                                                                                  ACCEPTED
                                                                             03-14-00510-CV
                                                                                     4243321
                                                                   THIRD COURT OF APPEALS
                                                                              AUSTIN, TEXAS
                                                                       2/23/2015 10:52:08 AM
                                                                            JEFFREY D. KYLE
                                                                                       CLERK
                          No. 03-14-00510-CV

                                                        FILED IN
                                                 3rd COURT OF APPEALS
                      IN THE COURT OF APPEALS         AUSTIN, TEXAS
            FOR THE   THIRD COURT OF APPEALS DISTRICT
                                                 2/23/2015 10:52:08 AM
                           AUSTIN, TEXAS             JEFFREY D. KYLE
                                                          Clerk



 NOAH S. BUNKER, PAUL CARRELL, EVERETT BREW HOUSTON, JR.,
    W. ANDREW BUCHHOLZ, SCOTT J. LEIGHTY, JAD L. DAVIS
                     AND HOLLY CLAUSE,
                  Appellants and Cross-Appellees,

                                   v.

                      TRACY D. STRANDHAGEN,
                      Appellee and Cross-Appellant.


ON APPEAL FROM THE 353RD JUDICIAL DISTRICT COURT OF TRAVIS COUNTY, TEXAS
     HON. ORLINDA NARANJO, PRESIDING; CAUSE NO. D-1-GN-13-002811


                         APPELLEE’S BRIEF


                           Daniel H. Byrne
                           Texas Bar No. 03565600
                           Dbyrne@fbhh.com
                           FRITZ, BYRNE, HEAD & HARRISON, PLLC
                           98 San Jacinto Boulevard, Suite 2000
                           Austin, Texas 78701
                           Telephone: (512) 476-2020
                           Telecopy: (512) 477-5267
                IDENTITY OF PARTIES AND COUNSEL

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

Trial and Appellate Counsel:           Appellate Counsel:
Daniel H. Byrne                        Amanda G. Taylor
Texas Bar No. 03565600                 ataylor@textaxlaw.com
dbyrne@fbhh.com                        Texas Bar No. 24045921
Lessie Fitzpatrick                     MARTENS, TODD, LEONARD, TAYLOR
Texas Bar No. 24012630                 & AHLRICH
lfitzpatrick@fbhh.com                  301 Congress Avenue, Suite 1950
Christine E. Burgess                   Austin, Texas 78701
Texas Bar No. 00793428                 Tel: (512) 542-9898
cburgess@fbhh.com                      Fax: (512) 542-9899
FRITZ, BYRNE, HEAD & HARRISON,
PLLC
98 San Jacinto Blvd., Suite 2000
Austin, Texas 78701
Tel: (512) 476-2020
Fax: (512) 477-5267

                                       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
                                       Tel: (512) 472-4845
                                       Fax: (512) 472-8403



                                   i
                                          TABLE OF CONTENTS

IDENTITY OF PARTIES AND COUNSEL ......................................................... i

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

INDEX OF AUTHORITIES ................................................................................. iv

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

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

ISSUES PRESENTED ........................................................................................... xi

I.         NO REQUEST FOR ORAL ARGUMENT ................................................1

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

     A. DR. STRANDHAGEN SOUGHT A DECLARATION THAT THE
        CONTRACTUAL PROVISION PURPORTING TO REQUIRE PAYMENT OF
        $500,000 IS AN UNENFORCEABLE PENALTY ...................................................1

     B. TRIAL COURT PROCEEDINGS..........................................................................4

III.       SUMMARY OF THE ARGUMENT ...........................................................6

IV.        ARGUMENT..................................................................................................8

     A. STANDARD OF REVIEW ....................................................................................8

     B. THE DISTRICT COURT DID NOT ERR BY GRANTING THE SUMMARY
        JUDGMENT .......................................................................................................8

       1. Dr. Strandhagen carried her burden of proving that the
          $500,000 Termination Penalty Clause is an unenforceable
          penalty. ........................................................................................................9

           a.     Dr. Strandhagen need only prove that the $500,000
                  Termination Penalty Clause was not a reasonable forecast of
                  just compensation. .................................................................................9

                                                             ii
       b.       As matter of law, the $500,000 Termination Penalty Clause
                was not a reasonable forecast of just compensation on its face
                because the penalty amount was the same if Dr. Strandhagen
                terminated her employment on day one or after she
                performed for 99% of the employment contract term. ...................12

            (1) A party challenging the enforceability of a purported
                liquidated damages clause based on its facial
                unreasonableness as a forecast of just compensation at the
                time the contract was made need not address actual
                damages. ............................................................................................12

            (2) Dr. Strandhagen has proven that the Termination Penalty
                Clause is facially invalid. .................................................................15

     2. Appellants’ modification argument fails. ..............................................20

  C. THE TRIAL COURT HAD JURISDICTION BECAUSE AN ACTUAL
     CONTROVERSY EXISTS BETWEEN THE PARTIES, AND IT IS RIPE FOR
     ADJUDICATION ..............................................................................................24

V.     PRAYER .......................................................................................................29

CERTIFICATE OF SERVICE AND COMPLIANCE ......................................31




                                                          iii
                                   INDEX OF AUTHORITIES

Am. Nat’l Ins. Co. v. Cannon,
86 S.W.3d 801 (Tex. App.—Beaumont 2002, no pet.) ...........................................28

Baker v. Int’l Record Syndicate, Inc.,
812 S.W.2d 53 (Tex. App.—Dallas 1991, no writ.) ..........................................10, 12

Bd. of Water Eng’rs v. San Antonio,
283 S.W.2d 722 (Tex. 1955)....................................................................................25

Cal. Prods., Inc. v. Puretex Lemon Juice, Inc.,
334 S.W.2d 780 (Tex. 1960)....................................................................................25

Carter v. Dripping Springs Water Supply Corp.,
Cause No. 03-03-00753-CV, 2005 Tex. App. LEXIS 461
(Tex. App.—Austin, Jan. 21, 2005, no pet.) ............................................................25

Commercial Union Ins. Co. v. La Villa Indep. Sch. Dist.,
779 S.W.2d 102 (Tex. App.—Corpus Christi 1989, no writ)..................................17

Community Dev. Serv., Inc. v. Replacement Parts Mfg., Inc.,
679 S.W.2d 721 (Tex. App.—Houston [1st Dist.] 1984, no writ) ...............15, 16, 20

Continental Holdings, Ltd. v. Leahy,
132 S.W.3d 471 (Tex. App.—Eastland 2003, no pet.) ............................................21

County of Cameron v. Brown, 80 S.W.3d 549 (Tex. 2002) ....................................29

Eberts v. Businesspeople Personnel Servs., Inc.,
620 S.W.2d 861 (Tex. Civ. App.—Dallas 1981, no writ) .................................11, 17

Farmers Ins. Exch. v. Rodriguez, 366 S.W.3d 216
(Tex. App.–Houston [14th Dist.] 2012, pet. denied) ................................................29

FPL Energy, LLC v. TXU Portfolio Mgmt. Co., L.P.,
426 S.W.3d 59 (Tex. 2014) ................................... 8, 9, 10, 11, 12, 13, 14, 15, 18, 20


                                                      iv
Garden Ridge, L.P. v. Advance Int’l, Inc., 403 S.W.3d 432
(Tex. App.—Houston [14th Dist.] 2013, pet. denied) ............................10, 13, 16, 19
GPA Holding, Inc. v. Baylor Health Care Sys.,
344 S.W.3d 467 (Tex. App.—Dallas 2011, pet. denied) ...................................10, 12

Great Am. Prods. v. Permabond Int’l, 94 S.W.3d 675
(Tex. App.—Austin 2002, pet. denied) ...................................................................22

Hamilton v. Tex. Prop. and Cas. Ins. Guar. Ass’n,
No. 03-98-00355-CV, 1999 Tex. App. LEXIS 3163
(Tex. App.—Austin Apr. 29, 1999, no pet.) ............................................................21

Hampden Corp. v. Remark, Inc., No. 05-13-00529,
2014 Tex. App. LEXIS 6900
(Tex. App.—Dallas Oct. 10, 2014, pet. denied) ......................................................22

Healix Infusion Therapy, Inc. v. Bellos, No. 11-02-00346-CV,
2003 Tex. App. LEXIS 9027
(Tex. App.—Eastland Oct. 23, 2003, no pet.) ...................................................12, 15

Hirschfeld Steel Co., Inc. v. Kellogg Brown & Root, Inc.,
201 S.W.3d 272 (Tex. App.—Houston [14th Dist.] 2006, no pet.) ..........................28

Hoover Slovacek, LLP v. Walton, 206 S.W.3d 557 (Tex. 2006) .............................23

In re City of Dallas, 977 S.W.2d 798
(Tex. App.—Fort Worth 1998, orig. proceeding)....................................................25

In re Dow Corning Corp., 419 F.3d 543 (6th Cir. 2005)....................................11, 13

In re Kasschau, 11 S.W. 3d 305
(Tex. App.—Houston [14th Dist.] 1999, orig. proceeding) .....................................23

In re OC, Inc., 552 F.3d 413 (5th Cir. 2008) ............................................................21

In re Poly-America, L.P., 262 S.W.3d 337 (Tex. 2008) ..........................................23

Kelley-Coppedge, Inc. v. Highlands Ins. Co.,
980 S.W.2d 462 (Tex. 1998)....................................................................................21


                                                       v
Khan v. Meknojiya, No.03-11-00580-CV,
2013 Tex. App. LEXIS 7976
(Tex. App.—Austin June 28, 2013, no pet.) ......................................................10, 12

Lake River Corp. v. Carborundum Co.,
769 F.2d 1284 (7th Cir. 1985)...................................................................................15

LHR Enters., Inc. v. Geeslin, No. 03-05-00176-CV,
2007 Tex. App. LEXIS 8849
(Tex. App.—Austin Nov. 7, 2007, pet. denied) ................................................26, 29

Mayfield v. Hicks, 575 S.W.2d 571
(Tex. App.—Dallas 1978, writ ref’d n.r.e.) ...........................................13, 16, 18, 19

MBM Fin. Corp. v. The Woodlands Operating Co., L.P.,
292 S.W.3d 660 (Tex. 2009)..............................................................................27, 28

McFadden v. Fuentes,
790 S.W.2d 736 (Tex. App.—El Paso 1990, no writ) .............................................19

McGinnis v. Union Pac. R.R. Co.,
612 F. Supp. 2d 776 (S.D. Tex. 2009) .....................................................................28

Murphy v. Cintas Corp.,
923 S.W.2d 663 (Tex. App.—Tyler 1996, writ denied) .........................12, 14 18, 19

Nexstar Broad., Inc. v. Gray,
No. 09-07-00364, 2008 Tex. App. LEXIS 4736
(Tex. App.—Beaumont June 26, 2008, no pet.) ...............................................11, 29

Patterson v. Planned Parenthood of Houston & Se. Tex., Inc.,
971 S.W.2d 439 (Tex. 1998)....................................................................................25

Paulsen v. Tex. Equal Access to Justice Found.,
23 S.W.3d 42 (Tex. App.—Austin 1999, pet. denied) ............................................27

Phillips v. Phillips, 820 S.W.2d 785 (Tex. 1991) ........................9, 10, 13, 14, 16, 20

Robinson v. Parker, 353 S.W.3d 753 (Tex. 2011) ..................................................29
                                                       vi
Rowan Cos., Inc. v. Griffin, 876 F.2d 26 (5th Cir. 1989) .........................................28

Rusk State Hosp. v. Black, 392 S.W.3d 88 (Tex. 2012) ..........................................29

Southern Union Co. v. CSG Sys., Inc.,
No. 03-04-00172-CV, 2005 Tex. App. LEXIS 564
(Tex. App.—Austin Jan. 27, 2005, no pet.) ...........................................10, 12, 15, 20

Southwestern Bell Tel. Co. v. Delanney,
809 S.W.2d 493 (Tex. 1991)....................................................................................23

SP Terrace, L.P. v. Meritage Homes of Tex., LLC,
334 S.W.3d 275 (Tex. App.—Houston [1st Dist.] 2010, no pet.) ............................. 9

State v. Margolis, 439 S.W.2d 695
(Tex. Civ. App.—Austin 1969, writ ref’d n.r.e.) .....................................................28

Stewart v. Basey, 245 S.W.2d 484 (Tex. 1952) .....................................10, 15, 16, 20

Tex. Ass’n of Business v. Tex. Air Control Bd., 852 S.W.2d 440
(Tex. 1993) ...............................................................................................................27

Tex. Dep’t of Pub. Safety v. Moore,
985 S.W.2d 149 (Tex. App.—Austin, 1998, no pet.) ..............................................25

Transcontinental Realty Investors, Inc. v. Orix Capital Markets, LLC,
353 S.W.3d 241 (Tex. App.—Dallas 2011, pet. denied) .........................................29

Transport. Ins. Co. v. WH Cleaners, Inc.,
372 S.W.3d 223 (Tex. App.—Dallas 2012, no pet.) ...........................................8, 28

Triton 88, L.P. v. Star Elec., LLC,
411 S.W.3d 42 (Tex. App.—Houston [1st Dist.] 2013, no pet.) ........................10, 15

Urban Television Network Corp. v. Creditor Liquidity Solutions, LP,
277 S.W.3d 917 (Tex. App.—Dallas 2009, no pet.) ...............................................17

Valence Operating Co. v. Dorsett,
164 S.W.3d 656 (Tex. 2005)......................................................................................8
                                                            vii
WesternGeco, LLC v. Input/Output, Inc.,
246 S.W.3d 776 (Tex. App.—Houston [14th Dist.] 2008, no pet.).........................25

RULES:

Tex. R. Civ. P. 94 .....................................................................................................22

TEX. R. CIV. P. 166a(c)...............................................................................................8

Tex. R. App. P. 43....................................................................................................30

STATUTES:

Tex. Civ. Prac. & Rem. Code §37.002 ....................................................................24

Tex. Civ. Prac. & Rem. Code §37.004 ........................................................24, 25, 28

OTHER AUTHORITIES:

RESTATEMENT (SECOND) OF CONTRACTS §208 ........................................................24

RESTATEMENT (SECOND) OF CONTRACTS §356 ............................................14, 19, 23




                                                          viii
                              STATEMENT OF THE CASE

      This appeal arises from Dr. Tracy D. Strandhagen’s request for a declaration

that the $500,000 lump sum “liquidated damages” provision set forth in the parties’

contract is an unenforceable penalty. The trial court held that it had jurisdiction to

determine such matter, and granted summary judgment declaring the purported

“one size fits all” liquidated damages provision an unenforceable penalty.

Appellants appeal these decisions.




                                          ix
                              RECORD ABBREVIATIONS

       For the sake of simplicity, Dr. Strandhagen will use the same citation forms
as the Appellants:

      •     “CR” refers to the primary Clerk’s Record, pages 1-286, filed with
            this Court on 10/15/2014.

      •      “Sealed.CR” refers to the sealed document (Dr. Strandhagen’s
            Employment Agreement), filed under seal with this Court on
            12/22/2014. Because the district clerk did not assign separate “record
            pages” to this document, cites are to the original page numbers.

      •     “RR” refers to the Reporter’s Record, pages 1-29, filed with this
            Court on 9/25/2014.




                                        x
                         ISSUES PRESENTED

1.   Did the trial court err by granting summary judgment declaring the
     $500,000 purported liquidated damages provision to be an
     unenforceable penalty?

2.   Did the trial court err by determining it had jurisdiction over Dr.
     Strandhagen’s cause of action?




                               xi
Appellee Tracy D. Strandhagen (“Dr. Strandhagen”) submits the following brief:

                  I.     NO REQUEST FOR ORAL ARGUMENT

     Dr. Strandhagen believes that the issues in this appeal are straightforward and

can be determined without oral argument.          Of course, if this Court grants

Appellants’ request for oral argument, Dr. Strandhagen respectfully requests that

she be granted the opportunity to present her position and respond to Appellants’

arguments at any oral argument of this matter.

                           II.   STATEMENT OF FACTS

A.      DR. STRANDHAGEN SOUGHT A DECLARATION THAT THE CONTRACTUAL
        PROVISION PURPORTING TO REQUIRE PAYMENT OF $500,000 IS AN
        UNENFORCEABLE PENALTY

        Dr. Strandhagen is a licensed anesthesiologist with more than fifteen years

of experience. She was among about 60 anesthesiologists, along with Appellants

Noah S. Bunker, Paul Carrell, Everett Brew Houston, Jr., W. Andrew Buchholz,

Scott J. Leighty, Jad L. Davis, and Holly Clause, who were partners in Austin

Anesthesiology Group, LLP (“AAG”). CR.160. In October of 2011, AAG entered

into a transaction (the “Buyout”) whereby its operations were sold to American

Anesthesiology of Texas, Inc. (“AAT”). Id. At the time of the Buyout, Dr.

Strandhagen and the other AAG-affiliated physicians entered into separate

employment agreements with AAT (almost all for a seven year term), wherein the




                                          1
physicians     agreed      to   work     for    AAT.         See     id.;   CR.167,      173-78.1

Contemporaneously, these same physicians entered into the Advisory Board and

Internal Operations Agreement (the “Physicians’ Agreement”). CR.162-83. The

Physicians’ Agreement created an “Advisory Board” to provide “binding advice

and guidance” to the medical director elected under the agreement.                       CR.162.

Appellants were the current members of that Advisory Board at the time this suit

was initiated in 2013.

       The Physicians’ Agreement also contains a section entitled “Physician

Obligations,” which contains a purported liquidated damages clause. CR.167-68.

Pursuant to this clause, the physicians purportedly agreed that if their employment

with AAT ceased at any time before their individual employment agreements

expired for any reason other than termination by AAT without cause, 2 the

physician who ceased to be employed by AAT became obligated to pay the non-

terminated physicians their pro rata share of a lump sum amount labeled as

“liquidated damages,” plus interest at 10% (the “Termination Penalty Clause”).

1
        Appellants state that the period of time each physician agreed to be employed by AAT
was tied to the amount of monetary compensation received from the Buyout. Appellants’ Brief
at 5. Like several assertions made in Appellants’ Brief, this statement is not supported by the
record citations provided. Id. (citing CR.144, 167-68). Nor did Appellants raise this immaterial
issue in the trial court. In the case of Dr. Strandhagen, she was not provided any justification for
the compensation paid to her in the Buyout or the rationale for the liquidated damage provision
at issue here, as she was (like her other partners were) presented the Physicians’ Agreement on a
take-it-or-leave-it basis.
2
        There were also certain other limited exceptions such as death and other causes beyond
Dr. Strandhagen’s control not applicable here.
                                                 2
CR.168 §5(b). For the vast majority of physicians, including Dr. Strandhagen, the

lump sum amount was immutably fixed at $500,000. Id.3

       The amount of this Termination Penalty Clause is the same whether Dr.

Strandhagen’s employment terminated on day one of her employment with AAT

(October 6, 2011) or day 2,554 (October 5, 2018); on its face the clause assesses

the same damage amount for a physician that performs 99.96% of that doctor’s

employment contract as for one who breaches with 99.96% of the contractual

obligation unfulfilled.      See id.; Sealed.CR.12, §VIII.A (term of Employment

Agreement was seven years from effective date).

       Dr. Strandhagen’s employment terminated in July 2013. See CR.161 ¶5;

CR.141. AAT claimed that Dr. Strandhagen was terminated for cause, and Dr.

Strandhagen claimed that she was terminated without cause.4 CR.141-45. In the


3
       Appellants claim that the few variations in the lump sum “liquidated damages” amounts
were “presumably” tied to shorter lengths of time of for some physician’s post-Buyout
employment agreements with AAT. Appellants’ Brief at 6. There is no evidence in the record to
support this “presumption.” Again, this is a new, immaterial factual assertion by Appellants,
which was not made in the trial court.
4
        In December of 2012, an employment dispute (which has since settled) arose between Dr.
Strandhagen and AAT which eventually resulted in her filing a gender discrimination report to
AAT. CR.39; see CR.85-87, 91-102. Dr. Strandhagen asserted that she was discriminated
against because of her gender and that she was constructively discharged in July 2013. CR.91-
102, 141-143; see CR.85-87. Although immaterial to the issues on this appeal, Dr. Strandhagen
points out that Appellants incorrectly assert that the Buyout occurred “just two months” before
Dr. Strandhagen complained about the discrimination. Appellants’ Brief, p. 9 (citing to CR.93,
144). In fact, she reported the discrimination in response to an incident which occurred more
than a year after the Buyout. See CR.144 (stating date of employment agreement in November
2011); CR.93 (first report of discrimination in February 2013).


