted as evidence in support of the request for
attorney's fees, StarTex was entitled to the statutory presumption that its attorney's usual and
customary fees were reasonable. See TEX. CIV. PRAC. & REM.CODE ANN. § 38.003; see also
Haden, 332 S.W.3d at 514 (holding attorney's affidavit sufficient to warrant summary judgment
when it (1) contained recitals establishing attorney's competency to swear to facts stated and
other requirements of Rule of Civil Procedure 166a(f), (2) described work encompassed by the
fees sought, and (3) specified factors that formed basis of his statement that amount claimed was
reasonable and necessary, tracking seven of eight Arthur Andersen factors).

Triton filed a written objection to Drinnon's affidavit, arguing that it failed to describe the time
required to prosecute StarTex's claim, to provide counsel's hourly rate, and to discuss two of the
Arthur Andersen factors. We have already concluded that Drinnon's affidavit was sufficient *65
to support StarTex's claim for attorney's fees. See Haden, 332 S.W.3d at 514. Triton did not file a
controverting affidavit or any other evidence disputing Drinnon's evidence. Because Triton did not
present any controverting evidence, Triton cannot overcome the presumption of reasonableness
accorded to Drinnon's affidavit in support of an award of attorney's fees. See id. at 514–16 (holding
that because nonmovant “did not controvert [attorney's] affidavit or otherwise dispute the law
firm's evidence, the law firm was ... entitled to the statutory presumption that the requested amount
was both reasonable and necessary”).

 [38] [39] Triton also argues that StarTex is not entitled to attorney's fees on the basis of its
affirmative defense that StarTex made an excessive demand on Triton prior to filing suit. See Kurtz
v. Kurtz, 158 S.W.3d 12, 21 (Tex.App.-Houston [14th Dist.] 2004, pet. denied). When a claimant
makes an “excessive” demand and will not accept a lesser amount, the claimant is not entitled
to attorney's fees expended in litigation thereafter, even if it prevails on its breach of contract
claim. See, e.g., McMillin v. State Farm Lloyds, 180 S.W.3d 183, 209 (Tex.App.-Austin 2005,
pet. denied) (citing Findlay v. Cave, 611 S.W.2d 57, 58 (Tex.1981)). Demand is not excessive

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Triton 88, L.P. v. Star Electricity, L.L.C., 411 S.W.3d 42 (2013)



simply because it is greater than the amount eventually awarded. See Findlay, 611 S.W.2d at 58.
The dispositive question is whether the claimant acted unreasonably or in bad faith in making
the demand. See Standard Constructors, Inc. v. Chevron Chem. Co., 101 S.W.3d 619, 627–28
(Tex.App.-Houston [1st Dist.] 2003, pet. denied).

 [40] StarTex's demand letter requested $105,034.18 as principal on the unpaid invoices,
$14,290.98 in interest and fees, $197,323.95 in liquidated damages, and $68,329.82 in attorney's
fees. It stated that Triton should pay the listed amounts within thirty days or make arrangements
to satisfy the debt. Thus, the amounts demanded by StarTex prior to filing suit were not so much
greater than the amount it was eventually awarded as to be “excessive” or to indicate that the
demand was made in bad faith. Triton presented no evidence that StarTex would have refused
tender of the $314,358.13 awarded by the trial court. Triton has failed to establish that this
exception to StarTex's statutory right to attorney's fees is met. See Findlay, 611 S.W.2d at 58;
McMillin, 180 S.W.3d at 209.

We hold that the trial court did not err in awarding StarTex $12,000 in attorney's fees.

We overrule Triton's twelfth point of error.



                                                      Other Issues

A. PUC Rules and Procedures for Disputed Charges
 [41] In its eighth issue, Triton argues that its pending claim against StarTex before the PUC acted
to stay the judgment and enforcement of the judgment. In its brief, Triton also argues that StarTex
failed to properly investigate Triton's complaints according to the PUC's rules and procedures.
However, Triton did not present these arguments to the trial court. Furthermore, the only indication
before this Court that Triton actually filed a complaint with the PUC is Triton's statement in its
appellate brief. We conclude that these complaints are not properly presented for our review. See
TEX.R. CIV. P. 166a(c); Marek v. Tomoco Equip. Co., 738 S.W.2d 710, 712 (Tex.App.-Houston
[14th Dist.] 1987, no writ) (“The trial court considers the record only as it properly appears when
the motion for summary judgment is heard.”); see also TEX.R.APP. P. 33.1(a) (providing that,
“[a]s a prerequisite *66 to presenting a complaint for appellate review, the record must show
that ... the complaint was made to the trial court by a timely request, objection or motion”).