                                              3
fall of 2013, Dr. Strandhagen learned that Appellants took the position that she was

terminated for cause, and her contention that they were planning to seek

enforcement of the Termination Penalty Clause by soliciting other physicians to

join in a lawsuit against her remains unrefuted.5 CR.40. Rather than awaiting this

lawsuit, Dr. Strandhagen opted to file suit seeking a declaration that the

Termination Penalty Clause is an unenforceable penalty as a matter of law. CR.40-

41.

B.     TRIAL COURT PROCEEDINGS

       Appellants filed an Amended Plea to the Jurisdiction and Plea in Abatement

(the “Plea to the Jurisdiction”), seeking dismissal of Dr. Strandhagen’s claims

based on lack of jurisdiction.          CR.77-84. After considering the Plea to the

Jurisdiction and Dr. Strandhagen’s response (CR.109-45), the trial court dismissed

Dr. Strandhagen’s request for a declaration that she was terminated without cause,

but retained jurisdiction over her request for a declaration that the Termination

Penalty Clause was an invalid and unenforceable penalty. CR.184.



5
        Despite many opportunities to do so, Appellants have never denied that they were taking
steps to file suit to enforce the Termination Penalty Clause against Dr. Strandhagen, nor—until
this appeal—have they even claimed to have been undecided about whether to pursue such a
claim against her. See generally, CR.77-83 (no claim that Appellants were not intending to sue
Dr. Strandhagen or that they were undecided on this course of action); contrast to Appellants’
Brief, p. 38 (citing to CR.79-80, which does not support this point). Instead, they have
repeatedly equivocated, contending only that no justiciable controversy existed because they had
not yet confronted Dr. Strandhagen with their demands. CR.79.

                                               4
      Dr. Strandhagen later filed a Motion for Summary Judgment, with

supporting evidence, seeking a determination that the Termination Penalty Clause

is an unenforceable penalty. CR.154-83. Appellants filed their response to that

motion, arguing that the Termination Penalty Clause is not an unenforceable

penalty. CR.186-93. Appellants did not raise the issue of modification in their

summary judgment response, nor did they plead modification in their answer. Id.;

CR.74-76. Dr. Strandhagen filed a reply in support of her motion for summary

judgment, see CR.194-201, and Appellants filed additional supplemental briefing.

CR.202-11.     After a full briefing on the issues, a hearing and post-hearing

submissions, the trial court found that the “$500,000 purported liquidated damages

clause” is an unenforceable penalty, and entered judgment accordingly.              See

CR.212. The trial court did not further specify the grounds for its judgment. Id.

      The Appellants filed a Motion for New Trial, (1) asking the Court to

reconsider its conclusion that the Termination Penalty Clause is an unenforceable

penalty, (2) arguing for the first time that even if it is an unenforceable penalty, the

Court should somehow re-write the penalty clause, and (3) asking the Court to

reconsider its earlier determination that it had jurisdiction to decide whether the

Termination Penalty Clause is an unenforceable penalty.             CR.213-50.      Dr.

Strandhagen urged the trial court to reject all of Appellants’ arguments, and she

specifically argued that the newly raised modification argument should be rejected


                                           5
both because it was untimely (and thus waived) and because it lacked merit.

CR.254-70. After full briefing on the issues and a hearing, the trial court denied

Appellants’ Motion for New Trial without specifying the grounds for such

determination. CR.271.

                    III.   SUMMARY OF THE ARGUMENT

      The only claim before the trial court when it issued the Summary Judgment

was Dr. Strandhagen’s request to have the $500,000 lump sum Termination

Penalty Clause declared an unenforceable penalty. This request was primarily

predicated on the fact that on its face the amount required to be paid was not a

reasonable forecast of just compensation at the time the contract was made as a

matter of law. Alternatively, Dr. Strandhagen argued that the Termination Penalty

Clause was an unenforceable penalty because it purported to render Dr.

Strandhagen liable to Appellants for damages for her alleged breach of a contract

(her employment agreement with AAT) to which Appellants are neither parties nor

third-party beneficiaries. The trial court properly granted summary judgment (the

“Summary Judgment”) declaring the Termination Penalty an unenforceable

penalty as a matter of law on May 20, 2014. CR.212.

      Appellants attack the Summary Judgment on multiple grounds.           These

attacks fail because Dr. Strandhagen met her burden to conclusively negate an

essential element of any enforceable liquidated damages provision, since on its


                                        6
face the Termination Penalty was not a reasonable forecast of just compensation

for breach at the time it was made as a matter of law. The Court must disregard

Appellants’ illogical and legally unsupportable suggestion that Dr. Strandhagen

had the burden to negate both elements necessary to enforce such clauses; once she

negated the “reasonable forecast” element there was no need for her to address the

“difficulty of estimation” element. Appellants’ newly fabricated argument that if

the Termination Penalty is an illegal penalty, then the trial court erred by failing to

re-write it instead of simply holding it to be unenforceable, was clearly waived by

their failure to raise, plead or present evidence of this affirmative defense in any

way before the Summary Judgment was rendered. 6

       Finally, Appellants attack the court’s Order Granting in Part and Denying in

Part Defendants’ Amended Plea to the Jurisdiction (the “PTJ Order”), arguing that

the trial court had no jurisdiction to decide whether the Termination Penalty Clause

was an unenforceable penalty. Their jurisdictional challenge must be rejected

because Dr. Strandhagen has shown (and Appellants effectively concede) that there

is an actual controversy among the parties regarding the enforceability of the

Termination Penalty Clause, as amply illustrated by the very vigorous briefing

presented to this Court.

       6
               If this Court somehow finds it appropriate to address the merits of Appellants’
untimely modification argument, it should reject Appellants’ faulty interpretation of this clause
on the merits.

                                               7
                                IV.   ARGUMENT

A.    STANDARD OF REVIEW

      The trial court’s grant of summary judgment will be reviewed de novo.

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

Summary Judgment must be affirmed if there is no genuine issue as to any material

fact and Dr. Strandhagen is entitled to judgment as a matter of law. See TEX. R.

CIV. P. 166a(c). Likewise, the trial court’s denial of the Plea to the Jurisdiction

will be reviewed de novo. Transport. Ins. Co. v. WH Cleaners, Inc., 372 S.W.3d

223, 227 (Tex. App.—Dallas 2012, no pet.).

B.    THE DISTRICT COURT DID NOT ERR BY GRANTING                   THE   SUMMARY
      JUDGMENT

      As the Texas Supreme Court reiterated last year,

      The basic principle underlying contract damages is compensation for
      losses sustained and no more; thus, we will not enforce punitive
      contractual damages provisions.         In Phillips v. Phillips, we
      acknowledged this principle and restated the two indispensible
      findings a court must make to enforce contractual damages
      provisions: (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.

FPL Energy, LLC v. TXU Portfolio Mgmt. Co., L.P., 426 S.W.3d 59, 69 (Tex.

2014) (internal quotations and citations omitted; emphasis added) (hereinafter,

“FPL Energy”). Unquestionably, if either of these two elements (difficulty of

estimation or reasonable forecast) is negated, a liquidated damages provision is


                                        8
unenforceable as a penalty. Here, the trial court did not err in determining that the

Termination Penalty Clause is an unenforceable penalty because Dr. Strandhagen

established as a matter of law that it was not a reasonable forecast of just

compensation at the time the contract was made.

      1.     Dr. Strandhagen carried her burden of proving that the $500,000
             Termination Penalty Clause is an unenforceable penalty.

      Enforceability of a liquidated damages clause is a question of law for the

court to decide. Phillips v. Phillips, 820 S.W.2d 785, 788 (Tex. 1991). The burden

of proving that a liquidated damages clause is an unenforceable penalty is on Dr.

Strandhagen since she is the party seeking to invalidate the clause. SP Terrace,

L.P. v. Meritage Homes of Tex., LLC, 334 S.W.3d 275, 287 (Tex. App.— Houston

[1st Dist.] 2010, no pet.). Dr. Strandhagen met her burden to prove that the

Termination Penalty Clause is an unenforceable penalty by proving that the clause

was not a reasonable forecast of just compensation.

             a.    Dr. Strandhagen need only prove that the $500,000
                   Termination Penalty Clause was not a reasonable forecast
                   of just compensation.

      Appellants fundamentally misstate the legal standard for determining when a

liquidated damages clause is an unenforceable penalty.        In an argument that

borders on the frivolous, they state incorrectly that Dr. Strandhagen must negate

each of the two elements necessary to enforce a liquidated damages clause in order

to prevail. See Appellants’ Brief, pp. 17-22. This argument is fallacious—since
                                         9
both elements must be present for the clause to be enforced, it logically and

necessarily follows that if either element is negated, the clause is an unenforceable

penalty. As noted above, recent Texas Supreme Court precedent verifies this.

FPL Energy, 426 S.W.3d at 70-72.

       The two-part Texas common law test for enforceability of a purported

liquidated damages clause is repeatedly and consistently described as requiring two

indispensible elements. Only if both of the following elements are present, may

such a clause be enforced: (1) the harm caused by the breach is incapable or

difficult of estimation, and (2) the amount of liquidated damages is a reasonable

forecast of just compensation. FPL Energy, 426 S.W.3d at 69; Phillips, 820

S.W.2d at 788.7        If one must establish two elements to prove a clause is

enforceable, it logically follows that if either element is missing, the clause is

unenforceable.     Therefore, a liquidated damages provision is unenforceable if

either of the liquidated damages elements set forth above is negated. Requiring a




7
         E.g., Stewart v. Basey, 245 S.W.2d 484, 486 (Tex. 1952) (“All agree that to be
enforceable as liquidated damages the liquidated damages must be uncertain and the stipulation
must be reasonable”) (emphasis added); Khan v. Meknojiya, No. 03-11-00580-CV, 2013 Tex.
App. LEXIS 7976, *7 (Tex. App.—Austin June 28, 2013, no pet.); Southern Union Co. v. CSG
Sys., Inc., No. 03-04-00172-CV, 2005 Tex. App. LEXIS 564, *12 (Tex. App.—Austin Jan. 27,
2005, no pet.); Triton 88, L.P. v. Star Elec., LLC, 411 S.W.3d 42, 62 (Tex. App.—Houston [1st
Dist.] 2013, no pet.); Garden Ridge, L.P. v. Advance Int’l, Inc., 403 S.W.3d 432, 439 (Tex.
App.—Houston [14th Dist.] 2013, pet. denied) (hereinafter “Garden Ridge”); GPA Holding, Inc.
v. Baylor Health Care Sys., 344 S.W.3d 467, 475 (Tex. App.—Dallas 2011, pet. denied); Baker
v. Int’l Record Syndicate, Inc., 812 S.W.2d 53, 55 (Tex. App.—Dallas 1991, no writ).
                                             10
litigant to negate both essential elements to prevail would be absurd, which helps

explain why no Texas court has ever so held.

       The Texas Supreme Court confirmed that only one of these elements needs

to be negated in FPL Energy, 426 S.W.3d at 70-72. In this 2014 case, the court

found that the first element of the enforceability test—difficulty of estimation of

the actual harm caused by breach of the contract (the element Appellants complain

that Dr. Strandhagen failed to negate)—was satisfied. Id. at 70. It nevertheless

held the clause unenforceable because the amount of liquidated damages called for

was not reasonable. Id. at 70-72. There, as here, even where damages were

difficult of estimation (which the trial court below was required to assume in the

context of Dr. Strandhagen’s summary judgment motion), the absence of the

second necessary element was fatal to the clause’s enforceability.                      Texas

jurisprudence is replete with similar examples. 8




8
        E.g., In re Dow Corning Corp., 419 F.3d 543, 550, 553 (6th Cir. 2005) (under Texas law,
party challenging liquidated damages clause had burden to negate one of elements necessary to
prove clause enforceable; where one element is negated, it is unenforceable penalty); Nexstar
Broad., Inc. v. Gray, No. 09-07-00364, 2008 Tex. App. LEXIS 4736, *7-8 (Tex. App.—
Beaumont June 26, 2008, no pet.) (holding liquidated damages provision unenforceable where it
was unreasonable forecast of just compensation without any discussion of whether harm was
difficult to estimate); Eberts v. Businesspeople Personnel Servs., Inc., 620 S.W.2d 861, 863-65
(Tex. Civ. App.—Dallas 1981, no writ) (liquidated damages provision unenforceable where
amount was not reasonable forecast of just compensation, even if the harm was difficult to
estimate).


                                              11
       Appellants’ reliance on what can most charitably be described as dicta9 in

lower Texas appellate court cases cannot overcome the longstanding Texas

common law test, Texas Supreme Court precedent, or common sense. To prove

the Termination Penalty Clause’s unenforceability, Dr. Strandhagen was only

required to negate one of the two elements needed to enforce a purported

liquidated damages clause. Consequently, the Final Judgment must be affirmed

since she showed that the Termination Penalty Clause was not a reasonable

forecast of just compensation.

              b.      As matter of law, the $500,000 Termination Penalty Clause
                      was not a reasonable forecast of just compensation on its
                      face because the penalty amount was the same if Dr.
                      Strandhagen terminated her employment on day one or
                      after she performed for 99% of the employment contract
                      term.

                      (1)    A party challenging the enforceability of a purported
                             liquidated damages clause based on its facial

9
        No case that Appellants cite for the proposition that Dr. Strandhagen must negate both
elements of the test for enforceability so holds; never in the history of Texas common law has a
court enforced a liquidated damages provision that was not a reasonable forecast of just
compensation at the time it was made. Appellants’ cases are readily distinguished. See Khan,
2013 Tex. App. LEXIS 7976, at *9-10 (holding lease provision at issue not a liquidated damages
clause at all, so penalty analysis inapplicable); Southern Union Co., 2005 Tex. App. LEXIS 564,
at *13-20 (enforcing liquidated damages provision where party challenging provision failed to
show either that harm was difficult to estimate or that the liquidated damages were an
unreasonable forecast of loss); GPA Holding, Inc., 344 S.W.3d at 476 (same); Healix Infusion
Therapy, Inc. v. Bellos, No. 11-02-00346-CV, 2003 Tex. App. LEXIS 9027, *5-7 (Tex. App.—
Eastland Oct. 23, 2003, no pet.) (same); Murphy v. Cintas Corp., 923 S.W.2d 663, 665-66 (Tex.
App.—Tyler 1996, writ denied) (liquidated damages provision enforceable where evidence
showed that the harm was difficult to estimate and challenging party failed to show that the
amount was unreasonable); Baker, 812 S.W.2d at 55-56 (liquidated damages provision for loss
of damage to photos enforceable where evidence showed both that the harm was difficult to
estimate and the amount not unreasonable).
                                              12
                         unreasonableness as a forecast of just compensation
                         at the time the contract was made need not address
                         actual damages.

      Importantly, since it is a “forecast,” the reasonableness of the damage

forecast is measured at the time of contracting. FPL Energy, 426 S.W.3d at 71.

Thus, there is no necessity for a party like Dr. Strandhagen who is challenging the

purported liquidated damages clause as facially unreasonable at the time of

contracting to show actual damages, and no need for the Court to even evaluate the

actual damages that were eventually sustained. See, e.g., Phillips, 820 S.W.2d at

788-89 (no fact issue regarding amount of actual damages where liquidated

damages provision challenged on its face—not based on argument that actual

damages incurred were much less than amount contracted for); In re Dow Corning

Corp., 419 F.3d at 552-53 (where party showed purported liquidated damages

clause not reasonable estimate of just compensation for anticipated damages at

time of contract, no need to consider whether such damages disproportionate to

actual damages because burden already met) (applying Texas law); Mayfield v.

Hicks, 575 S.W.2d 571, 575-76        (Tex. App.—Dallas 1978, writ ref’d n.r.e.)

(liquidated damages provision that is the same whether breach is trivial or major is

penalty on its face, even if breach at issue in suit is major breach); see also

Garden Ridge, 403 S.W.3d at 438 (recognizing that “one way a party can show

that a liquidated damages provision is unreasonable is by showing that the actual


                                        13
damages incurred were much less than the amount contracted for,” but party may

also show unreasonableness on the face of a provision).10

       Dr. Strandhagen chose to challenge the facial reasonableness of the

purported liquidated damages clause at the time of contracting, rather than

pursuing the alternative of showing that the clause was unreasonable “in light of

actual damages.” See FPL Energy, 426 S.W.3d at 72 (citation omitted); Phillips,

820 S.W.2d at 788 (noting that one way to show liquidated damages provision is

unreasonable is to show actual damages were much less than amount contracted

for). As such, she had no burden to show such actual damages. 11 None of the




10
        Neither of the two authorities relied upon by Appellants in support of this argument
actually supports their contention that a challenge to the reasonableness of the Termination
Penalty Clause required Dr. Strandhagen to prove her actual damages. The first, Murphy v.
Cintas Corp. does not support this assertion. See Murphy, 923 S.W.2d at 664-66 (stating that
party challenging clause failed to prove that it was not difficult to estimate damages and failed to
explain why clause was not reasonable forecast of just compensation). The second, Section 356
of the Restatement (Second) of Contracts, has been interpreted by the Texas Supreme Court to
stand for the proposition that “the time of making a contract as the moment to evaluate the
reasonableness of a liquidated damages clause.” FPL Energy, 426 S.W.2d at 70 n. 2. To the
extent that §356 could be interpreted to only permit unreasonableness to be measured
retrospectively in comparison to actual damages, it is contrary to Texas law, and as such
unpersuasive.
11
        Contrast to Phillips, 820 S.W.2d at 788 (party challenging reasonableness of liquidated
damages clause as grossly disproportionate to actual damages assumes burden to show actual
damages); cf. FPL Energy, 426 S.W.3d at 71-72 (although clauses in question reasonably
forecast damages “on their face,” still unenforceable because not reasonable in comparison to
actual damages eventually sustained).

                                                14
cases cited by Appellants requires a party challenging the reasonableness of a

purported liquidated damages clause on its face to show actual damages. 12

                      (2)     Dr. Strandhagen has proven that the Termination
                              Penalty Clause is facially invalid.

       The fundamental flaw evident on the face of the Termination Penalty Clause

is its “one size fits all” approach to remediating an alleged breach. Such clauses

are simply unenforceable under Texas law when the same remedy is provided for

breaches of obviously varying magnitude. In other words, a liquidated damages

clause is unenforceable as “a penalty if it provides for unreasonable damages for

trivial breaches as well as reasonable damages for major breaches.” Community

Dev. Serv., Inc. v. Replacement Parts Mfg., Inc., 679 S.W.2d 721, 727 (Tex.