We overrule Triton's eighth issue.


B. Receivership and Turnover Order



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Triton 88, L.P. v. Star Electricity, L.L.C., 411 S.W.3d 42 (2013)



In its thirteenth and fourteenth issues, Triton argues that, because the trial court erred in granting
summary judgment, the trial court also erred in appointing a receiver and in ordering Triton to turn
over to the receiver confidential records and all proceeds and revenues generated by its businesses.
Thus, Triton argues that it is entitled to immediate relief from the order appointing a receiver and
the turnover order, including return of all records and revenues turned over to or seized by the
receiver. We have already concluded that the trial court did not err in granting summary judgment.
Therefore, this argument fails.

We overrule Triton's thirteenth and fourteenth issues.



                                                               Conclusion

We affirm the judgment of the trial court.



Justice SHARP concurring in the judgment only.


Footnotes
1    StarTex moved this Court to strike the affidavits Triton submitted with its motion for reconsideration or new trial from the appellate
        record. Those affidavits were part of Triton's motion, and “any filing that a party designates to have included in the record” is a proper
        part of the clerk's record. TEX.R.APP. P. 34.5(a)(13). Therefore, we DENY StarTex's motion. We note, however, that the affidavits
        attached to Triton's motion for reconsideration or new trial are not relevant to our review of the trial court's summary judgment. See
        TEX.R. CIV. P. 166a(c); Marek v. Tomoco Equip. Co., 738 S.W.2d 710, 712 (Tex.App.-Houston [14th Dist.] 1987, no writ) (“The
        trial court considers the record only as it properly appears when the motion for summary judgment is heard.”).
2       StarTex also presented Bejger's affidavit testimony that he did not make the representations alleged by Gary. Triton objected to this
        evidence in the trial court, but it is not clear whether Triton is arguing on appeal that Bejger's affidavit should not be considered.
        However, it is unnecessary for us to consider Bejger's testimony as the terms of the contract are established as a matter of law.


End of Document                                                             © 2015 Thomson Reuters. No claim to original U.S. Government Works.




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Triton 88, L.P. v. Star Electricity, L.L.C., 411 S.W.3d 42



    History (4)

    Direct History (3)
    1. Star Electricity, L.L.C v. Triton 88. L.P.
    2010 WL 8995562 , Tex.Dist. , Jan. 20, 2010


       New Trial Denied by

    2. STAR Electricity, L.L.C. v. Triton 88, L.P.
    2010 WL 9583454 , Tex.Dist. , Jan. 21, 2010


       AND Affirmed by

      3. Triton 88, L.P. v. Star Electricity, L.L.C.
      411 S.W.3d 42 , Tex.App.-Hous. (1 Dist.) , Aug. 13, 2013



    Related References (1)
    4. Star Electricity, L.L.C. v. Triton 88, L.P.
    2010 WL 9585471 , Tex.Dist. , June 17, 2010




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§ 356Liquidated Damages and Penalties, Restatement (Second) of Contracts § 356 (1981)




                         Restatement (Second) of Contracts § 356 (1981)

                                   Restatement of the Law - Contracts

                                   Database updated October 2014
                                   Restatement (Second) of Contracts

                                           Chapter 16. Remedies

                              Topic 2. Enforcement by Award of Damages

                              § 356 Liquidated Damages and Penalties

  Comment:
  Reporter's Note
  Case Citations - by Jurisdiction

     (1) Damages for breach by either party may be liquidated in the agreement but only at
     an amount that is reasonable in the light of the anticipated or actual loss caused by the
     breach and the difficulties of proof of loss. A term fixing unreasonably large liquidated
     damages is unenforceable on grounds of public policy as a penalty.