App.—Houston [1st Dist.] 1984, no writ); e.g., Stewart, 245 S.W.2d at 672 (when

purported liquidated damages provision provides same damages for trivial

breaches as for material ones, it was unenforceable penalty); see also Lake River

Corp. v. Carborundum Co., 769 F.2d 1284, 1290 (7th Cir. 1985) (liquidated

damages provision constitutes a penalty if the amount required to be paid is

“invariant to the gravity of the breach”). This is because such “one size fits all”


12
        See Triton 88, L.P., 411 S.W.3d at 62 (party challenging reasonableness of liquidated
damages clause failed to show either that the clause was facially unreasonable at time of contract
or grossly disproportionate to actual damages); Southern Union Co., 2005 Tex. App. LEXIS 564,
at *16-18 (holding two-to-one ratio of liquidated to actual damages is not per se unreasonable);
Healix Infusion Therapy, Inc., 2003 Tex. App. LEXIS 9027, at *6 (party challenging
reasonableness of liquidated damages clause on the ground that it was disproportionate to actual
damages must prove actual damages).
                                               15
provisions are not based on the injured party’s likely damages but are intended to

be punitive. See FPL Energy, 426 S.W.3d at 69 (policy is to compensate for

“losses sustained and no more”); Phillips, 820 S.W.2d at 788 (party has no right to

have court enforce liquidated damages provision that violates principle that party

should be awarded “neither less nor more than his actual damages”). For these

reasons, courts consistently strike down “one size fits all” clauses as

unenforceable. E.g., Stewart, 245 S.W.2d at 486 (striking down provision that

provided same amount of damages for both trivial and materials breaches of a

lease); Garden Ridge, 403 S.W.3d at 441-42 (contract provision permitting

chargeback of 100% of merchandise cost for any unauthorized substitution of

ordered product unreasonable forecast of damages); Community Dev. Serv., Inc.,

679 S.W.2d at 727 (court held liquidated damages provision in contract to

purchase lots unenforceable penalty because amount was same for trivial and

material breaches); Mayfield, 575 S.W.2d at 575-76 (liquidated damages provision

that is the same whether breach is trivial or major is penalty, even if breach at issue

in suit is major breach).

      Here, the Physicians’ Agreement purports to require Dr. Strandhagen to pay

$500,000 to Appellants (and other physicians) if her Employment Agreement with

AAT is terminated at any time during its seven-year term. This amount is the same

whether Dr. Strandhagen’s employment with AAT ended the day after the


                                          16
Physicians’ Agreement was signed or many years later.                      Appellants’ actual

damages (if any)—which they identify as arising from the impact of Dr.

Strandhagen’s early departure on their abilities to earn annual bonuses, loss of her

experience and goodwill, Appellants’ Brief, pp.3-4—would obviously be greater

the earlier Dr. Strandhagen stopped working at AAT. 13                    This principle was

recognized by the Dallas Court of Appeals in Eberts v. Businesspeople Personnel

Servs., Inc., 620 S.W.2d at 864. In that case, an employment agency sued its

former job counselor employee for violation of a non-compete covenant in his

employment contract. Id. at 862. The employment contract contained a $10,000

liquidated damages clause for breach of the covenant. Id. at 863. The court held

that the $10,000 liquidated damages provision could not be a reasonable estimation

of damages for breach of non-compete covenant where the same amount applied

whether the breach continued for one day or two years. Id. at 864-65. Contrast to

e.g., Urban Television Network Corp. v. Creditor Liquidity Solutions, LP, 277

S.W.3d 917, 918-19 (Tex. App.—Dallas 2009, no pet.) (upholding liquidated


13
        In an argument that again defies common sense, Appellants suggest that their damages
would be the same no matter when Dr. Strandhagen left the practice. Appellants’ Brief, pp. 26-
27. If the Appellants are damaged (as they suggest) in the form of their reduced abilities to earn
annual bonuses, this would be because Dr. Strandhagen made the practice more profitable. See
Sealed.CR.Annex A & B. Under that theory of damages, they would obviously suffer more
damage if she stopped contributing to the success of the practice seven years early than they
would if she left one day early. Similarly, if Appellants are indeed damaged as they suggest
because Dr. Strandhagen takes her good will and experience with her when she leaves, then they
would suffer more damage the longer they were deprived of such experience and good will.

                                               17
damages clause that required payment that varied based on how much time was left

on breached contract); Murphy, 923 S.W.2d at 665-67 (upholding liquidated

damages clause designed to decrease amount of damages assessed over time);

Commercial Union Ins. Co. v. La Villa Indep. Sch. Dist., 779 S.W.2d 102, 107

(Tex. App.—Corpus Christi 1989, no writ) (upholding liquidated damages

provision in construction contract that required payment of $100 for every day

late).

         Appellants attempt to salvage their facially invalid penalty by arguing that

even if the Termination Penalty Clause may have been an unreasonable forecast of

damages for some breaches, it is still enforceable in this case because Dr.

Strandhagen failed to prove retrospectively that it was unreasonable in relation to

the loss actually incurred here. Appellants’ Brief, pp. 28-30. As noted above,

Texas law imposes no such burden on a party asserting facial invalidity.

Moreover, even if by happenstance a facially invalid liquidation provision might

result in an outcome that is not unreasonable in a given circumstance, that

eventuality does not salvage the enforceability of the clause. For example, in

Mayfield v. Hicks, the parties had agreed to purported liquidated damages clauses

in two equipment leases, which provided for the same damages whether the breach

of the leases were material or minor. 575 S.W.2d at 575. The court rejected the

lessors’ argument that the provisions should not be treated as penalties because the


                                          18
actual breaches at issue were material: “it is immaterial that the actual breach [was

a major one]. A provision is a penalty if it provides for unreasonable payments for

a minor breach.” Id.; see also FPL Energy, 426 S.W.3d at 70 & n. 2 (citing

Mayfield with approval for the proposition that the test for reasonableness of just

compensation is “from the perspective of the parties at the time of contracting.”).

Appellants’ authorities to the contrary are unpersuasive. 14

       Because the Termination Penalty Clause attempts to require payment of the

same liquidated damages amount—$500,000—whether the breach of contract is a

material breach or a trivial one, 15 it cannot have been a reasonable forecast of any

14
        Comment b and Illustration 2 to Section 356 of the Restatement (Second) of Contracts
are not persuasive because they are contrary to Texas common law as set forth above. This is
not surprising because Section 356 was patterned on the liquidated damages provisions in the
UCC. RESTATEMENT (SECOND) OF CONTRACTS §356, Reporters Note. Texas courts have
consistently recognized that the legal standards for evaluating enforceability of UCC liquidated
damage provisions are “significantly different,” since unlike Texas common law, even a facially
unreasonable UCC-governed clause can be enforced under some circumstances. Garden Ridge,
403 S.W.3d at 447 (Frost, J., concurring); e.g., Phillips, 820 S.W.2d at 788 (reciting legal
standard from Texas common law and then differentiating UCC Section 2.718(a)); McFadden v.
Fuentes, 790 S.W.2d 736, 737-38 (Tex. App.—El Paso 1990, no writ) (holding that legal
standard for sales of goods under Section 2.718(a) is different from legal standard under Texas
common law).

        Murphy is not persuasive because it is inapposite on this point: Nowhere in the opinion is
it suggested that the court determined that the liquidated damages clause at issue would have
been an unreasonable forecast in some instances but that it was valid because the materiality of
the breach at issue made it reasonable in the circumstances. Murphy, 923 S.W.2d at 665-67.
15
       Appellants attempt to avoid this result by pointing out that the Physicians’ Agreement
permits certain “early departures” without penalty. Appellants’ Brief, p. 27; see CR.168-169,
§§5(b) & (c) (penalty does not apply to physicians who die, are severely disabled and certain
other exceptions). These narrow exceptions do not transform the $500,000 Termination Penalty
Clause into an enforceable, customized damage estimate; for those to whom it applies it remains
an enforceable “one size fits all” penalty.

                                               19
damages the parties to the Physicians’ Agreement were likely to suffer if Dr.

Strandhagen breached her employment contract with AAT. Instead, the purpose of

the Termination Clause Penalty was intended to penalize Dr. Strandhagen if she

left AAT’s employment even one day before the end of the term. For this reason,

the Court properly granted summary judgment declaring that the purported

liquidated damages clause is an unenforceable penalty. 16

       2.      Appellants’ modification argument fails.

       Appellants argue that the trial court erred by declaring the Termination

Penalty Clause unenforceable even if Strandhagen properly proved that the

Termination Penalty Clause was not a reasonable forecast of damages because the

clause should have been modified by the trial court. Appellants’ Brief, pp. 33-35.

This argument fails for three separate reasons:                 (1) Appellants waived this


16
        Appellants’ reliance on standard contractual recitations about the reasonableness of the
damage clause at issue (Appellants’ Brief at 30-32) is unavailing. Boilerplate contractual
language reciting that the Termination Penalty Clause is “liquidated damages” as opposed to a
penalty has no bearing on whether that the provision is in fact a penalty. E.g., FPL Energy, 426
S.W.3d at 66-67, 71-72 (striking “liquidated damages” clause negotiated by sophisticated parties,
despite stipulation by parties that clause was not a penalty); Stewart, 245 S.W.2d at 485-87. Nor
does it matter that Dr. Strandhagen “voluntarily” entered into the agreement. See Phillips, 820
S.W.2d at 788 (“The right of competent parties to make their own bargains is not unlimited. . . .
A party has no right to have a court enforce a [contract term] that violates” the prohibition on
penalties.); see, e.g., Community Dev. Serv., Inc., 679 S.W.2d at 727 (in contract to purchase lot,
liquidated damages provision was unenforceable penalty, even though parties supposedly
intended the provision to estimate their damages in event of breach, because damages were same
for material and trivial breaches and thus unreasonable). This Court’s opinion in Southern Union
Co. does not suggest a different outcome. See 2005 Tex. App. LEXIS 564, at *18-20 (simply
rejecting argument that sliding scale liquidated damages clause that reduced the amount due
depending on when the breach occurred was per se unreasonable).

                                                20
argument, (2) even if Appellants had timely raised it, they failed to raise a fact

issue on each element of this affirmative defense in their summary judgment

response, and (3) the trial court could not have modified the Termination Penalty

Clause even if it had been timely asked to do so.

       Appellants did not raise this argument in their answer or in their response to

Dr. Strandhagen’s Motion for Summary Judgment.17 CR.186-93; see also CR.202-

11. By failing to timely raise this argument, they deprived the trial court of the

opportunity to timely consider it, resulting in waiver, addressing it in their motion

for new trial clearly was too late. 18 Appellants’ decision not to ask the trial court to

modify the Termination Penalty Clause until after the court had granted the

Summary Judgment demonstrates precisely why the doctrine of waiver exists:




17
        Appellants attempted to raise modification for the first time in their Motion for New
Trial, and Dr. Strandhagen argued that it was too late for Appellants to raise the issue. CR.267-
69; see also RR.18-19.
18
         See, e.g., Kelley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462, 467 (Tex. 1998)
(reinstating summary judgment in favor of insured and holding that insurer waived its argument
that particular section of policy excluded coverage because insurer failed to raise that argument
until its motion for new trial); Continental Holdings, Ltd. v. Leahy, 132 S.W.3d 471, 474 (Tex.
App.—Eastland 2003, no pet.) (party’s failure to raise issue of conclusive effect of arbitrators’
award in response to motion for summary judgment constituted waiver of issue even though
raised in motion for new trial); Hamilton v. Tex. Prop. & Cas. Ins. Guar. Ass’n, No. 03-98-
00355-CV, 1999 Tex. App. LEXIS 3163, *13 (Tex. App.—Austin Apr. 29, 1999, no pet.)
(plaintiffs’ failure to raise estoppel in responses to motion for summary judgment constituted
waiver even though later raised in motion for new trial); see also, e.g., In re OC, Inc., 552 F.3d
413, 423 (5th Cir. 2008) (rejecting argument that lower court erred by failing to sever or modify
illegal provision from contract pursuant to severability and modification clauses because
argument not raised in lower court).


                                               21
litigants should give the trial court the opportunity to consider and resolve all

errors before judgment is entered.

       Appellants also failed to plead this affirmative defense 19 or offer any

evidence to support it. See generally CR.186-93; CR.74-76. If Appellants sought

to have the trial court modify the Physicians’ Agreement, they bore the burden to

plead and provide evidence to support each element of such defense. See, e.g.,

Hampden Corp. v. Remark, Inc., No. 05-13-00529, 2014 Tex. App. LEXIS 6900,

*17 (Tex. App.—Dallas Oct. 10, 2014, pet. denied)(party asserting contract

modification bears burden of proof).            They failed to meet this burden.            See

generally CR.186-93.

       Finally, even if this Court were to consider Appellants’ new argument, it

fails to provide valid grounds to reverse the Summary Judgment granted here. The

trial court did not hold that the entire Physicians’ Agreement is invalid; instead, it

found that the $500,000 Termination Penalty Clause was unenforceable. CR.212.

Appellants argue that instead of striking this illegal penalty from the Physicians’

Agreement, the trial court should have modified the Termination Penalty Clause to

some unspecified (and presumably lesser, reasonable) amount. Appellants’ Brief,


19
        This constitutes an affirmative defense because it seeks to avoid the outcome sought even
if Dr. Strandhagen is correct that the Termination Penalty Clause as written is unlawful. See
TEX. R. CIV. P. 94 (party must affirmatively plead “any other matter constituting an avoidance”);
Great Am. Prods. v. Permabond Int’l, 94 S.W.3d 675, 683 (Tex. App.—Austin 2002, pet.
denied) (affirmative defense is by nature one of avoidance, “which seeks to establish
independent reason why the plaintiff should not prevail”).
                                               22
pp. 33-35. Appellants fail to cite to a single case that engages in such reformation

of an illegal penalty clause, and their cases are readily distinguished. E.g., In re

Poly-America, L.P., 262 S.W.3d 337, 353, 356-57, 360 (Tex. 2008) (striking

limitation of liability clause as unconscionable while stating in dicta that an

arbitrator might choose to “modify” a provision that has not yet been proven to be

unconscionable); In re Kasschau, 11 S.W.3d 305, 313 (Tex. App.—Houston [14th

Dist.] 1999, orig. proceeding) (illegal provision that constituted incidental promise

in contract may be severed by court). Instead, the courts routinely hold illegal

provisions to be unenforceable in their entirety, even while leaving the remainder

of the contract intact, as it did here. E.g., Hoover Slovacek, LLP v. Walton, 206

S.W.3d 557, 565 (Tex. 2006) (striking illegal termination fee provision and

holding remainder of agreement, including contingent fee provision, enforceable);

Southwestern Bell Tel. Co. v. Delanney, 809 S.W.2d 493, 497-98 (Tex. 1991)

(assuming, if clause were found to be unconscionable, court would hold it

unenforceable in its entirety) (Gonzales, J., concurring). There is no practical need

for judicial modification here because the effect of striking an invalid liquidated

damages clause is to simply require the non-breaching party to prove whatever

actual damages have been sustained.20


20
        The Restatement (Second) of Contracts likewise envisions that unenforceable contractual
penalties should simply be excised from the contract. See RESTATEMENT (SECOND) OF
CONTRACTS §356 (“A term fixing unreasonably large liquidated damages is unenforceable on
                                              23
C.     THE TRIAL COURT HAD JURISDICTION BECAUSE                               AN     ACTUAL
       CONTROVERSY EXISTS BETWEEN THE PARTIES, AND IT                         IS   RIPE   FOR
       ADJUDICATION

       After spending pages defending their position that Dr. Strandhagen is wrong

to contend that the Termination Penalty Clause is unenforceable, Appellants argue

that there is no real controversy for the Court to adjudicate because they had

neither actually sued Dr. Strandhagen for breach of contract nor made a formal

demand. Appellants’ Brief at 38-43. However, neither a lawsuit nor a formal

demand letter is a prerequisite to a suit for declaratory relief under a contract—the

issue is whether there is a genuine controversy about its meaning and

enforceability.

       The Texas Declaratory Judgments Act (the “Act”) is a remedial statute

whose purpose is “to afford relief from uncertainty and insecurity with respect to

rights, status and other legal relations.” TEX. CIV. PRAC. & REM CODE § 37.002(b).

It is to be “liberally construed and administered.” Id.          Section 37.004 of the Act

provides that a person interested under a contract may have determined “any

question of construction or validity arising under the . . . contract . . . and obtain a

declaration of rights, status, or other legal relations thereunder.” Id. at § 37.004(a).

The Act specifically permits courts to construe a contract “either before or after”

grounds of public policy as a penalty.”); contrast to RESTATEMENT (SECOND) OF CONTRACTS
§208 (if term is unconscionable, court may refuse to enforce entire contract, refuse to enforce
unconscionable term, or “may so limit the application of any unconscionable term as to avoid
any unconscionable result”).

                                              24
breach. Id. at § 37.004(b); In re City of Dallas, 977 S.W.2d 798, 805 (Tex. App.—

Fort Worth 1998, orig. proceeding) (“The Declaratory Judgments Act expressly

authorized a party to ask the trial court to construe the party’s rights under a

written contract before a breach of the contract occurs.”) (emphasis in original).

      A declaratory judgment is appropriate 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. Tex. Dep’t of Pub. Safety v. Moore, 985 S.W.2d 149, 153

(Tex. App.—Austin, 1998, no pet.). This Court has jurisdiction as long as the

controversy involves a genuine conflict of tangible interest, as distinguished from a

contingent or theoretical dispute. Id. at 153; WesternGeco, LLC v. Input/Output,

Inc., 246 S.W.3d 776, 781 (Tex. App.—Houston [14th Dist.] 2008, no pet.); Carter

v. Dripping Springs Water Supply Corp., Cause No. 03-03-00753-CV, 2005 Tex.

App. LEXIS 461, *11-15 (Tex. App.—Austin, Jan. 21, 2005, no pet.).

      The ripeness inquiry focuses on whether the case involves uncertain or

contingent future events that may not occur as anticipated or may not occur at all.

See Patterson v. Planned Parenthood of Houston & Se. Tex., Inc., 971 S.W.2d 439,

442 (Tex. 1998). As part of this analysis, courts consider whether the declaratory

judgment sought would actually settle the controversy between the parties. See

Cal. Prods., Inc. v. Puretex Lemon Juice, Inc., 334 S.W.2d 780, 783 (Tex. 1960);

Bd. of Water Eng’rs v. San Antonio, 283 S.W.2d 722, 724 (Tex. 1955).


                                          25
      Thus, for example, in one of the cases cited by Appellants in their Brief, the

Third Court of Appeals found that it had no jurisdiction to issue a purely advisory

opinion where the parties seeking a declaratory judgment had already obtained a

final ruling in their favor in an administrative proceeding resolving their

controversy with the Department of Insurance. LHR Enters., Inc. v. Geeslin, No.

03-05-00176-CV, 2007 Tex. App. LEXIS 8849, *8, *13-14 (Tex. App.—Austin

Nov. 7, 2007, pet. denied). In rejecting the argument that a justiciable controversy

remained, the Court focused on whether the parties seeking a declaratory judgment

would be impacted in some concrete way in the future. Id.

      No such uncertain, hypothetical, or contingent events are presented here, and

so this case is ripe. Appellants admit as much in their brief to this Court, both by

arguing so extensively about the supposed error by the trial court, and as further

illustrated when they acknowledge that Dr. Strandhagen’s employment was

terminated five years early, under circumstances where they contend she “would

be liable for payment of liquidated damages.”        Appellants’ Brief at 8.    Dr.

Strandhagen contends that the Termination Penalty Clause (which purports to

require her to pay $500,000 within 5 business days of termination if her

employment terminated for any reason other than “without cause”) is

unenforceable as a matter of law, regardless of the circumstances surrounding her

termination. Before she filed suit, Dr. Strandhagen learned that Appellants were


                                        26
planning to pursue her for collection of their share of the $500,000 Termination

Penalty, and her pleading to that effect was never denied by Appellants. 21 CR.40,

¶16.    Rather than dispute her contention that suit against her was imminent,

Appellants coyly declined to address this contention, instead suggesting that Dr.

Strandhagen’s failure to develop proof to support these contentions deprives the

court of jurisdiction. Appellants’ Brief, pp. 38-43. This argument misconstrues

the law, and the threshold for justiciability is easily met in this case. Texas law

does not impose an “imminent litigation” requirement, 22 only that there be a

genuine controversy. Parties are permitted to seek declarations of non-liability

under a contract, and there need not even be a pending breach of that contract. See

MBM Fin. Corp. v. Woodlands Operating Co., L.P., 292 S.W.3d 660, 668-69 (Tex.

2009) (also recognizing that declarations of non-liability under a contract have

21
       In determining whether they have jurisdiction over claims, “Texas appellate courts
construe the pleadings in favor of the plaintiff and look to the pleader’s intent.” Tex. Ass’n of
Business v. Tex. Air Control Bd., 852 S.W.2d 440, 446 (Tex. 1993) (internal citations and
quotations omitted).
22
        Appellants cite language in Paulsen v. Tex. Equal Access to Justice Found., 23 S.W.3d
42, 46 (Tex. App.—Austin 1999, pet. denied) to support this “imminent litigation” threshold
contention. In that case, this Court was asked to declare whether an attorney was subject to
professional discipline for failure to participate in the Texas IOLTA program, pending definitive
resolution of that program’s constitutionality. Id. at 45. The Paulsen court recognized that it
was faced with no real justiciable controversy since all of the parties to the suit actually agreed
that an attorney could ethically participate in the IOLTA program, but the plaintiff’s declaratory
judgment was premised on the possibility that a third party might someday challenge the
program. Id. at 45. Not surprisingly, the court found it did not have jurisdiction to issue such an
advisory opinion without “the assertion of adverse interests.” Id. at 45-47. Here, there is no
suggestion of collusion among the parties to create jurisdiction; they clearly have adverse
interests and a true dispute about the enforceability of the Termination Penalty Clause.

                                                27
been among the most common suits filed under the Act); Rowan Cos., Inc. v.

Griffin, 876 F.2d 26, 28 (5th Cir. 1989) (“The declaratory judgment vehicle . . . is

intended to provide a means of settling an actual controversy before it ripens into .

. . a breach of a contractual duty.”). 23 To hold that a justiciable controversy is

dependent on a threat of litigation would make the ripeness inquiry entirely and

inappropriately “dependent on the subjective state of mind and intention of one

party.” Transport. Ins. Co., 372 S.W.3d at 231.

       Here, there is no question that Appellants maintain that Dr. Strandhagen is

liable to them for their share of liquidated damages, and she disagrees. In cases

where the operative facts have been much less certain than those here, Texas courts

have nevertheless found an actual controversy to exist. 24 None of the cases cited


23
        See also, e.g., Rowan Cos., Inc., 876 F.2d at 27-28 (rejecting injured employee’s
argument that no justiciable controversy existed because he had not made any formal or informal
demands for continued payment); McGinnis v. Union Pac. R.R. Co., 612 F. Supp. 2d 776, 796-97
(S.D. Tex. 2009) (rejecting argument that no substantial controversy, and so no justiciable claim,
exists where, among other things, insured had not been sued by anyone injured in the accident
and there was no other pending litigation); contrast to State v. Margolis, 439 S.W.2d 695, 697-98
(Tex. Civ. App.—Austin 1969, writ ref’d n.r.e.) (holding absence of bona fide threat of
prosecution of Texas anti-trust laws against companies meant no justiciable claim; appellees
“may not compel the Attorney General to exercise his [prosecutorial] discretion by filing” DJA
suit). Appellants’ “imminent litigation” argument cannot be reconciled with section 37.004(b) of
the Act which permits courts to construe a contract before breach even occurs (and therefore
when it would be impossible for litigation to be “imminent”). See TEX. CIV. PRAC. & REM. CODE
§ 37.004(b); see also MBM Fin. Corp., 292 S.W.3d at 669 & n. 50.
24
       See Hirschfeld Steel Co., Inc. v. Kellogg Brown & Root, Inc., 201 S.W.3d 272, 278-279
(Tex. App.—Houston [14th Dist.] 2006, no pet.) (determining that a declaratory judgment action
regarding a the enforceability of a ten year warranty was ripe even though no warranty claims
had yet been made); Am. Nat’l Ins. Co. v. Cannon, 86 S.W.3d 801, 806-807 (Tex. App.—
Beaumont 2002, no pet.) (employed plaintiff had justiciable interest in determining whether upon
leaving the company, the plaintiff would be required to comply with non-compete provisions).
                                               28
by Appellants even suggest a different result. 25 For these reasons, the trial court

did not err in entering the PTJ Order, and it should be affirmed. 26

                                       V.      PRAYER

       Appellee Dr. Strandhagen requests this Court to affirm the Summary

Judgment and the Order Granting in Part and Denying in Part Appellants’

Amended Plea to the Jurisdiction. If either of the trial court’s rulings is reversed,

25
        The cases cited by Appellants do not stand for the proposition that there must be a formal
demand or an actual lawsuit on file before a case is ripe for adjudication, or that an injury must
have already occurred for a claim to be ripe, nor do they hold that a court has no jurisdiction to
issue a declaratory judgment on whether a liquidated damages provision is an unenforceable
penalty. For example, in Transcontinental Realty Investors, Inc. v. Orix Capital Markets, LLC,
353 S.W.3d 241, 245 (Tex. App.—Dallas 2011, pet. denied), where no payment was due under a
guaranty unless a pending appeal resulted in affirmance and the party primarily liable defaulted,
the court concluded that exercise of jurisdiction to construe the guaranty was premature. See id.
at 243-245. The language Appellants cite from Nexstar Broad., Inc., 2008 Tex. App. LEXIS
4736, at *4, simply confirms the well-established principle that a court lacks jurisdiction over a
“mirror image” counterclaim for declaratory judgment that merely denied the plaintiff’s pending
cause of action for breach of contract. See also, e.g., LHR Enters., Inc., 2007 Tex. App. LEXIS
8849, *10-11 (“a person seeking declaratory relief need not have yet incurred an actual injury of
the sort for which consequential relief might be granted. Instead, the Act is intended to provide a
means to determine, before any wrong has actually occurred, the rights of parties . . .”) (internal
citations omitted); Farmers Ins. Exch. v. Rodriguez, 366 S.W.3d 216, 223, 229 & n. 6 (Tex. App.
–Houston [14th Dist.] 2012, pet. denied) (third-party indemnity claim against home insurer not
ripe where homeowner insurance policy contained “no action” provision and no final
determination of indemnitee’s liability yet made, but court did have jurisdiction over declaratory
action against same indemnitee’s automobile insurance coverage).


26
        If for some reason this Court were to determine that Dr. Strandhagen did not adequately
plead or prove jurisdiction in the trial court, Dr. Strandhagen requests this Court to remand the
case for further proceedings to give her a full and fair opportunity to present evidence to show
jurisdiction. See Rusk State Hosp. v. Black, 392 S.W.3d 88, 96 (Tex. 2012) (remand appropriate
if pleadings and record neither demonstrate jurisdiction nor conclusively negate it); County of
Cameron v. Brown, 80 S.W.3d 549, 559 (Tex. 2002) (remanding case to trial court when
pleadings failed to show jurisdiction but did not affirmatively demonstrate incurable
jurisdictional defect); see also Robinson v. Parker, 353 S.W.3d 753, 755 (Tex. 2011) (“a claim is
not required to be ripe at the time of filing,” and suggesting that party need only “demonstrate a
reasonable likelihood that the claim will ripen soon”).
                                                29
then this Court should remand to the trial court for further proceedings. Dr.

Strandhagen further requests that this Court tax all costs against Appellants and

award her such other and further relief, at law or in equity, to which she may be

justly entitled. TEX. R. APP. P. 43.4.

                                 Respectfully submitted,

                                 FRITZ, BYRNE, HEAD & HARRISON, PLLC
                                 98 San Jacinto Boulevard, Suite 2000
                                 Austin, Texas 78701
                                 Telephone: (512) 476-2020
                                 Telecopy: (512) 477-5267

                          By:      /s/ Daniel H. Byrne
                                 Daniel H. Byrne
                                 Texas Bar No. 03565600
                                 Christine E. Burgess
                                 Texas Bar No. 00793428
                                 cburgess@fbhh.com
                                 Lessie G. Fitzpatrick
                                 Texas Bar No. 24012630
                                 lfitzpatrick@fbhh.com

                                 Attorney for Appellee Tracy D. Strandhagen




                                         30
             CERTIFICATE OF SERVICE AND COMPLIANCE

       I certify that on February 23, 2015, I served a copy of the foregoing
Appellee’s Brief on the counsel listed below by email. I also certify that according
to the computer programs used to prepare this document, the word count is 8,639,
excluding any parts exempted by Tex. R. App. P. 9.4(i)(1).

Amanda G. Taylor
ataylor@textaxlaw.com
MARTENS, TODD, LEONARD & TAYLOR
301 Congress Avenue, Suite 1950
Austin, Texas 78701
Facsimile: (512) 542-9899

Attorney for Appellants/Cross-Appellees

                                                   /s/ Daniel H. Byrne
                                                   Daniel H. Byrne




                                          31
     APPENDIX INDEX



A.   Strandhagen Declaration
B.   Physicians’ Agreement
C.   Defendants’ First Amended Answer
D.   Defendants’ Response to MSJ
E.    Defendants' Reply to Supplemental Briefing
      in Support of MSJ

F.   Summary Judgment Order

G.   Letters

H.   Plaintiff’s First Amended Petition

I.   Defendants’ Amended Plea to the Jurisdiction

J.   Authorities
                                 CAUSE NO.     D~ I ~GN-13-002811


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

                       DECLARATION OF TRACY D. STRANDHAGEN

        I.     My name is Tracy D. Strandhagen.         I am over 18 years of age and am fully

competent and authorized in all respects to make this Declaration. I have personal knowledge of

all the facts stated herein, and they are all true and correct This declaration is submitted in

connection with Plaintiffs Motion for Summary Judgment filed in the above-styled litigation.

       2.      I am a licensed anesthesiologist v.ith more than fifteen years of experience

practicing medicine.

       3.      In 20 II, I was a partner in Austin Anesthesiology Group, LLP ("AAG"). I entered

into the Advisory Board and Internal Operations Agreement (the '~Physicians' Agreement") with

the other anesthesiologists who had also sold their interests in American Austin Anesthesiology

Group, LLP ("AAG'"') to American Anesthesiology of Texas, Inc. C'AAT'') (the "Buyout"). A

true and correct copy of that agreement is attached to this declaration as Exhibit 1-A.

       4.      At the time of the Buyout, I entered into an employment agreement with AAT (the

"Employment Agreement"). The document filed under seal with the Court in this case at a hearing

on January 10, 2014 is a true and correct copy of the Employment Agreement.




                                                                                          EXHIBIT

                                                                                                    160
       5.     My employment with AAT was tem1inated iu2013.



        My name is Tracy D. Strandhagen, my date ofbirth is December 30, I 967, and my address
is 600 Riders Trai!Austin, Texas 78733. As authorized by section 132.001 of the Texa'l Civil
Praclice and Remedies Code, I declare under penalty o.fperjury that the foregoing is true and
correct.
       Executed in Travis County, Texas, on the 9th day of January, 2014.




                                               2




                                                                                                 161
                                  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
                                                         EXlllBITB

                                                      NOTICE ADDRESSES

                          last                First                            Full Adclress
                 Allen            Erick S.                 68Q2 Edgefield Drb1e Au~tin TX, 78731-2~06
                 Archibald        Mark                     12909 ParkDr Austin TX, 78732
                 Bal.e            Scott                    3421 Bunny Run Austin TX, 78746
                 Barrett          Shawn      A.            1205 Nprwalk Lane, Unit E Austin TX, 78703
                 Bedillion        T. Mark                  PO Box50536 Austin TX, 78763-053()
                 Biebas           Carolyn G.               2504 Velasquez Austin TX,78703
                 Siring           Ravneet K.               714   w. Monroe, #4 Austin TX, 78704
                 Buchnolz         Elizabeth L.             1905 Manana Street A.ustili TX, 78730
                 Buchhblz         W.Andrew                 1905Manana Street Austin TX, 78730
.'·              Bunker           Noah$.                   2900Roi.md Table Road Austin TX, 78746
                 Carrell          Paul                     3101T()ro Canyon Road Austin TX, 78746
                 Chapin           James C.                 2003 Ringtail Ridge Austin TX, 78746
                 Clause           Holly                    4017 Bunny Run Austin TX, 7c8746
                 cross            David_t                  511 Texas Ave Austin TX, 787()5
                 Crowley, Ill     William J.               4505 Elkwater Cove AIJ_stin TX, 78746     0




                 Curtis           B. Will                  421 W~st 3rdStreet, #1910 Austin TX, }8701
                 Davis            Jad l.                   2319 WppdwayRound_Rock TX, 78681 _
                 Dewan            Brian D.                 5805 Gentle Br('!eze Terrace Austin TX, 78731
                 DO               Khoa                     1753 Gaylord Drive Au~tin TX, 78728 _
                 Dornak           Allen D.                 801 W. Stli St #1706 AI,Jstin, TX,~78703
                 Dupont           C~dric                   29 Pascal lane Austin 1]<, 787A6
                 Eckert           Stanley R.               7713 Sandia LoopAustin TX, 78735
                 Eddings          Joseph D.                404 Talkeetna Lo Cedar Park TX, 78613
                 tilers, Ill      William A.               502 Indigo Ln GeorgetoWn TX,78628
                 Fason            s. Drake                 3410 Foothill Terrace Austin TX, 18731
                 Gras             Troy W.                  1609 Lynnville Trail Austin TX,78727
                 Hamill           Deborah L.               4005 Hidden Canyon Cove Austin TX,78746
                 Harrison         Christine                708 Garner Avenue Austin TX, 78704
                 Herzog           LOR.                     3010 Hatley Drive Austin TX, 78746
                 Hewitt           Steven                   1105 Sprague Lane AuStin TX,o78746
                 Himes, Jr:       RichardS.               _714 WihdsongTrail AustinTX, 78746
                 l:iouston. Jr.   Everett B.              . 2901Wade AVenue AJJstin TX, 78703
                            --

                 Jakstys          Rima                    . 4601N.Lamar Blvd Unit 5211 Austin TX, 78751
                 Jang             Zeeyoung                 4009 Lewis Lane, #AAustin T)(, 7875.6
                 Jekot            Jeffrey M.              .. 3804Woodcutter's Way Austin TX, 78746-1543
                 John             Ann                      2002 Kinney Unit B.,1\ustin   tx, 78704
                 Kocks, Jr.       Joe D.                   1607 Mt. Larson Road Austin TX, 78746




      23502.2-688675 v1



                                                                                                           180
           Laube          Rh::hard L.     412 Beardsley Lane Austin TX,78746
           Lee            Jonathan J.     1806 lntervail Dr. Austin TX, 78746
           Leighty        s"cottJ.        390Q Walnut Clay Drive Austin TX, 78731
           Lima           Suzanne N.      4112 Avenue B AustlnTX, 78751
           Marquardt      Shelby          19_0!lW. Koenig Lane_Au_stin TX, 78756
           Mihm           Gary J.         4708 Peace Pipe Pa!h Austin TX, 78746
           Miller         George M.       4603 Strass D[~Austin TX, 78731
           Miller         St~ven     E.   7206 Villa_Maria Lane Austin   lX 7~759
           Milliken       Martin c.       1810 RaJeigh Avenue Austin, TX, 78703
           Nelson         Paul B.         311 WesJ 5th st. #1103 Austin TX, 78701
           Nitzsche       Jeffrey J.      5408 Cuesta Verde Au~tinTX, 78746
           Orth           Oliver E.       5013 Spartanburg Cove Austin TX, 78730
           Oxford         Sharon A.       3606   Fall Trail Austin TX, 78731
           Patel          Dimpal R.       4613 Twin Valley Circle AustinTX, 78731
           Pillow         M. Brett        316 Eanes School Rd. Austin TX, 78746
           Ravula         Vijay K.        4206 Bellvue Ave. AustinTX, 78756
           Rockwell       Jeffrey J.      2914 Montebello Court Austin TX, 78746
           Shelly         Kevin R.        3008Pescadero Cove Austin TX, 78746
           Smith          GaryW.          34161\tlt Bonnell Circle Austin TX, 78731
           Strand hagen   Tracy D.        600 RidersTrail Austin TX, 78733
           Sturgeon       Ryan            11425 Dpna_Villa Drive AustinTX, 78726
           Vo             Chi B.          5911 Mo1.mtain Villa Drive Austin TX, 78731
           Walton         DavidJ.         3501 Native Dancer Cove Austin TX, 78746




23502.2-688675 v1




                                                                                        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
                                                                                      Filed
                                                                                      13 October 23 A9:43
                                                                                      Amalia Rodriguez-Mendoza
                                                                                      District Clerk
                                                                                      Travis District
                               CAUSE NO. D-1-GN-13-002811                             D-1-GN-13-002811

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


                       DEFENDANTS' FIRST AMENDED ANSWER

TO THE HONORABLE JUDGE OF SAID COURT:

       COME NOW, NOAH S. BUNKER, PAUL CARRELL, EVERETT BREW HOUSTON,

JR., W. ANDREW BUCHHOLZ, SCOTT J. HEIGHTY, JAD L. DAVIS and HOLLY

CLAUSE, Defendants in the above entitled and numbered cause, and file their First Amended

Answer, and would show unto the Court as follows:

                                                I.
       As authorized by Rule 92 of the Texas Rules of Civil Procedure, Defendants NOAH S.

BUNKER,      PAUL     CARRELL,      EVERETT           BREW   HOUSTON,     JR.,   W.   ANDREW

BUCHHOLZ, SCOTT J. HEIGHTY, JAD L. DAVIS and HOLLY CLAUSE generally deny

each and every allegation contained in Plaintiffs Original Petition or any superseding or

supplemental petitions, and respectfully request that Plaintiff be required to prove same by a

preponderance ofthe evidence as required by the Constitution and the laws of the State of Texas.

                                                II.

       Defendants assert some and/or all of the issues the subject of Plaintiffs Declaratory

Judgment have not matured and Plaintiffs claims should be dismissed.



                                                                                                     74
                                               III.

       Defendants invoke §37.006 of the TEX. CIV. PRAC. & REM. CODE and assert all persons

who have or claim any interest that would be affected by this declaratory action have not been

made parties to this action.

                                                IV.

       Defendants invoke §37.008 of the TEX. CIV. PRAC. & REM. CODE, which states that the

court may refuse to render or enter a declaratory judgment or decree if the judgment or decree

would not terminate the uncertainty or controversy giving rise to the proceeding.

                                                v.
       Defendants assert that Plaintiff does not have a separate, valid cause of action against the

named Defendants.

                                                VI.

       Defendants have retained the services of Carls McDonald & Dalrymple, L.L.P. to assist

them in this matter. Accordingly, Defendants seek recovery of their attorneys' fees incurred in

this matter pursuant to TEX. CIV. PRAC. & REM. CODE §37.009.

       WHEREFORE, PREMISES CONSIDERED, Defendants NOAH S. BUNKER, PAUL

CARRELL, EVERETT BREW HOUSTON, JR., W. ANDREW BUCHHOLZ, SCOTT J.

HEIGHTY, JAD L. DAVIS and HOLLY CLAUSE respectfully pray as follows:

       1.      That upon trial of this matter judgment be entered that Plaintiff take nothing;

       2.      That Defendants be awarded reasonable attorneys' fees;

       3.      That Defendants be discharged with their costs incurred herein; and

       4.      For such other and further relief to which Defendants may be justly entitled.




                                DEFENDANTS' FIRST AMENDED ANSWER
                                             Page 2 of3




                                                                                                      75
                                     Respectfully submitted,

                                    CARLS, MCDONALD & DALRYMPLE, L.L.P.
                                    Barton Oaks Plaza 1
                                    90 I South Mopac Expressway
                                    Suite 280
                                    Austin, Texas 78746
                                    (512) 4 72-4845
                                    (512) 472-8403 (fax)


                                                ,
                                               ~
                                                    ·,   / "'7,: . ·(·'"\.__   I ./
                                                 ;[L~ U v VlD u/VU-v/
                                     By: _ _ _ _ " -----ttdi----------
                                           Kelly A. McDonald
                                           State Bar No. 13551275
                                           Carla Garcia Connolly
                                           State Bar No. 076311 00

                                     ATTORNEYS FOR DEFENDANTS
                                     NOAH S. BUNKER. PAUL CARRELL, EVERETT
                                     BREW HOUSTON, JR., W. ANDREW BUCHHOLZ,
                                     SCOTT J. I-IEIGHTY, .lAO L. DAVIS and HOLLY
                                     CLAUSE

                               CERTIFICATE OF SERVICE

        I certify that a true and correct copy of the foregoing has been sent by hand delivery,
cetiified mail, return receipt requested, electronic means or facsimile to:

Daniel H. Byrne
Lessie G. Fitzpatrick
FRITZ, BYRNE, HEAD & HARRISON, PLLC
98 San Jacinto Boulevard, Suite 2000
Austin, TX 78701-4286
VIA FAX


in accordance with the Texas Rules of Civil Procedure, on the 23rd day of October, 2013.