     (2) A term in a bond providing for an amount of money as a penalty for non-occurrence
     of the condition of the bond is unenforceable on grounds of public policy to the extent
     that the amount exceeds the loss caused by such non-occurrence.



                                                 Comment:

a. Liquidated damages or penalty. The parties to a contract may effectively provide in advance the
damages that are to be payable in the event of breach as long as the provision does not disregard
the principle of compensation. The enforcement of such provisions for liquidated damages saves
the time of courts, juries, parties and witnesses and reduces the expense of litigation. This is
especially important if the amount in controversy is small. However, the parties to a contract are
not free to provide a penalty for its breach. The central objective behind the system of contract
remedies is compensatory, not punitive. Punishment of a promisor for having broken his promise
has no justification on either economic or other grounds and a term providing such a penalty is
unenforceable on grounds of public policy. See Chapter 8. The rest of the agreement remains
enforceable, however, under the rule stated in § 184(1), and the remedies for breach are determined
by the rules stated in this Chapter. See Illustration 1. A term that fixes an unreasonably small


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§ 356Liquidated Damages and Penalties, Restatement (Second) of Contracts § 356 (1981)



amount as damages may be unenforceable as unconscionable. See § 208. As to the liquidation of
damages and modification or limitation of remedies in contracts of sale, see Uniform Commercial
Code §§ 2-718, 2-719.

b. Test of penalty. Under the test stated in Subsection (1), two factors combine in determining
whether an amount of money fixed as damages is so unreasonably large as to be a penalty. The first
factor is the anticipated or actual loss caused by the breach. The amount fixed is reasonable to the
extent that it approximates the actual loss that has resulted from the particular breach, even though
it may not approximate the loss that might have been anticipated under other possible breaches.
See Illustration 2. Furthermore, the amount fixed is reasonable to the extent that it approximates
the loss anticipated at the time of the making of the contract, even though it may not approximate
the actual loss. See Illustration 3. The second factor is the difficulty of proof of loss. The greater the
difficulty either of proving that loss has occurred or of establishing its amount with the requisite
certainty (see § 351), the easier it is to show that the amount fixed is reasonable. To the extent
that there is uncertainty as to the harm, the estimate of the court or jury may not accord with the
principle of compensation any more than does the advance estimate of the parties. A determination
whether the amount fixed is a penalty turns on a combination of these two factors. If the difficulty
of proof of loss is great, considerable latitude is allowed in the approximation of anticipated or
actual harm. If, on the other hand, the difficulty of proof of loss is slight, less latitude is allowed
in that approximation. If, to take an extreme case, it is clear that no loss at all has occurred, a
provision fixing a substantial sum as damages is unenforceable. See Illustration 4.


     Illustrations:
     Illustrations:

           1. A and B sign a written contract under which A is to act in a play produced by B for a
           ten week season for $4,000. A term provides that “if either party shall fail to perform as
           agreed in any respect he will pay $10,000 as liquidated damages and not as a penalty.”
           A leaves the play before the last week to take another job. The play is sold out for that
           week and A is replaced by a suitable understudy. The amount fixed is unreasonable in
           the light of both the anticipated and the actual loss and, in spite of the use of the words
           “liquidated damages,” the term provides for a penalty and is unenforceable on grounds
           of public policy. The rest of the agreement is enforceable (§ 184(1)), and B's remedies
           for A's breach are governed by the rules stated in this Chapter.

           2. A, B and C form a partnership to practice veterinary medicine in a town for ten years.
           In the partnership agreement, each promises that if, on the termination of the partnership,
           the practice is continued by the other two members, he will not practice veterinary
           medicine in the same town during its continuance up to a maximum of three years. A
           term provides that for breach of this duty “he shall forfeit $50,000 to be collected by the


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§ 356Liquidated Damages and Penalties, Restatement (Second) of Contracts § 356 (1981)



           others as damages.” A leaves the partnership, and the practice is continued by B and C. A
           immediately begins to practice veterinary medicine in the same town. The loss actually
           caused to B and C is difficult of proof and $50,000 is not an unreasonable estimate of it.
           Even though $50,000 may be unreasonable in relation to the loss that might have resulted
           in other circumstances, it is not unreasonable in relation to the actual loss. Therefore,
           the term does not provide for a penalty and its enforcement is not precluded on grounds
           of public policy. See Illustration 14 to § 188.