                                                Kelly AJ McDonald



                                DEFENDANTS' FIRST AMENDED ANSWER
                                             Page 3 of 3




                                                                                                  76
                                                                   1/30/2014 4:51:30 PM
                                                                         Amalia Rodriguez-Mendoza
                                                                                       District Clerk
                                                                                       Travis County
                             CAUSE NO. D-1-GN-13-002811                             D-1-GN-13-002811


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

                     DEFENDANTS' RESPONSE IN OPPOSITION TO
                    PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

TO THE HONORABLE JUDGE OF SAID COURT:

       COME NOW, NOAH S. BUNKER,                   PAUL CARRELL,       EVERETT DREW

HOUSTON, JR., W. ANDREW BUCHHOLZ, SCOTT J. HEIGHTY, JAD L. DAVIS and

HOLLY CLAUSE, Defendants in the above entitled and numbered cause, and file their

Response in Opposition to Plaintiff's Motion for Summary Judgment, and would show the

Court as follows:

                               I. Summary of Argument

      Plaintiff is not entitled to summary judgment because (1) she has failed to establish

that the liquidated damages provision in the Advisory Board and Internal Operations

Agreement is an unenforceable penalty; and (2) the liquidated damage provision does

not require Defendants to assert rights under Plaintiff's employment agreement.

                                      II. Background

      Plaintiff Tracy D. Strandhagen and the fifty nine other partners in Austin

Anesthesiology      Group,   PLLC   sold   their   membership    interests   to   American




                                                                                               186
Anesthesiology of Texas, Inc. in October 2011. At the same time that the physicians

negotiated the buyout, they negotiated and entered into employment agreements with the

new group. To further shape their ongoing working relationships, the physicians also

negotiated and entered into an Advisory Board and Internal Operations Agreement

("Agreement") among themselves, pursuant to which they established an advisory board

from their members to provide advice and guidance to the medical director and committed

to each other that they would not terminate their employment with the new company

during their initial terms. They agreed that if a physician did terminate employment with

the new company during the initial term, the other physicians would be subject to harm,

including, increased workloads necessitated by the termination, material impairment of

their ability to earn bonuses under the Physician Performance Incentive Program,

material impairment of the physician's relationships with hospitals and other health care

facilities, third party payers and other stakeholders, and hiring and training costs related

to replacement physicians. In light of the difficulty of proof of loss and the inconvenience

and non-feasibility of obtaining an adequate remedy, the terminating physician would pay

the others a liquidated damage amount. For Plaintiff and most of the others, this amount

was $500,000. The physicians expressly agreed that the liquidated damage amount was

reasonable in light of the terms of their Agreement, the difficulty of proof of losses, the

inconvenience and non-feasibility of otherwise obtaining an adequate remedy and the

value of the transactions consummated under the purchase agreement and other

transaction documents. See Agreement, attached as Exhibit 1-A to Plaintiff's Motion.

       Plaintiff's employment terminated in 2013. The facts surrounding her termination

are in dispute. They are the subject of legal proceedings she initiated with the EEOC and



                                             2

                                                                                               187
the ongoing dispute between Plaintiff and her former employer.            Plaintiff filed this

declaratory judgment action asking the court to preemptively determine that (1) the

liquidated damages provision in the Agreement could not be enforced against her

because she was terminated without cause; and (2) the liquidated damages provision

was an unenforceable penalty. The Court sustained Defendant's Plea to the Jurisdiction

with regard to Plaintiff's claim that she was terminated without cause. Plaintiff now moves

for summary judgment on her claim that the liquidated damages provision is

unenforceable.

                                Ill. Plaintiff's First Claim

       Plaintiff contends that the liquidated damages provision in the Agreement is an

unenforceable penalty.     Liquidated damages are 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 (Tex. 2005), citing Valence Operating Co.

v. Dorsett, 164 S.W.3d 656, 664 (Tex. 2005). Generally, a liquidated damages provision

is enforceable if, at the time the contract is entered into, actual damages are difficult to

estimate and the amount specified in the contract is 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, but if fact issues exist, they must be

resolved before the legal issue can be decided. Phillips v. Phillips, 820 S.W.2d 785, 788

(Tex. 1991). A claim that a liquidated damages provision is an unenforceable penalty is

an affirmative defense to the enforceability of the provision and the summary judgment

movant has the burden of conclusively establishing every element of the defense. /d.;



                                             3

                                                                                                 188
Brownlee v. Brownlee, 665 S.W.2d 111, 112 (Tex. 1984); Ryland Grp. v. Hood, 924 S.W.

2d 120, 121 (Tex. 1996) (per curiam); Liaquat Ali Khan v. Nizarali Meknojiya No. 03-11-

00580-CV, 2013 WL 3336874, at *2 (Tex. App.- Austin June 28, 2013, no pet.); GPA

Holding, Inc. v. Baylor Health Care System; 344 S.W.3d 467, 475 (Tex. App.- Dallas

2011, pet denied).

       In order to prevail on a motion for summary judgment that a liquidated damage

clause was an unenforceable penalty, a movant would have to conclusively establish that

       (1) the harm caused by the breach is not incapable or difficult of estimation; and

       (2) the liquidated damages amount agreed to among the parties is was not a
           reasonable forecast of just compensation.

Phillips, 820 S.W.2d at 788; GPA Holding, p. 476. Evidence related to the lack of difficulty

of estimation of damages and the lack of reasonableness of the forecast must be viewed

as of the time the contract was executed. Baker v. International Record Syndicate, Inc.,

812 S.W.2d 53 (Tex. App. -Dallas 1991, no pet), citing Mayfield v. Hicks, 575 S.W.2d

571, 576 (Tex. Civ. App. -Dallas 1978, writ ref'd n.r.e.).

       Additionally, the party seeking to invalidate the liquidated damages provision must

prove the amount of the other party's actual damages and show that the liquidated

damages are disproportionate to the actual damages. Phillips 820 S.W.2d at 788; Baker

at p. 55; citing Commercial Union Ins. Co. v. La Villa School Dist., 779 S.W.2d 102, 107

(Tex. App. - Corpus Christi 1989, no writ); Garden Ridge v. Advance International, Inc.,

403 S.W.3d 432, 440 {Tex. App.- Houston [14 1h Dist.] 2013, pet. filed), citing Chan v.

Montebello Dev. Co., No. 14-06-00936-CV, 2008 WL 2986379, at *3 (Tex. App. -

Houston [14h Dist.] July 31, 2008, pet. denied}.




                                             4
                                                                                               189
       Plaintiff cannot prevail on her motion for summary judgment because she has

offered no evidence:

       (1) that the damages for breach were not incapable or difficult to ascertain;

       (2) the liquidated damages amount agreed to by the parties was not a reasonable
           forecast of just compensation when the Agreement was entered into; or

       (3) of the actual amount of damages for her breach and that it is disproportionate
           to the stipulated liquidated damage amount

In order to prevail, Plaintiff is required to conclusively establish alf three elements. All

three inquiries involve questions of fact. Plaintiff has not offered any facts to establish

any of these three required elements.

       Plaintiff contends only that because the damages would be the same if she

breached on the first day or the last day, the amount of liquidated damages is not

reasonable.   She offers no law to support her contention that the liquidated damage

amount must be calibrated to the date of her breach.        It would not be reasonable or

workable to impose such a requirement

      At the time the Agreement was entered into, it was unknown when a breach, if

there was one, would occur. At the time the contract was entered into, the parties could

not calculate what the actual damages would be for each identified type of harm that

would be sustained, beginning on an unknown date in the future, or how long the harm

would be suffered. Damage analysis is dependent upon a number of factors that could

not be ascertained in advance, as well as factors that are highly subjective. For example,

the effect of the termination on the other physicians' ability to earn bonuses would depend

on the revenues and expenses at the time of the breach, the impact and duration of a

decline in profits associated with the termination. To quantify damages to the physicians'



                                             5

                                                                                               190
ongoing relationships with hospitals, surgery centers and third party payers, extensive

information would be needed about specifics of those relationships at the time of the

breach.   The valuation of the harm caused by increased workloads necessitated by

termination is a subjective analysis.

       Given the amount of time and expense and likelihood for disagreement that would

be involved in calculating damages for breach, there is no question why the physicians

found it advantageous to estimate what they considered to be a fair amount of

compensation for harm they believed would occur in the event of a breach. Liquidated

damages provide a means for parties who are faced with unknown, uncertain and difficult

to predict damages to blend all of these unknown factors and agree among themselves

upon an estimate they consider to be reasonable in light of their assessment of the

anticipated harm.    Whether the liquidated damages amount might be unreasonable on

the first or last day is not in issue. The issue is whether it was reasonable at the time of

termination. Plaintiff failed to provide any evidence that it was unreasonable at the time

of termination.

                              IV. Plaintiff's Second Claim

       In her second ground for summary judgment, Plaintiff asserts that the liquidated

damages provision of the Agreement is not enforceable against her because it seeks to

render her liable to the Defendants for breach of her employment agreement, which they

are not parties to. She claims that because the Defendants were not parties to or third

party beneficiaries to her employment agreement, they cannot seek damages from her

for terminating her employment.




                                             6

                                                                                               191
       Plaintiff's assertion is without merit.   Although superficially similar, Plaintiff's

employment agreement with her former employer is not the same as the Advisory Board

and Internal Operations Agreement she entered into with her physician colleagues. The

contractual commitments were made in different contracts, between different parties, for

different reasons, and for different consideration. The enforceability of the Agreement

entered into between Plaintiff and Defendants and its liquidated damages provision does

not require Defendants to have standing to assert rights under Plaintiff's employment

agreement. Plaintiff's citation of Resolution Trust Corp. v. Kemp, 951 F.2d 657, 662 (5th

Cir. 1992) is not on point. In that case, the appellant's claims were based solely on a

subordination agreement to which it was not a party. Those facts are quite different from

those presented in this case.      Defendants entered into a separate agreement with

Plaintiff. Defendants have not claimed rights under Plaintiff's employment agreement.

                               V. Conclusion and Prayer

       Plaintiff has failed to prove as a matter of law, all of the essential elements of the

affirmative defense that the liquidated damages clause is an unenforceable penalty. She

has failed to provide any evidence on the three elements she is required to prove in order

to prevail. See MMP, Ltd. v. Jones, 710 S.W.2d 59, 60 (Tex. 1986). Further, evidence

presented by Defendants reflects that issues of fact exist that would preclude a summary

judgment on this issue. Plaintiff has failed to show that no genuine issue of material fact

exists and that she is entitled to judgment as a matter of law. Tex. R. Civ. P. 166a(c).

Provident Life &Ace. Ins. Co. v. Knott, 128 S.W.3d 211,215-16 (Tex. 2003).

       WHEREFORE, PREMISES CONSIDERED, Defendants NOAH S. BUNKER,

PAUL CARRELL, EVERETT DREW HOUSTON, JR., W. ANDREW BUCHHOLZ, SCOTT



                                             7

                                                                                                192
J. HE!GHTY, JAD L. DAVIS and HOLLY CLAUSE respectfully pray that the Court deny

Plaintiff's Motion for Summary Judgment and award and such other and further relief to

which Defendants may be justly entitled.

                                            Respectfully submitted,

                                           CARLS, MCDONALD & DALRYMPLE, L.L.P.
                                           Barton Oaks Plaza 1
                                           901 South Mopac Expressway Suite 280
                                           Austin, Texas 78746
                                           (512) 472-4845
                                           (512) 472-8403 (fax)



                                                   Kelly A    Donald
                                                   State Bar No. 13551275
                                                   Carla Garcia Connolly
                                                   State Bar No. 07631100

                                           A TIORNEYS FOR DEFENDANTS
                                           NOAH S. BUNKER, PAUL CARRELL,
                                           EVERETT DREW HOUSTON, JR, W.
                                           ANDREW BUCHHOLZ, SCOTT J. HEIGHTY,
                                           JAD L. DAVIS and HOLLY CLAUSE

                               CERTIFICATE OF SERVICE

I certify that a true and correct copy of the foregoing has been sent by certified mail, return
receipt requested and by electronic means in accordance with the Texas Rules of Civil
Procedure, on the 30th day of January, 2014 to:

Daniel H. Byrne
Lessie G. Fitzpatrick
FRITZ, BYRNE, HEAD & HARRISON, PLLC
98 San Jacinto Boulevard, Suite 2000
Austin, TX 78701-4286




                                              8

                                                                                                  193
                                                                2/25/201410:41:46 AM
                                                                       Amalia Rodriguez-Mendoza
                                                                                    District Clerk
                                                                                    Travis County
                             CAUSE NO. D-1-GN-13-002811                          D-1-GN-13-002811


TRACY D. STRANDHAGEN,                     §      IN THE DISTRICT COURT
    PLAINTIFF,                            §
                                          §
                                          §
v.                                        §      TRAVIS COUNTY, TEXAS
                                          §
                                          §
NOAH S. BUNKER, PAUL CARRELL,             §
EVERETT DREW HOUSTON, JR.,                §
W. ANDREW BUCHHOLZ, SCOTT J.              §
LEIGHTY, JAD L DAVIS, and                 §
HOLLY CLAUSE                              §
     DEFENDANTS.                          §      353R 0 JUDICIAL DISTRICT

DEFENDANTS' REPLY TO PLAINTIFF'S SUPPLEMENTAL BRIEIFING IN SUPPORT
          OF PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

TO THE HONORABLE JUDGE OF SAID COURT:

       COME NOW, NOAH S. BUNKER, PAUL CARRELL, EVERETT DREW

HOUSTON, JR., W. ANDREW BUCHHOLZ, SCOTT J. HEIGHTY, JAD L. DAVIS and

HOLLY CLAUSE, Defendants in the above entitled and numbered cause, and file their

Reply to Plaintiff's Supplemental Briefing Submitted to the Court after the February 20,

2014 hearing and would show the Court as follows:

       After the hearing on Plaintiff's Motion for Summary Judgment, Plaintiff provided

the Court with supplemental copies of the cases presented at the hearing, along with

commentary on those cases and additional cases not cited in her motion or reply brief, or

presented to the Court at the hearing. As Plaintiff's Reply brief to Defendants' Response

was filed after 5:00p.m. the evening before the summary judgment hearing, Defendants

were not able to provide the Court with a rebuttal brief prior to the hearing. Defendants

wish to respond to the points raised in Plaintiff's Reply brief and in the supplemental

briefing submitted to the Court after the hearing.




                                                                                            202
       Strandhagen asserts as the basis for her summary judgment motionthat the

liquidated damage clause is an unenforceable penalty. Texas law consistently holds that

such a claim is an affirmative defense and the party asserting the defense must establish

each and every element of the defense. The party must establish that the harm caused

by the breach is not hard to estimate and that the liquidated amount is not a reasonable

forecast of just compensation. Phillips v. Phillips, 820 S.W.2d 785, 788 (Tex. 1991 );

Brownlee v. Brownlee, 665 S.W.2d 111, 112 (Tex. 1984); Ryland Grp. v. Hood, 924 S.W.

2d 120, 121 (Tex. 1996) (per curiam); GPA Holding, Inc. v. Baylor Health Care System;

344 S.W.3d 467, 475 (Tex. App.- Dallas 2011, pet denied). None of the cases cited by

Plaintiff support her assertion that in order to be granted a summary judgment on her

claim that the liquidated damage clause is a penalty, she does not have to establish all of

the elements of the affirmative defense. None of the cases cited by Plaintiff hold that the

party seeking to invalidate a liquidated damage clause only needs to establish that the

stipulated amount of damages is unreasonable.

       By way of contrast, a party seeking to enforce a liquidated damage clause must

establish that damages were difficult to estimate and the stipulated amount is a

reasonable estimate of damages. Phillips, p. 788;    Stewart v. Basey, 245 S.W. 2d 484,

486 (Tex. 1952). Whether moving to enforce a liquidated damages clause or have it

struck as a penalty, the moving party has the burden of pleading and proving all elements.

      The Phillips, Stewart and Baker cases cited by Plaintiff all discuss a movant's right

to enforce a liquidated damage clause.      In none of the cases, was the movant only

required to satisfy half of the burden.   In Phillips, the Texas Supreme Court refused



                                            2

                                                                                              203
Martha Phillips' liquidated damage claim for ten times the amount of her actual damages,

as had the trial court and court of appeals. The Texas Supreme Court reiterated that in

order to enforce a liquidated damage clause, the court must find that the harm caused by

the breach is hard to estimate and that the stipulated amount was a reasonable forecast

of actual damages. /d. at p. 788. It explained that a contract provision that required a

multiple of actual damages does not meet either prong of the test: (1) the harm caused

by the breach was not incapable or difficult of estimation and (2) rather than forecasting

damages, the clause required them to be determined then multiplied. ldl at p. 789.

       In Stewarl, the trial court and court of appeals refused Stewart's claim for liquidated

damages. The Texas Supreme Court upheld the court of appeals' decision, holding that

the harm caused by the breach would have to be hard to estimate and the agreed amount

of damages would have to be a reasonable forecast of just compensation. Stewart did

not meet that burden. /d. at p. 486-487.

       In Baker, the jury awarded Baker actual damages for destruction of the negatives

his photographs, despite his claim for a higher amount under the liquidated damages

clause in his contract. The Dallas Court of Appeals overturned the trial court decision. It

noted that under Texas law, a liquidated damages provision would be enforced when the

court finds that the harm caused by the breach is incapable or difficult to estimate and the

amount of liquidated damages is a reasonable forecast of actual damages. The Court

held that Baker had established that an accurate determination of the damages was

virtually impossible. In response to evidence reflecting a lower value of some of Baker's

other photographs on the issue of the reasonableness of the damage forecast, the court

noted that this was not evidence of the value of the photographs in question, as



                                              3

                                                                                                 204
photographs are unique and have many factors bearing on their actual value. The court

explained that:

        "[p]roof of this loss is difficult; where damages are real but difficult to prove,
        injustice will be done if the court substitutes the requirements of judicial
        proof for the parties' own informed agreement as to what is a reasonable
        measure of damages.

/d. at 55~56.

                In the SP Terrace case cited in Plainitiff's summary judgment reply brief, the

Houston 151 District Court of Appeals reiterated the requirement that a party asserting that

a liquidated damages clause is asserting an affirmative defense and bears the burden of

proof. SP Terrance, L.P. v. Meritage Homes of Texas, LLC; 334 S.W.3d 275, 287 (Tex.

App. - Houston [1st Dist.] 2010, no pet.)           Citing the Dallas Court of Appeals' Baker

decision discussed above, the court went on to note that "[g]enerally, that party must

prove the amount of actual damages, if any, to demonstrate that the actual loss was not

an approximation of the stipulated sum". /d. The Houston court went on to note that before

a court can resolve the question of law as to whether the clause is a penalty, sometimes

factual issues must first be resolved (citing Phi/lips). The court declined to remove the

liquidated damages provision because SP Terrace presented no evidence that the clause

operated as a penalty. !d. The court cited a similar holding from the Dallas Court of

Appeals on this point (also cited in Plaintiff's reply), Urban Television Network Corp. v.

Creditor Liquidity Solutions, LP. 227 S. W. 3d 917,918-919 (Tex. App.- Dallas 2009, no

pet).

        In Urban Television, the Dallas Court of Appeals confirmed that a party asserting

that a liquidated damages clause is a penalty has the burden of pleading and proving the

elements of the defense. When the plaintiff established with summary judgment evidence


                                                4

                                                                                                 205
that defendant breached the contract, and its right to liquidated damages, the court ruled

that the burden then shifted to the defendant to prevent evidence that the liquidated

damage clause was a penalty, which it failed to do. Urban Television Network Corp. v.

Creditor Liquidity Solutions, LP. 227 S. W. 3d 917, 918-919 (Tex. App.- Dallas 2009, no

pet).

        The Commercial Union case cited by Plaintiff involved a movant seeking to avoid

a liquidated damages clause. Commercial Union Ins. Co. v. La Villa School Dist., 779

S.W.2d 102, 107 (Tex. App. - Corpus Christi 1989, no writ).           The La Villa ISO was

awarded liquidated damages at trial under a construction contract The contractor had

asserted the clause was a penalty. The court of appeals noted that when a party asserts

a liquidated damages clause is a penalty, it has the burden of establishing that defense.

Contrary to Plaintiff Strandhagen's comments, the Corpus Christi Court of Appeals did

not find that the contractor failed to prove either that damages were not difficult to estimate

or that the amount was an unreasonable forecast (one or the other). There is no such

language in the opinion. The court of appeals held that absent findings and conclusions

from the trial court, it presumed the trial court found the damages were incapable or

difficult to estimate and the liquidated damages constituted just compensation. !d. at pgs.

106-107.

        The Garden Ridge case involved competing breach of contract claims. At issue

was whether a charge back provision in the contract provided for liquidated damages or

was a penalty. In its opinion holding that the provision was penalty, the court noted that

Advance    International established     that the    harm anticipated from        its alleged

noncompliance was not difficult to estimate; (2) Garden Ridge did not attempt to show the



                                              5

                                                                                                  206
charge back amounts were a reasonable estimate; and (3) Advance International met its

burden to show that the chargeback amounts constituted a disproportionate estimate of

actual damages. Garden Ridge v. Advance International, Inc., 403 S.W.3d 432, 439-440

(Tex. App.- Houston [141h Dist.] 2013, pet. filed)

       In GPA Holdings, the Dallas Court of Appeals held that GPA was not entitled to

summary judgment on its claim that the liquidated damages clause was a penalty. GPA

Holding, Inc. v. Baylor Health Care System; 344 S.W.3d 467, 475 (Tex. App.- Dallas

2011, pet denied).    The court held that in order to obtain summary judgment on the

affirmative defense of penalty, GPA was required to prove every element of the defense.

GPA did not offer evidence to support either one. 'The difficulty (or lack of difficulty) in

estimation as well as the unreasonableness of the damages estimate where GPA's to

prove". ld at p. 476. Like GPA, Plaintiff Strandhagen failed to offer evidence to establish

that damages were not difficult to estimate or to establish that the stipulated amount was

unreasonable.

       Nacogdoches Heart Clinic; 2013 Tex. App. LEXIS 1066, *19-20 (Tex. App.- Tyler

2013, pet. denied) was not cited in Plaintiff Strandhagen's Motion for Summary Judgment

or her reply brief. The Tyler Court of Appeals held that the covenant not to compete was

unenforceable because it was overbroad and imposed a greater than necessary restraint.

The court went on to note in dicta that in order for a liquidated damages clause to be

enforceable, the harm caused by the breach must be difficult to estimate and the amount

called for must be a reasonable forecast of just compensation. The amount to be paid

($100,000 per month) was equal to the amount of monthly compensation under the




                                             6

                                                                                               207
contract Thus, if NHC attempted to claim the liquidated damages, it would not be entitled

to prevail, because it could not establish both of the required prongs. !d. at pgs. *19-20.

       In Nexstar, the court of appeals would not enforce the liquidated damages clause

because the liquidated damages were not in lieu of other damages. It is not relevant to

this case. Nexstar Broad, Inc. v. Gray; 2008 Tex. App. LEXIS 4736, *7-8 (Tex. App.-

Beaumont 2008, no pet.)

       The Community Development case reiterates the requirement that liquidated

damages be a reasonable forecast of just compensation. Community Dev. Serv. Inc. v

Replacement Parts Mfg., Inc.; 670 S. W. 2d 721, 727 (Tex. App. - Houston [1st Dist.J

1984, no writ).   There was no discussion of the test endorsed by the Texas Supreme

Court for determining whether a liquidated damages clause is in fact a penalty. The

court's determination was that a damage clause that that subjects parties to the same

reparation for any default, no matter how large or small, would not be a reasonable

forecast of just compensation. /d. at p. 726. It does not eliminate the requirement that a

party seeking to overturn a liquidated damage clause must offer evidence that damages

are not difficult to estimate and the forecast is not a reasonable measure of damages for

breach at the time the agreement is entered into.

       Plaintiff has conceded for purposes of her motion that damages in this case were

difficult to quantify. She is not entitled to summary judgment because she has failed to

establish this required element Nor has she offered evidence sufficient to establish that

the stipulated damage amount is unreasonable. She asserts only that the measure of

damages agreed to among the parties is per se unreasonable because it does not provide

a timing component. The time of the breach is not a controlling factor. The parties



                                             7

                                                                                              208
identified multiple types of harm that would be suffered in the event of a breach: increased

workloads, material impairment of the ability to earn bonuses and their relationships with

hospitals, surgery centers and   3rd   party payors, etc. These factors are highly subjective

and dependent upon the facts and circumstances at the time of the breach. It is not a

linear analysis resolved by a determination of the date of breach. As noted consistently

by Texas courts, while the issue of whether a clause is a penalty is a question of law, very

often there are fact issues that must be resolved first. Absent evidence as to whether the

stipulated amount was a reasonable forecast at the inception of the agreement, she has

failed to establish the second required element Nor has she offered any evidence of

what the actual damages were at the time of her breach to show that the stipulated

amount was at odds with "just compensation". Plaintiff has failed to offer evidence of any

of the elements of her claim. She has failed to meet her summary judgment burden.

       In Eberts, the Dallas Court of Appeals held that because an injunction preventing

breach had been entered, liquidated damages could not awarded at the same time. It did

not speak to the burden that a summary judgment movant must meet in order to establish

that a liquidated damage clause is a penalty. Rather, the case involved a defendant

asserting that at trial, the plaintiff failed to meet its burden of establishing that the

liquidated damages clause was a reasonable forecast of damages. Eberts v.

Businesspeople Personnel Servs., Inc. 620 S.W. 2d 861, 863-865 (Tex. Civ. App.- Dallas

1981, no writ).

       The RTC, South Texas Water and Lake River cases cited by Plaintiff all involve

fact patterns in which third parties attempted to assert rights under contracts that they

were not parties to. Additionally, the Lake River case does not involve Texas law. Lake



                                               8

                                                                                                209
River Corp. v. Carbo-Rundum Co., 769 F.2d 1284, 1290 (7th Cir. 1985); Resolution Trust

Corp. v. Kemp, 951 F.2d 657, 662 (5th Cir. 1992); South Texas Water Authority v. Lomas;

223 S.W.3d 304 ((Tex. 2007). In contrast to these cases, Plaintiff Strandhagen entered

into the Internal Operations and Advisory Board Agreement with her former partners at

the time they sold their interests in Austin Anesthesiology Group. It is an entirely different

agreement than her employment agreement It has different parties, different promises

made for different reasons, for different consideration than her employment agreement.

       Plaintiff also asserted that her claim of penalty should not be treated as an

affirmative defense because she is a plaintiff asserting a claim for declaratory judgment.

She cites no authority to support her position.       Plaintiff preemptively filed this suit in

anticipation of a possible action by her former partners to enforce the liquidated damage

clause, contending that it is a penalty. The fact that she filed suit in anticipation of a

possible claim does not make her assertion that the clause is a penalty any less an

affirmative defense than if she were a defendant asserting the argument

       For these reasons and as set forth in Defendant's Response to Plaintiff's Motion

for Summary Judgment, Defendants urge the Court to Deny Plaintiff's Motion.

                                           Respectfully submitted,

                                           CARLS, MCDONALD & DALRYMPLE, L.L.P.
                                           Barton Oaks Plaza 1
                                           901 South Mopac Expressway Suite 280
                                           Austin, Texas 78746
                                           (512) 472-4845
                                           (512) 472-8403 (fax)



                                                  Kelly A. cDonald
                                                  State Bar No. 13551275
                                                  1';_111 eel OJl§!ld @s;:m£9l5l\IY:.99 n}


                                              9

                                                                                                  210
                                                   Carla Garcia Connolly
                                                   State Bar No. 07631100
                                                   cg~g~@@gmcdlaw.com

                                           ATTORNEYS FOR DEFENDANTS
                                           NOAH S. BUNKER, PAUL CARRELL,
                                           EVERETT DREW HOUSTON, JR., W.
                                           ANDREW BUCHHOLZ, SCOTT J. HEIGHTY,
                                           JAD L DAVIS and HOLLY CLAUSE

                               CERTIFICATE OF SERVICE

l certify that a true and correct copy of the foregoing has been sent by certified mail, return
receipt requested and by electronic means in accordance with the Texas Rules of Civil
Procedure, on the 25th day of February, 2014 to:

Daniel H. Byrne
Lessie G. Fitzpatrick
FRITZ, BYRNE, HEAD & HARRISON, PLLC
98 San Jacinto Boulevard, Suite 2000
Austin, TX 78701-4286


                                                   Kelly A. McDonald




                                              10

                                                                                                  211
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
                     (                                                     i   (




                                   FBH
                     FRITZ, BYRNE, HEAD & HARRISON,PLLC
                                                       H
                                          Artnmevs at Lm1

                                         July 22, 2013


VIA EMAIL davisw@jacksonlewis.com
William T. Davis, Esq.
Jackson Lewis
500 N. Akard, Suite 2500
Dallas, Texas 75201

RE:    Tracy Strandhagen; Mednax, Inc. a subsidiary of Anesthesiology Associates of
       Texas, Inc.

Dear Bill:

       After further discussions with our client, we hereby notify you that under the
circumstances and in light of the working conditions and hostile work environment
perpetuated by local management (and ratified by Mednax), Dr. Strandhagen has
concluded that she has been effectively terminated without cause and has no choice
but to advise you that she will no longer be able to perform her functions as an
anesthesiologist for the Mednax subsidiary Anesthesiology Associates of Texas, Inc.

       Dr. Strandhagen filed her pending EEOC charge in the context of a history of
pervasive gender discrimination resulting in hostile work environment within the
Austin group for female physicians, particularly those like Tracy who express any
reluctance to capitulate to the will of the male-dominated management of the
practice. Most recently, Dr. Strandhagen has been threatened with mandatory but
completely inappropriate career-threatening sanctions for declining to acquiesce
with a male surgeon's request that she anesthetize a patient and jeopardize his
health in violation ofNPO guidelines.

       As you know, Dr. Strandhagen reported to Mednax's Human Resources
Department that she was a victim of gender discrimination shortly after this
complaint was leveled by Dr. Rose (in the aftermath of her clinically appropriate
decision to refuse to capitulate his request). However, Mednax initially failed to
take any action to investigate Dr. Strandhagen's report, and followed up to a limited
extent only after being prodded further by Dr. Strandhagen. In the meantime, local
Mednax management perpetuated the hostile environment and also retaliated
against Dr. Strandhagen by seeking to professionally brand her as a "disruptive
physician" and ordering her to take a "disruptive physician" class.          To our
knowledge all the physicians that have reviewed the situation agreed with Dr.

                                   111/ue Drive fl ... Clie/11 Oriellled

                   SUITE   2000   AUSTIN, TEXAS      78701        (5 12) 476-2020   FAX:   (5 12) 477-5267   WWW.FBHH.COM


                                                                                                                            141
                    '    (                                    (
William T. Davis, Esq.
Jackson Lewis
July 22, 2013
Page2


Strandhagen's clinical decision to refuse to acquiesce to Dr. Rose's demand (and we
note that under AMA guidelines a key element of the disruptive physician
classification requires some element of questionable clinical decisionmaking). We
understand that in the entire history of this group, the "disruptive physician" stigma
has been imposed only one other time also against a female physician who
ultimately resigned. Adding insult to injury, we understand that since then rather
than taking steps to rectify the environment and rescinding its demand that Tracy
submit to a stigmatizing "boot camp," Mednax has ordered its generally younger and
less experienced facility chiefs (all of whom are male) to "keep an eye" on Dr.
Strandhagen.

       As we informed you, Dr. Strandhagen was disheartened to recently learn that
as a result of its belated investigation Mednax still thinks that her gender
discrimination complaint lacks merit, and refuses to reverse its decision to require
her to attend the "disruptive physician" training. As Mednax undoubtedly
anticipated, this conduct and the other actions which local management continues
to take have undermined her credibility with fellow physicians and medical staft
and resulted in intolerable working conditions for our client that are now impacting
her ability to properly exercise independent and effective clinical judgment. Tracy
cannot ethically continue to practice in this environment and considers that she has
been terminated without cause within the meaning of her employment agreement.

        Under the terms of her employment agreement, Dr. Strandhagen is therefore
entitled to continue to receive her base salary for the remainder of the agreement's
seven year term, subject to offsets to the extent that she succeeds in finding suitable
employment in her specialty as permitted by the agreement. Upon confirmation
that Mednax plans to fulfill its obligations under that agreement, including payment
of her severance, Dr. Strandhagen is of course willing to fulfill all of her obligations
under the agreement, including notifying the affected hospitals of her resignation of
privileges, within the periods required under the agreement.

      We look forward to Mednax's response to our client's position as outlined
above. We will r:espond to Mednax's position that Tracy does indeed have
behavioral issues which warrant this retaliation in the due course of the EEOC
complaint process and any subsequent proceedings, but suffice it to say that we are
confident that those contentions lack merit.




                                                                                           142
                    '    (
William T. Davis, Esq.
Jackson Lewis
July 22, 2013
Page3


      As I mentioned to you, I will be traveling for the next few days, so if we are
unable to communicate feel free to contact my partner, Lessie Fitzpatrick.

                                                Very truly yours,

                                                 Au:JHP~mt                        ..
                                                 Daniel H. Byrne       b3 pev~
DHB/mpy
cc:  Client




                                                                                       143
                                             AMERICAN
                                            ANESTHESIOLOGY ..
Via UPS Overnight Mail

September 30,2013


Tracy D. Strandhagen, M.D.
600 Riders Trail
Austin, TX 78733

       Re:     Tracy Strandhagen, M.D.'s Employment Agreement with American Anesthesiology
               of Texas, Inc. ("AAT") dated November 8, 2011 (the "Agreement").

Dear Dr. Strandhagen:

       You have failed to report to work and instead have continued to abandon your duties despite
numerous requests to return to work. As you have been previously advised, this constitutes a material
breach of the Agreement. You were advised of this breach by letters dated July 24, August 15, August
28, and September 12. You have been provided deadlines to comply with, which have been extended
numerous times. Your continued failure to perform your duties has imposed a hardship on AAT and
caused it to suffer damages.

        As you know, you received a large portion of the purchase price when AA T acquired the practice
and entered into the Agreement with you in connection with that transaction. The claims you previously
made related to discrimination are inconsistent with the tenus of the covenants, representations, and
warranties you made in connection with the transaction, which induced AAT to close on the transaction.
In addition, AA T investigated those claims and dete1minecl that they had no merit and also concluded
that requesting you to attend training seminars was reasonable. It is important to AAT that all of its
employees treat others courteously, respectfully, and with dignity, regardless of whether they are
clinically correct. The failure to do so can adversely affect patient care.

        The simple facts are that you have simply abandoned your duties, despite repeated requests to
return to work and notices of breach being provided. Therefore, AAT must terminate your employment
with cause as a result of your material breach.

       This is notice oftermination with cause of your employment with AAT, effective September 30,
2013, pursuant to Section VIII.B.2. (a), (g) and (m) of the Agreement

        You are reminded that all of the post termination clauses and restrictions in the Agreement shall
remain in effect after your te1mination. These include, but are not limited to, your Confidentiality, Non-
Compete, Non-Solicitation, and Non-Disparagement clauses. You are also reminded that you are
required to resign privileges as required in Section IX.B. ofthe Agreement within five (5) business days.
AAT expects you to honor your commitments under these provisions and will take all steps necessary to
confirm your compliance. We request confirmation that you have resigned privileges as required within
ten (1 0) business days of this letter. Please fax a copy of said resignations to the Credentialing
Department at fax number: (954) 858-0591.

                             WWW.A MER IC AN AN ESTH E S 10 lO GV. COM
                                                                                                      EXHIBIT
             1301 CONCORD TERRACE     SUNRISE, FLORIDA 33323   (~00.243.3839   (ss4.384.0175    ~

                                                                                                             144
        Finally as a result of your employment with AAT being terminated for cause, AAT will
maintain, at your expense, professional liability insurance covering your acts during your period of
employment. The cost of such insurance is Six Thousand One Hundred and Thirty~Five and 00/100
Dollars ($6,135.00). The tail insutance cost, which is the current cost for an extended reporting period
as determined in accordance with AAT's cun·ent insurance program, should be paid no later than thirty
(30) days from the date of receipt of this correspondence. A check in the specified amount should be
made payable to: American Anesthesiology, Inc. and sent to: American Anesthesiology, Inc., 1301
Concord Terrace, Stmrise, Florida, 33323, Attn: Ann Zugarramurdi. Going forward you are required to
provide AA T with written notice of any lawsuit, claim, patient complaint, or physician report that you
become aware of relating to the provision of medical services by you or any other employee of AAT or
hospital within five (5) days of receiving such notice. Certificates of insurance will be forwarded to you
by our Risk Management Department after the effective date of termination. If you have any questions,
please call our Insurance Administrator at: (800) 243-3839 x 5285.




Karl B.   agner
President
American Anesthesiology, Inc.




Via Fax: 512-477-5267 & Email: lJByrne@FBHH.com
Mr. Daniel H. Byrne
Fritz, Byrne, Head & Harrison, PLLC
98 San Jacinto Blvd., Suite 2000
Austin, TX 78701




                                                                                                             145
                                                                                      Filed
                                                                                      13 August 14 P5:19
                                                                                      Amalia Rodriguez-Mendoz
                                                                                      District Clerk
                                                                                      Travis District
                                                                                      D-1-GN-13-002811
                                CAUSE NO. D-1-GN-13-002811

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

                       PLAINTIFF'S FIRST AMENDED PETITION

       Plaintiff TRACY D. STRANDHAGEN ("Strandhagen") files this First Amended

Petition complaining of Defendants NOAH S. BUNKER, PAUL CARRELL, EVERETT BREW

HOUSTON, JR., W. ANDREW BUCHHOLZ, SCOTT J. LEIGHTY, JAD L. DAVIS, and

HOLLY CLAUSE, as follows:

                                   I. DISCOVERY LEVEL

       1.      Plaintiff pleads that discovery should be conducted in accordance with a Level 3

discovery control plan under TEX. R. CIV. P. 190.4.

                                         II. PARTIES

       2.     Plaintiff is an individual residing in Travis County, Texas.

       3.      Defendant Noah S. Bunker is an individual residing in Travis County and may be

served with citation at his work address 8140 North MoPac Expy, Building 3, Suite 210, Austin,

TX 78759, or wherever he may be found.




                                                1




                                                                                                     36
       4.      Defendant Paul Carrell is an individual residing in Travis County and may be

served with citation at his work address 8140 North MoPac Expy, Building 3, Suite 210, Austin,

TX 78759, or wherever he may be found.

       5.      Defendant Everett Brew Houston, Jr. is an individual residing in Travis County

and may be served with citation at his work address 8140 North MoPac Expy, Building 3, Suite

210, Austin, TX 78759, or wherever he may be found.

       6.      Defendant W. Andrew Buchholz is an individual residing in Travis County and

may be served with citation at his work address 8140 North MoPac Expy, Building 3, Suite 210,

Austin, TX 78759, or wherever he may be found.

       7.      Defendant Scott J. Leighty is an individual residing in Travis County and may be

served with citation at his work address 8140 North MoPac Expy, Building 3, Suite 210, Austin,

TX 78759, or wherever he may be found.

       8.      Defendant Jad L. Davis is an individual residing in Travis County and may be

served with citation at his work address 8140 North MoPac Expy, Building 3, Suite 210, Austin,

TX 78759, or wherever he may be found.