           3. A contracts to build a grandstand for B's race track for $1,000,000 by a specified date
           and to pay $1,000 a day for every day's delay in completing it. A delays completion for
           ten days. If $1,000 is not unreasonable in the light of the anticipated loss and the actual
           loss to B is difficult to prove, A's promise is not a term providing for a penalty and its
           enforcement is not precluded on grounds of public policy.

           4. The facts being otherwise as stated in Illustration 3, B is delayed for a month in
           obtaining permission to operate his race track so that it is certain that A's delay of ten
           days caused him no loss at all. Since the actual loss to B is not difficult to prove, A's
           promise is a term providing for a penalty and is unenforceable on grounds of public
           policy.

c. Disguised penalties. Under the rule stated in this Section, the validity of a term providing for
damages depends on the effect of that term as interpreted according to the rules stated in Chapter
9. Neither the parties' actual intention as to its validity nor their characterization of the term as
one for liquidated damages or a penalty is significant in determining whether the term is valid.
Sometimes parties attempt to disguise a provision for a penalty by using language that purports to
make payment of the amount an alternative performance under the contract, that purports to offer a
discount for prompt performance, or that purports to place a valuation on property to be delivered.
Although the parties may in good faith contract for alternative performances and fix discounts or
valuations, a court will look to the substance of the agreement to determine whether this is the case
or whether the parties have attempted to disguise a provision for a penalty that is unenforceable
under this Section. In determining whether a contract is one for alternative performances, the
relative value of the alternatives may be decisive.


     Illustration:
     Illustration:

           5. A contracts to build a house for B for $50,000 by a specified date or in the alternative
           to pay B $1,000 a week during any period of delay. A delays completion for ten days.
           If $1,000 a week is unreasonable in the light of both the anticipated and actual loss, A's



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§ 356Liquidated Damages and Penalties, Restatement (Second) of Contracts § 356 (1981)



           promise to pay $1,000 a week is, in spite of its form, a term providing for a penalty and
           is unenforceable on grounds of public policy.

d. Related types of provisions. This Section does not purport to cover the wide variety of provisions
used by parties to control the remedies available to them for breach of contract. A term that fixes as
damages an amount that is unreasonably small does not come within the rule stated in this Section,
but a court may refuse to enforce it as unconscionable under the rule stated in § 208. A mere
recital of the harm that may occur as a result of a breach of contract does not come within the rule
stated in this Section, but may increase damages by making that harm foreseeable under the rule
stated § 351. As to the effect of a contract provision on the right to equitable relief, see Comment
a to § 359. As to the effect of a term requiring the occurrence of a condition where forfeiture
would result, see § 229. Although attorneys' fees are not generally awarded to the winning party,
if the parties provide for the award of such fees the court will award a sum that it considers to
be reasonable. If, however, the parties specify the amount of such fees, the provision is subject
to the test stated in this Section.

e. Penalties in bonds. Bonds often fix a flat sum as a penalty for non-occurrence of the condition of
the bond. A term providing for a penalty is not unenforceable in its entirety but only to the extent
that it exceeds the loss caused by the non-occurrence of the condition.


     Illustration:
     Illustration:

           6. A executes a bond obligating himself to pay B $10,000, on condition that the bond
           shall be void, however, if C, who is B's cashier, shall properly account for all money
           entrusted to him. C defaults to the extent of $500. A's promise is unenforceable on
           grounds of public policy to the extent that it exceeds the actual loss, $500.