       9.      Holly Clause is an individual residing in Travis County and may be served with

citation at his work address 8140 North MoPac Expy, Building 3, Suite 210, Austin, TX 78759,

or wherever she may be found.

                              III. JURISDICTION AND VENUE

       10.     Subject matter jurisdiction is proper because the amount in controversy exceeds

the minimum jurisdictional limits of the Court. Personal jurisdiction over Defendants is proper

because they are residents of the State of Texas.


                                                    2




                                                                                                  37
       11.     Venue is proper in Travis County, Texas as the county ofDefendants' residences

and because all of the events or omissions giving rise to Plaintiff's claims occurred in Travis

County. TEX. CIV. PRAC. & REM. CODE §15.002.

                                 IV. BACKGROUND FACTS

       12.     In 2011, Plaintiff Strandhagen was a partner along with Defendants and other

anesthesiologists in Austin Anesthesiology Group, LLP ("AAG"), which specialized in

anesthesiology and post-operative pain management.      In or around October of 2011, AAG

entered into a transaction (the "Buyout") whereby its operations were sold to American

Anesthesiology of Texas, Inc. ("AAT").      AAT is an indirect subsidiary of Mednax, Inc.

("Mednax"), a publicly traded medical group that is a national provider of medical services,

including anesthesia services.

       13.     At the time of the Buyout, Plaintiff and other AAG-affiliated individual

physicians entered into separate employment agreements with AAT, whereby the physicians

agreed to continue to work for AAT on terms and conditions set forth therein. At the same time,

these same physicians entered into a separate agreement among themselves dated October 7,

2011 entitled "Advisory Board and Internal Operations Agreement" (the "Internal Agreement")

(Exhibit A hereto).     The Internal Agreement established an "Advisory Board" to provide

"binding advice and guidance" to the medical director appointed under that agreement.

Defendants are the current members of that Advisory Board. It also contains a section entitled

"Physician Obligations" (referred to herein as the "Termination Penalty Provisions") whereby

the physicians purportedly agreed that if their employment with AAT terminated at any time

prior to January 1, 2018 (other than (among other exceptions) a termination without cause by

ATT), the terminating physician became obligated to pay each of the other sixty-plus physicians
                                               3




                                                                                                  38
signing the Internal Agreement their pro rata share of a $500,000 1 lump sum, plus interest at

10%, purportedly as "liquidated damages."               This amount (less than $10,000 per physician) is

purportedly payable to the individual physicians severally.

         14.      In December of 2012 Plaintiff Strandhagen became embroiled in an employment

dispute with AAT2 which eventually resulted in Strandhagen reporting to Mednax management

that she was a victim of gender discrimination. Three days after this report, Mednax (acting at

all times on behalf of AAT) took an adverse employment action against Dr. Strandhagen by

ordering her to attend a class for "disruptive physicians" which would stigmatize Dr.

Strandhagen for the rest of her career. 3 Dr. Strandhagen declined to comply with this directive,

and complained to both Mednax and the EEOC that this action was unlawful and a result of

gender discrimination. She sought to mediate this dispute with Mednax/AAT as part of the

EEOC's dispute resolution program, but after initially agreeing to mediate Mednax abruptly

repudiated that agreement on July 27, 2013 and has since refused to proceed.

         15.      After a limited investigation that occurred only after prodding by Dr.

Strandhagen, Mednax ostensibly determined that Dr. Strandhagen's gender discrimination

         There are a handful of exceptions for physicians other than Plaintiff for whom the lump sum amount is
somewhat smaller.
         The dispute was precipitated by a complaint filed against Dr. Strandhagen by Dr. Harris Rose. Dr. Rose, a
surgeon who is well known for his aggressive and bullying behavior, complained to Mednax that Dr. Strandhagen
behaved inappropriately by failing to capitulate to his demand that she anesthetize a patient in violation of NPO
guidelines. When Dr. Strandhagen declined to anesthetize the patient, the Dr. Rose called her partners, seeking to
pressure her to reverse her clinically appropriate decision. One of these partners, a male, called Dr. Strandhagen and
attempted to convince her (unsuccessfully) that she should proceed with the anesthesia. The Advisory Board
ultimately concluded that Dr. Strandhagen's actions indeed adhered to NPO guidelines.

         The attempt to brand Dr. Strandhagen's conduct as that of a "disruptive physician" is unfounded.
American Medical Association defmes disruptive behavior as personal conduct, whether verbal or physical, that
negatively affects or that potentially may negatively affect patient care. However, criticism that is offered in good
faith with the aim of improving patient care should not be construed as disruptive behavior. AMA Opinion 9.045
(emphasis added).


                                                          4




                                                                                                                         39
complaint was without merit and refused to reverse its directive that Dr. Strandhagen attend the

stigmatizing "disruptive physician" class. As was intended by Mednax, these decisions damaged

Dr. Strandhagen's reputation and undermined her authority and credibility with fellow

physicians and medical staff, resulting in increasingly intolerable working conditions and

impairing her ability to make clinically appropriate decisions for patients under her care,

eventually leading to her constructive termination without cause on July 22, 2103. See Exhibit

B (Byrne letter).

        16.    Dr. Strandhagen has learned that despite the fact that she was terminated by

Mednax without cause, and despite the fact that the Termination Penalty Provisions are

unenforceable as a penalty under Texas law, Defendants and perhaps others are seeking to

pursue her for collection of their shares of the $500,000 termination penalty described in the

Termination Penalty Provisions. A justiciable controversy thus exists between Plaintiff and

Defendants.

                                   V. CAUSE OF ACTION

A.     DECLARATORY JUDGMENT

       17.     A substantial and justiciable controversy exists about the rights and the status of

the parties under the terms of the Termination Penalty Provisions. Accordingly, Dr. Strandhagen

seeks a declaratory judgment that she was terminated without cause and therefore the

Termination Penalty Provisions are inapplicable to her. Additionally, Dr. Strandhagen seeks a

declaratory judgment that the liquidated damages provision in the Termination Penalty

Provisions is an invalid and unenforceable penalty as a matter of law because (1) it purports to

render her liable to Defendants and the other physicians for damages for her alleged breach of a

contract (her employment agreement with AAT) to which they are not parties or third party
                                                5




                                                                                                     40
beneficiaries, (2) the harm caused by a breach of the employment agreement as anticipated at the

time it was entered into was not incapable or difficult of estimation, and (3) the amount required

to be paid under the liquidated damages clause is not a reasonable forecast of just compensation,

thereby rendering the Termination Penalty Provisions an unenforceable penalty under Texas law.

B.      ATTORNEYS'FEES

       18.     Plaintiff has retained the services of Fritz, Byrne, Head & Harrison, PLLC to

assist her in pursuing a declaratory judgment in this matter. Accordingly, Plaintiff seeks to

recover her reasonable attorneys' fees incurred in this matter pursuant to TEX. CIV. PRAC. &

REM. CODE§ 37.009.

                                             VI. PRAYER

       WHEREFORE, Plaintiff requests that Defendants be cited to appear and answer herein,

and· that on final hearing, the Court issue the declaratory relief as requested above, award

Plaintiff reasonable attorneys' fees, and such other and further relief, at law or in equity, to

which Plaintiff may show herself to be justly entitled.

                                              Respectfully submitted,

                                              FRITZ, BYRNE, HEAD & HARRISON, PLLC
                                              98 San Jacinto Boulevard, Suite 2000
                                              Austin, Texas 78701-4286
                                              Telephone: (512) 476-2020
                                              Telecopy: (512) 477-5267



                                                     Daniel H. Byrne
                                                                         --------
                                                     State Bar No. 03565600
                                                     Lessie G. Fitzpatrick
                                                     State Bar No. 24012630

                                              ATTORNEYS FOR PLAINTIFF


                                                 6




                                                                                                     41
                                                                                       Filed
                                                                                       13 October 23 A9: 12
                                                                                       Amalia Rodriguez-Mendoza
                                                                                       District Clerk
                                                                                       Travis District
                                                                                       D-1-GN-13-002811
                                CAUSE NO. D-1-GN-13-002811


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

               DEFENDANTS' AMENDED PLEA TO THE JURISDICTION
                         AND PLEA IN ABATEMENT

TO THE HONORABLE JUDGE OF SAID COURT:

       COME NOW, NOAH S. BUNKER, PAUL CARRELL, EVERETT BREW HOUSTON,

JR., W. ANDREW BUCHHOLZ, SCOTT J. HEIGHTY, JAD L. DAVIS and HOLLY

CLAUSE, Defendants in the above entitled and numbered cause, and file their Amended Plea to

the Jurisdiction and in the alternative, Plea in Abatement, and would show unto the Court as

follows:

                                          I.   Background

       1.      On August 14, 2013 Plaintiff filed her Original Petition and her First Amended

Petition. Plaintiff states in her First Amended Petition that she is a physician and former partner

of Austin Anesthesiology Group, LLP. In or around October 20 11 American Anesthesiology of

Texas, Inc. purchased Austin Anesthesiology Group, LLP and Plaintiff became employed by

American Anesthesiology of Texas, Inc.

       2.      At the time of the purchase, Plaintiff also entered into a contractual agreement

with the other partners of Austin Anesthesiology Group, LLP, entitled "Advisory Board and



                                                                                                       77
Internal Operations Agreement." The contract contains a provision, which obligates a partner

that terminates his/her employment without cause to pay the non-terminated partners of Austin

Anesthesiology Group, LLP damages.

       3.     Plaintiff has filed a charge of discrimination with the The Texas Workforce

Commission Civil Rights Division and the EEOC naming American Anesthesiology of Texas,

Inc. and Mednax, Inc. as her employers, asserting she had been discriminated and retaliated

against because of her gender, and that these actions resulted in her constructive termination.

See Exhibits A and B.

       4.     Plaintiff asserts in her Petition that she has "learned ..... Defendants and perhaps

others are seeking to pursue her for collection ... " under the Advisory Board and Internal

Operations Agreement. Plaintiff seeks a declaratory judgment that she was terminated without

cause and therefore the Termination Penalty Provisions of the "Advisory Board and Internal

Operations Agreement" are not applicable to her.

       5.     Plaintiff also seeks a declaratory judgment that the liquidated damages provision

in the Termination Penalty Provisions is an invalid and unenforceable penalty as a matter of law

because ( 1) it purports to render her liable to Defendants and the other physicians for damages

for her alleged breach of a contract (her employment agreement with AAT) to which they are not

parties or third party beneficiaries, (2) the harm caused by a breach of the employment

agreement as anticipated at the time it was entered into was not incapable or difficult of

estimation, and (3) the amount required to be paid under the liquidated damages clause is not a

reasonable forecast of just compensation rendering the Termination Penalty Provisions an

unenforceable penalty under Texas law.




                DEFENDANTS' AMENDED PLEA TO THE JURISDICTION AND PLEA IN ABATEMENT
                                             Page 2 of8



                                                                                                     78
                                         II.     Evidence

       Defendants rely on the following evidence is support of this Amended Plea to the

    Jurisdiction and the same is incorporated herein for all purposes:

       Exhibit A              Charge of Discrimination (filed on May 2, 2013);
       Exhibit B              July 22, 2013 correspondence from Daniel H. Byrne (attorney for
                              Plaintiff);
       Exhibit C              Amended Charge of Discrimination (filed on September 26, 2013)
                              (portions redacted);
       Exhibit D              October 14, 2013 correspondence from Daniel H. Byrne (attorney
                              for Plaintiff).

                                 III. Plaintiff's Claims are Unripe

       The Court lacks jurisdiction because Plaintiffs claims are not ripe. Plaintiff admits that

she is seeking interpretation of a provision in a contract based upon learning she may be pursued

in a breach of contract claim. It is undisputed Plaintiff has not been sued for breach of contract.

Nor has any demand been made by the Defendants or by any of the former partners of Austin

Anesthesiology Group, LLP under the Advisory Board and Internal Operations Agreement.

       A declaratory judgment is not available to resolve issues that are not yet mature and are

subject to change. City ofGarland v. Louton, 691 S.W.2d 603, 605 (Tex.l985).            The UDJA

does not permit litigants to "fish in judicial ponds for legal advice." California Prods. v. Puretex

Lemon Juice, Inc., 334 S. W.2d 780, 781 (Tex.l960).         Although a contract may be construed

either before or after there has been a breach, the UDJA 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 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). Subject matter jurisdiction requires there to be a live controversy

between the parties. State Bar ofTexas v. Gomez, 891 S.W.2 243, 245, (Tex. 1994). There is


                DEFENDANTS' AMENDED PLEA TO THE JURISDICTION AND PLEA IN ABATEMENT
                                             Page 3 of 8




                                                                                                       79
no showing that litigation is imminent unless contractual uncertainties are resolved. The issues

that are the subject of Plaintiffs request for declaratory judgment have not matured.

                       IV. Court Lacks Jurisdiction Over Employment Claims

Plaintiff has filed a Charge of Discrimination with the Texas Texas Workforce Commission

Civil Rights Division under both the Texas Commission on Human Rights Act ("TCHRA") Tex.

Labor Code, Ch. 21 and Title VII of the Civil Rights Act of 1964. 1 In her Charge, she named

Austin Anesthesiology Group, PLLC and later amended to substitute American Anesthesiology

of Texas, Inc. ("AAT") and Mednax, Inc. as her employers, and asserted that she had been

discriminated and retaliated against because of her gender, and that these actions resulted in her

constructive termination. See Exhibits A and C.                 Plaintiffs claims in this suit stem from the

employment-related claims she has brought in another forum, the Texas Workforce Commission

Civil Rights Division. This Court does not have jurisdiction to hear Plaintiffs employment

related claims while they are pending before the Texas Workforce Commission Civil Rights

Division.    Exhaustion of administrative remedies under Title VII and the TCHRA is a

jurisdictional prerequisite to filing suit.      Barnes v. Levitt. 118 F.3d 404, 408 (5 1h Cir. [Tex.J

1997) cert. denied, 523 U.S. 1136 (1998); Schroeder v. Texas Iron Works. Inc., 813 S.W.2d 483,

488 (Tex. 1991 ).     The UDJA cannot be used as a backdoor to district court to circumvent the

procedures and remedies provided by the TCHRA. See Texas Dept. of Public Safety v. Moore,

985 S.W.2d 149, 156 (Tex. App.- Austin 1998, no pet.).

        For the reasons set forth above, Plaintiffs lawsuit is subject to dismissal because this

Court lacks jurisdiction.




1
 The Equal Employment Opportunity Commission ("EEOC") has certified the Texas Workforce Commission Civil
Rights Division as an agency whose finings and resolutions it will usually accept. 29 CFR §§ 1601.75, 1601.80)

                  DEFENDANTS' AMENDED PLEA TO THE JURISDICTION AND PLEA IN ABATEMENT
                                                   Page 4 of8




                                                                                                                 80
                             V.      Alternative Plea in Abatement

       In the alternative, this case should be abated because Plaintiff has failed to join as

necessary parties those whose interests would be affected by the declarations sought. The UDJA

provides that when declaratory relief is sought, all persons who have or claim any interest that

would be affected by the declaration must be made parties. Tex. Civ. Prac. & Rem. Code

§37.006.

       The threshold issue in Plaintiff's declaratory judgment action is whether she was

terminated without cause by AAT.      In the Advisory Board and Internal Operations Agreement,

which Plaintiff requests the Court to interpret in the present case, "the physicians" purportedly

agreed that if their employment with AAT terminated at any time prior to January I, 2018, other

than a termination without cause by AAT, the terminating physician became obligated to pay

each of the other sixty-plus physicians signing the Internal Agreement a sum of money. See

Plaintiff's First Amended Petition, pages 3-4. Plaintiff has admitted sixty-plus physicians who

are parties to the agreement potentially have an interest and would be affected by the declaration

made the basis of this suit, yet she has sued only the seven (7) members of the advisory board.

As the contractual rights of all sixty-plus physicians would be affected by the declaratory

judgment sought, they must be joined as parties. April Sound Management Corp v Concerned

Property Owners for April Sound Inc., a Texas Non-profit Corporation and Developer for April

Sound Subdivision, 153 S.W.3d 519 (2004).

       Plaintiff alleges that AAT and Mednax, Inc., as her employers, discriminated and

retaliated against because of her gender, and that these actions resulted in her constructive

termination. See Exhibits A and C.    She is asking the Court to declare that she was terminated

without cause by her employers, but the entities she has identified as her employers and whose


                DEFENDANTS' AMENDED PLEA TO THE JURISDICTION AND PLEA IN ABATEMENT
                                             Page5of8




                                                                                                     81
conduct she contends lead to her termination are not parties to the suit. Further, Plaintiff does

not assert the Defendants were in any way involved in her termination.

        Plaintiffs allegations in her Charge of Discrimination are the same as those asserted in

this suit. Plaintiff claims discriminatory treatment occurred in December 2012 when Dr. Harris

Rose lodged a complaint against her. See Exhibit C, page 6. Plaintiff relies on the same facts in

the present case for her assertion that in December 2012 she became embroiled in a dispute with

AAT. See Plaintiffs First Amended Petition, page 4. On October 14, 2013, attorney Daniel H.

Byrne, acting on behalf of Plaintiff, notified attorney Hunter T. McLean, attorney for Mednax,

Inc. that it is Plaintiffs position that she was not "terminated for cause." See Exhibit D. Thus,

the Plaintiff has conceded in her Charge of Discrimination that AA T and Mednax, Inc. have an

interest "that would be affected by the declaration" of whether she was terminated "with cause"

or "without cause" and neither of these entities are parties to this action.

       A Plea in Abatement in a declaratory judgment action is appropriate if necessary parties

are absent. Dahl v. Hartman, 14 S.W.3d 434, 435-36 (Tex. App-Houston [14 1h Dist.] 2000, pet

denied).   In Dahl, the trial court abated a declaratory judgment action and ordered the Plaintiff

to serve additional parties. When the Plaintiff failed to do so, the trial court dismissed the

Plaintiffs case.

       Texas Rule of Civil Procedure 39(a) also requires joinder.              The rule provides that a

person subject to service shall be joined as a party if:

       (I) in his absence complete relief cannot be accorded among those already parties; or

         (2) he claims 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.


                   DEFENDANTS' AMENDED PLEA TO THE JURISDICTION AND PLEA IN ABATEMENT
                                                Page 6 of8




                                                                                                          82
       If Defendant's Plea to the Jurisdiction is not granted, this case should be abated and

Plaintiff ordered to serve Mednax, Inc., American Anesthesiology of Texas, Inc. and all parties

to the Advisory Board and Internal Operations Agreement.

                                                       VI.

        WHEREFORE, PREMISES CONSIDERED, Defendants NOAH S. BUNKER, PAUL

CARRELL, EVERETT BREW HOUSTON, JR., W. ANDREW BUCHHOLZ, SCOTT J.