                                              Reporter's Note

This Section is based on former §§ 339 and 579, but Subsection (1) has been redrafted to harmonize
with Uniform Commercial Code § 2-718(1). The Code's reference to “the inconvenience or
nonfeasibility of otherwise obtaining an adequate remedy” has been omitted as already being
expressed by the language of Subsection (1), as explained in the Comment. See 5 Corbin, Contracts
ch. 58 (1964 & Supp.1980); 5 Williston, Contracts §§ 776-89 (3d ed.1961); Clarkson, Miller
& Muris, Liquidated Damages v. Penalties: Sense or Nonsense, 1978 Wis.L.Rev. 351; Goetz &
Scott, Liquidated Damages, Penalties and the Just Compensation Principle: Some Notes on an
Enforcement Model and a Theory of Efficient Breach, 77 Colum.L.Rev. 554 (1977); Macneil,


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§ 356Liquidated Damages and Penalties, Restatement (Second) of Contracts § 356 (1981)



Power of Contract and Agreed Remedies, 47 Cornell L.Q. 495 (1962); Sweet, Liquidated Damages
in California, 60 Calif.L.Rev. 84 (1972); The [English] Law Commission, Penalty Clauses and
Forfeiture of Monies Paid (Law of Contract Working Paper No. 61, 1975). Notes, 45 Fordham
L.Rev. 1349 (1977); 72 Nw.U.L.Rev. 1055 (1978).

Comment b. Illustration 1 is based on Illustration 1 to former § 339; H.J. McGrath Co. v. Wisner,
189 Md. 260, 55 A.2d 793 (1947). Illustration 2 is based on Illustration 2 to former § 339; Jaquith
v. Hudson, 5 Mich. 123 (1858). It is supported by 5 Corbin, Contracts § 1066 (1964 & Supp.1980);
McCormick, Damages § 151 (1935); and is consistent with the rationale behind § 184(2). But
cf. Bauer v. Sawyer, 8 Ill.2d 351, 134 N.E.2d 329 (1956); Management, Inc. v. Schassberger,
39 Wash.2d 321, 235 P.2d 293 (1951). Illustration 3 is based on Illustration 3 to former § 339;
United States v. Bethlehem Steel Co., 205 U.S. 105 (1907); Banta v. Stamford Motor Co., 89
Conn. 51, 92 A. 665 (1914); Dave Gustafson & Co. v. State, 83 S.D. 160, 156 N.W.2d 185 (1968).
But cf. Priebe & Sons v. United States, 332 U.S. 407 (1947); Hungerford Constr. Co. v. Florida
Citrus Exposition, Inc., 410 F.2d 1229 (5th Cir.), cert. denied, 396 U.S. 928 (1969). Illustration
4 is supported by Massman Constr. Co. v. City Council of Greenville, Miss., 147 F.2d 925 (5th
Cir.1945); Northwest Fixture Co. v. Kilbourne & Clark Co., 128 F. 256 (9th Cir.1904); Norwalk
Door Closer Co. v. Eagle Lock and Screw Co., 153 Conn. 681, 220 A.2d 263 (1966). It rejects
the view of Illustration 7 to former § 339; Southwest Eng'r Co. v. United States, 341 F.2d 998
(8th Cir.), cert. denied, 382 U.S. 819 (1965); McCarthy v. Tally, 46 Cal.2d 577, 297 P.2d 981
(1956); cf. Bethlehem Steel Corp. v. Chicago, 350 F.2d 649 (7th Cir.1965). That the difficulties
of proof of loss are to be determined at the time the contract is made, not at the time of the breach,
see Hutchison v. Tompkins, 259 So.2d 129 (Fla.1972). As to whether the actual loss must be
reasonably foreseeable, compare comment, 45 Fordham L.Rev. 1349, 1357 (1977), with 1 N.Y.L.
Rev'n Comm'n, Study of the Uniform Commercial Code, Leg. Doc. (1955) No. 65, p. 581 n. 468.

Comment c. Illustration 5 is based on Illustration 5 to former § 339.

Comment d. Allowing attorneys' fees, see Puget Sound Mutual Sav. Bank v. Lillions, 50 Wash.2d
799, 314 P.2d 935 (1957), cert. denied, 357 U.S. 926 (1958). As to whether a specified sum as
attorney's fees is a penalty, see Equitable Lumber Corp. v. IPA Land Dev. Corp., 38 N.Y.2d 516,
381 N.Y.S.2d 459, 344 N.E.2d 391 (1976).

Comment e. Illustration 6 is based on Illustration 8 to former § 339.



                                    Case Citations - by Jurisdiction




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