HEIGHTY, lAD L. DAVIS and HOLLY CLAUSE respectfully pray as follows:

       1.     That the Court grant Defendants' Amended Plea to the Jurisdiction and the Court

              dismiss any and all of Plaintiffs claims; or

       2.     In the alternative, the Court grant Defendants' Plea in Abatement and order

              Plaintiff to serve Mednax, Inc., American Anesthesiology of Texas, Inc. and all

              parties to the Advisory Board and Internal Operations Agreement; and

       3.     Defendants be discharged with their costs incurred herein; and

       4.     For such other and further relief to which Defendants may be justly entitled.

                                     Respectfully submitted,

                                     CARLS, MCDONALD & DALRYMPLE, L.L.P.
                                     Barton Oaks Plaza 1
                                     90 I South Mopac Expressway
                                     Suite 280
                                     Austin. Texas 78746
                                     (512) 4 72-4845
                                                                  -1
                                     (512) 472-8403 (fax)        //
                                                  ,I   !
                                                                         I       i\             IJ  !I
                                                 )'; I I,/~/{· <,-JJ 7../1/;1,L .11, /(;
                                     By :__1_\c..:~....:.{_,;L._I'ff---'(,._'l_f_/_v_v_;_!}_i-~_.{}'_~_·- ' - - -
                                            Kelly A. McDonald
                                            State Bar No. 13551275
                                            Carla Garcia Connolly
                                            State Bar No. 07631100

                                     ATTORNEYS FOR DEFENDANTS

               DEFENDANTS' AMENDED PLEA TO THE JURISDICTION AND I'LioA IN ABATEMENT
                                            !'age 7 of 8




                                                                                                                    83
                                    NOAH S. BUNKER, PAUL CARRELL, EVERETT
                                    BREW HOUSTON, JR., W. ANDREW BUCHHOLZ,
                                    SCOTT I. HEIGHTY, JAD L. DAVIS and HOLLY
                                    CLAUSE

                               CERTIFICATE OF SERVICE

        I certifY that in accordance with the Texas Rules of Civil Procedure, on the 23rd day of
October, 2013 a true and correct copy ofthe foregoing has been sent by hand delivery, certified
mail, return receipt requested, electronic means or facsimile to:

Daniel H. Byrne
Lessie G. Fitzpatrick
FRITZ, BYRNE, HEAD & HARRISON, PLLC
98 San Jacinto Boulevard, Suite 2000
Austin, TX 78701-4286
VIA FAX




                                                Kelly A~    cDonald




               DEFENDANTS' AMENDED PLEA TO THE JURISDICTION AND PLEA IN ABATEMENT
                                            Page 8 of 8




                                                                                                   84
         I <1111 l"r;H:y Strandhagcu. ;md         Ill~   addt'l.:ss is 600 l{idcrs l rail. 1\ustit1.     T~\as   7X7J.3

(512.750.X2~6).       I \\ould like      111    lile a   cll<lrg.~..·   nl' g.cmkr disnilllination ami rcl<lliation

against Austin t\nesth1.:Silllog.y (in.Hip. P.l..l..l'./ivh:dnax. Inc.. \\hid1 is lot.:ak·d at XI..J.O

North i\.loP<lt.: J: ....;pn:ssway. Huilding. 3. Suite             1~0.    Austin. !"l.':...;as 7X759 (512.3..JJ.22lJ2).

Austin   An~.:sthl.'siol,lg.y   (iroup   ("t\;\( ;··)     has    1n     cr I00 cmployces. <IIHI rYh:dna\. "hid1 I

bdicvc is its parent organi1.ation. has on:r 500 cmplnyccs natioll\vidc. I belic,·e that I am

hcing uisc.:riminatcd against on the bnsis 1ll" gcndcr anu retaliated against !i.1r speaking out

ag.aimt discrimination.

         I began '' orking as an anesthesiologist lor /\AG ·s pn.:dcccsSlll' group in 2000 and

have a good work n:cord. I have                b~..·cn nominated          by tht: Austin Association of Opcr;lling

Room Nurses tor Physidun of the Year and have a work record that demonstrates my

l:lHllmitm~:nt   to our patients nnd sound patil:lll cure.

(iender Discrimima ion

         I have been subjected ln " series of discriminatory conduct thnt affects the terms.

conditions. and privikgcs nf my employment                              b~..·cnusc   I am fl:malc (and as l explain

bdllW. also because I ha\·c raised issues                 or gend~.:r discrimination \Vith          my l:lllploycr). I

have been singled out fur discriminatory treatment anu disciplined l'nr condu~..·t that would

not have led to discipline or advcrsc employment                              n~.:tion   against a mHie employee or

physician.       When I have stood my ground or advoc;ttcd for bctt...·r puticnt care, I have

been told that I am being toll tl.m;l..'flll. iltn "making waves ... need to ··fly helmv the raum."


                                                             -I-


                                                                                                         Exhibit A - 000002
                                                                                                                              85
and thr like.    N~,.·,.:dh..·ss   to say. '' h~.·n a mall:               ph~ si~o.:i;lll   stands up 1\H· ''hat    h~.·   hdir' es in

lor is 1..:\·en ahruptur rude).          th~o:rL'   is   110   dist:iplinc      rortll~.:nming_ <liHI.   he is judged as         Sl111pl~




told hy my t:mployt:r tlwt I am a                   ··disruptiv~.·       physic.:ian" ami ;un heing required tll travd to

( 'hic.:ago ltlr tlm.:e days       or t:llllllSL'Iing..        AI first. I \\ilS told that I \\ uuld be            n.:quir~.·d   to pay

1\lr this lr;lining. and now it is uneh.:ar who ''ill he pJying for my time and                                             cxren~~.·s.


!'his is a very signilit:<l!ll adn:rse employment <H.:tion. as hcing I;Jht.:led " "disrnptiw

physit:ian" can have n rrotl.HuHI negJtivc cftcct on a dnctor"s career. Furthermore. the

tam "disrurtivc physicinn" is almost a term-of-art in the medical prol't.:ssiun. with very

dear guidelines on \vhat conduct t:nn                          l~.:ad   tn the ·'diagnosis" (so to spcnk) of \\ho is a

disruptive physician.          I do rwt meet these guidelines. hut my empluyc.:r is trying tu brand

me as such and requiring this training. so as to jcopardi1.c my career and cmplo}lliCnt

opportunities. all because of my gender. Specitically. to my knowkugc. only one other

physician at our group hns been sent to such counseling nnd she. too. wns a female. \Vho

was denigrated hy criteria or expectations that \Vould not have k·d to any discipline or

adverse action being takl.'n against a male physit:ian or employee.

Re!ciliat ion

        l bclic\'t! that I hnvc also hecn singled out for such trl·utmcnl because I complained

ahout gcmkr discrimination and stereo!) ping                                  w my      employer.        Ml)St   n:ccntly. I sent a

\Hillen complaint       w my employer in .January 2013, and                                   w11s then told that l was being

disruptive and was ordered to take this counseling fur being a                                             disruptiv~      physician.


                                                                        -1-


                                                                                                                      Exhibit A - 000003
                                                                                                                                            86
                                                                                               -
                                                                                               G.
                                                                                                     .




\\Ollll:n cmploy~~s               \\tlh regard    to mat~:rnity     kavc and other tn:atmcnt. Nnw. alkr my

most    rc~:cnt       l'lllllplaint. I am being tnld that till'         <llh   crsc   l'lllplu~ 1111.:111   ;tction hL·ing heaped

upon    1111.!   is !'or    C\   cnts that   Ol'l'lliTcd ha~:k   in 200J and 200·L "hid1 I tlll)ught had                       hcL'll




             I bd ievc that            111)' Clll plnycr   has   Ia ken.       and is      l'tlll( illll i ng.   to take.   au n:rsc


dis~o:riminillllr)'         treatment to my supervisors           ~111<.!   tn nur !Iuman Rcsoun;cs Ocpnrtnwnt.

would likc this              dwrg~::    l:n)ss-lilcu wirh the Texas Workforce Commission-Civil Rights

Division. pkast:.

             I am rcpn:scnll.·d by Philip Durst, (~f' the Austill lmv _jirlll t~l Deats Durst Ou·en &

Lel-y. 1'./.. LC. 120-1 San Amonio. Suite 203. Austin. Te!XCis 787()/ (512--17-1-6200: j/2-

-17-1-7896 (jax)) and ask that he be provided copies of any intormation regarding my

~.:hargc:.       I   ~1sk   that this swtemcnt. which is           int~nded to          be a general <kscription of the

l'Vt:nts nnd cannot possibly cont•1in all derails about my yl!ars of employment with my

employer be t.:onsidcred part nf my (harge.




                                                             DATED:




                                                                 -3-


                                                                                                                     Exhibit A- 000004
                                                                                                                                         87
AUTHORITIES
                                                                                                            Page 1




                AMERICAN NATIONAL INSURANCE COMPANY AND AMERICAN NA-
               TIONAL PROPERTY AND CASUALTY COMPANY, Appellants v. FRANK E.
              CANNON II, CLIFTON MARK GRAYLESS, DEBORAH GLENN, AND ROBERT
                WESTOVER, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMI-
                                  LARLY SITUATED, Appellees

                                                NO. 09-01-511 CV

                     COURT OF APPEALS OF TEXAS, NINTH DISTRICT, BEAUMONT

                                   86 S.W.3d 801; 2002 Tex. App. LEXIS 6933

                                           May 16, 2002, Submitted
                                     September 26, 2002, Opinion Delivered

NOTICE:         [**1] PUBLISH                             The four named plaintiffs, Frank E. Cannon II, Clifton
                                                          Mark Grayless, Deborah Glenn, and Robert Westover
PRIOR HISTORY:         On Appeal from the 221st Dis-      ("plaintiffs"), sold ANPAC and ANICO insurance pur-
trict Court Montgomery County, Texas. Trial Cause No.     suant to agent agreements.
00-01-00371-CV.
                                                              THE AGREEMENTS
DISPOSITION:        REVERSED AND REMANDED.
                                                          General Agent Agreements
                                                               The agreements provide, in part, that plaintiffs will
COUNSEL: John L. Carter, Karen Jewell, Catherine B.       not solicit ANPAC or ANICO policyholders in a specific
Smith - Vinson & Elkins - Houston. Janet Rushing, David   territory for a specified time period after termination of
LeBlanc - Greer, Herz & Adams - Galveston. Greg Abbott    the agreements. The proscribed time period under the
- Bracewell & Patterson - Austin. Warren W. Harris,       ANPAC contract is one year; the ANICO time period is
Richard C. Kroger - Bracewell & Patterson - Houston.      two years. Under the ANPAC contract, "territory" is de-
Mark Ramsey, Adrian V. Villacorta - Ramsey & Murray -     fined as an area "within a twenty-five (25) mile radius of
Houston, for appellants.                                  the Agent's office. This territory may be enlarged upon
                                                          written request [**2] from the Agent and written ap-
Paul Dobrowski, David P. Andis - Dobrowski & Associ-      proval from the Company." The territory covered by the
ates - Houston. Stephen McClain - McClain & Harrell -     ANICO agreement is "any territory in which [the Agent
Conroe, for appellees.                                    is] properly licensed."

JUDGES: Before Walker, C.J., Burgess and Gaultney,        Agent Advance Agreements
J.J.
                                                               Three of the four plaintiffs also signed Agent Ad-
                                                          vance Agreements with ANPAC. Although ANPAC
OPINION BY: DAVID B. GAULTNEY
                                                          agents are paid by commission on the policies they actu-
                                                          ally sell, ANPAC can, under the contract, make payments
OPINION
                                                          of compensation to the agents in advance of sales. The
      [*804] This interlocutory appeal is from a class    advance payments are to be offset against the agents'
certification order. Appellant American National Insur-   earned commissions. The ANICO agreements contain
ance Company ("ANICO") is a life insurance company.       similar provisions.
Appellant American National Property and Casualty
                                                              THE LAWSUIT
[*805] Company ("ANPAC") is a property and casualty
insurance company and a subsidiary of appellant ANICO.
                                                                                                                       Page 2
                                    86 S.W.3d 801, *; 2002 Tex. App. LEXIS 6933, **


    Plaintiffs assert they were defrauded. They claim           297, 305, 44 Tex. Sup. Ct. J. 948 (Tex. 2001) (quoting
they were each told they would "own their own business"         Texas Workers' Compensation Comm'n v. Garcia, 893
and, if terminated, would not have to repay any money           S.W.2d 504, 517-18 (Tex. 1995)). Ripeness focuses on
previously advanced to them. Plaintiffs also claim they         when the action may be brought; advisory opinions or
were wrongfully terminated. Their pleadings allege indi-        adjudications based on contingent or hypothetical facts
vidual claims of breach of contract, fraud, and negligent       are precluded by dismissal of claims that are not ripe. See
misrepresentation, as well as violations of the Deceptive       Gibson, 22 S.W.3d at 851-852. If the plaintiff lacks indi-
Trade Practices Act and the Insurance Code. Plaintiffs          vidual standing or the claim is not ripe, the court should
request actual and punitive damages for themselves and          dismiss the suit for want of jurisdiction. See M.D. An-
actual damages for a class of agents similarly situated.        derson, 52 S.W.3d at 711; [**5] see also Gibson, 22
                                                                S.W.3d at 853.
     The trial court's class certification order named
plaintiffs [**3] to represent the following persons in a              ANPAC's standing and ripeness arguments, as they
class action:                                                   pertain to the non-compete provisions, are as follows: (1)
                                                                if the time frame on the named plaintiff's non-compete
    [Class A] All persons in Texas who, from January 1,
                                                                provision is operative at the beginning of litigation but
1993[,] to the present, executed an independent contractor
                                                                expires during the course of the suit, the party has no
agreement with ANPAC and/or ANICO containing a
                                                                standing; (2) if, on the other hand, the named plaintiff is
non-competition provision; and
                                                                still an agent of the company and the non-compete clause
    [Class B] All persons who, from January 1, 1993[,] to       has not been triggered, the party has no standing and the
the present, executed any advance agreement with                claim is not ripe. Generally, a personal stake must exist at
ANPAC and/or ANICO.                                             the beginning of litigation and continue throughout the
                                                                lawsuit's existence. See Southern Pac. Terminal Co. v.
     The trial court certified the following two issues for     Interstate Commerce Comm'n, 219 U.S. 498, 514-16, 31
class treatment:
                                                                S. Ct. 279, 55 L. Ed. 310 (1911); see also United States
       1. [Class A] Declaratory judgment, wherein Plaintiffs    Parole Comm'n v. Geraghty, 445 U.S. 388, 394, 398, 404,
. . . request this Court to declare that the covenants not to   100 S. Ct. 1202, 63 L. Ed. 2d 479 (1980). An exception to
compete contained in the ANICO and ANPAC agree-                 the general rule may apply when a claim on the merits is
ments are not "ancillary to or part of an otherwise en-         capable of repetition, yet evades review. Id. 445 U.S. at
forceable agreement at the time the agreement [was]             398; see also Sosna v. Iowa, 419 U.S. 393, 402, 95 S. Ct.
made" and that they do not otherwise comply with section        553, 42 L. Ed. 2d 532 (1975). In this case we need not
15.50 et. seq. of the Texas Business and Commerce Code;         consider [**6] the applicability of the exception. The
and                                                             fact that the non-compete period here expires during the
                                                                litigation does not mean the plaintiff has no personal stake
      2. [Class B] Declaratory judgment, wherein Plaintiffs     and lacks standing; if the plaintiff suffers injury as a result
. . . request this Court to declare that any balance owing      of the provision, the plaintiff would continue to have an
ANICO and/or ANPAC pursuant to the advance agree-               interest in a determination of the invalidity of the clause.
ments does not have to be paid upon termination of the          Furthermore, the employed plaintiff has a justiciable
relationship.                                                   interest in determining whether, upon leaving the com-
     The class certification order provides that individual     pany, the plaintiff would be required to comply with the
issues will be tried to a jury [*806] after the trial court     non-compete provision, particularly when, as here,
rules [**4] on the two issues certified for class treat-        counterclaims to enforce the non-compete clauses have
ment.                                                           been filed.
    JURISDICTION                                                     Similarly, ANPAC points out that if class represent-
                                                                atives are currently agents, whether they will have to pay
     We first consider ANPAC's contention that the trial        money after termination of their relationship with ANICO
court lacked jurisdiction because the four class repre-         is unknown and cannot be ascertained until termination
sentatives lack standing or their claims are not ripe. See      occurs. But in a declaratory judgment action, a party to a
The M.D. Anderson Cancer Ctr. v. Novak, 52 S.W.3d 704,          contract may file suit to declare rights under a contract if
710, 44 Tex. Sup. Ct. J. 905-711 (Tex. 2001) (standing);        the circumstances show the presence of "'ripening seeds
see also Waco Indep. Sch. Dist. v. Gibson, 22 S.W.3d            of controversy.'" See City of Waco v. Texas Natural
849, 851, 43 Tex. Sup. Ct. J. 731 (Tex. 2000) (ripeness).       Resource Conservation Comm'n, 2002 Tex. App. LEXIS
To establish standing, a plaintiff must show "a distinct        3231, No. 03-01-00217- CV, 2002 WL 924192, at *4
injury to the plaintiff and 'a real controversy between the     (Tex. App.--Austin, May 9, 2002, no pet. h.) [**7]
parties, which . . . will be actually determined by the         (quoting Texas Dep't of Banking v. Mount Olivet Ceme-
judicial declaration sought.'" Brown v. Todd, 53 S.W.3d
                                                                                                                      Page 3
                                    86 S.W.3d 801, *; 2002 Tex. App. LEXIS 6933, **


tery Ass'n, 27 S.W.3d 276, 282 (Tex. App.--Austin 2000,         party's ability to present viable claims or defenses.
pet. denied). Here, plaintiffs assert that contracts and        Bernal, 22 S.W.3d at 434, 437.
related oral representations warrant a declaration by the
                                                                    CLASS A
trial court that no money need be repaid under the [*807]
advance agreements once the contract is terminated. In               For Class A claims, plaintiffs request a declaration
contrast, appellants maintain the monies advanced under         that the non-compete covenants were not ancillary to or
these contracts must be repaid. Appellants have sought to       part of an otherwise enforceable agreement at the time the
enforce both the advance agreements and non-compete             agreements were made and that the covenants do not
provisions by filing counterclaims against the named            otherwise comply with section 15.50, et. seq. of the Texas
plaintiffs herein and by making demand upon or filing suit      Business & Commerce Code. Both the ANICO and
against other agents in the State. We conclude the issues       ANPAC contracts contain similar non-compete clauses,
are ripe and the plaintiffs have standing. ANPAC's issue        the main differences being the scope of the geographical
one is overruled.                                               and time restrictions. Section 15.50 provides that a
                                                                non-compete covenant is enforceable if the covenant:
    STANDARD OF REVIEW
                                                                    . is ancillary to or part of an otherwise enforceable
     The appellate review standard for a class certification
                                                                agreement;
order is abuse of discretion. Southwestern Ref. Co. v.
Bernal, 22 S.W.3d 425, 439, 43 Tex. Sup. Ct. J. 706 (Tex.           . is made at the time the other agreement is made;
2000). The trial court abuses its discretion if it acts
                                                                    . contains reasonable limitations [**10] as to time;
without reference to any guiding principles or acts arbi-
trarily or unreasonably. See Downer v. Aquamarine                   . contains reasonable limitations as to geographical
Operators, Inc., 701 S.W.2d 238, 242 (Tex. 1985). A             area;
failure by a trial court to [**8] analyze or apply the law
correctly is an abuse of discretion. McDaniel v. Yar-                . contains reasonable limitations as to scope of activ-
brough, 898 S.W.2d 251, 253, 38 Tex. Sup. Ct. J. 337            ity to be restrained; and,
(Tex. 1995).                                                          [*808] . imposes no more restraint than is neces-
                                                                sary to protect the goodwill or other business interest of
To obtain class certification, the proponent of the class       the promisee.
must satisfy all four criteria in Rule 42(a) and at least one
of the conditions in Rule 42(b). See TEX. R. CIV. P. 42;            See TEX. BUS. & COM. CODE ANN. § 15.50(a)
see also Bernal, 22 S.W.3d at 433. The order here relies        (Vernon 2002).
on three separate Rule 42(b) provisions.                             The legal conclusion as to whether a particular geo-
    RULE 42(b)(4)                                               graphical restraint is reasonable would include consider-
                                                                ation of the class member's market territory and individual
     We first consider the trial court's certification of the   circumstances. Agents for ANPAC and ANICO are lo-
class under Rule 42(b)(4). A class action satisfies (b)(4) if   cated throughout Texas. Under the ANPAC agreement the
two requirements are met: if questions of law or fact           geographical restriction is a twenty-five mile radius of the
common to the members of the class predominate over             agent's office unless enlarged by agreement. Under the
any questions affecting only individual members; and if         ANICO agreement the non-compete provision covers the
the class action is superior to other available methods for     area in which the agent is licensed. What the restricted
the fair and efficient adjudication of the controversy. See     geographical territory actually is for each individual
TEX. R. CIV. P. 42(b)(4). The test for predominance is not      agent, whether the territory has been enlarged, whether
whether common issues outnumber uncommon issues,                the twenty-five mile zone described in the ANPAC con-
but rather whether "common or individual issues will be         tract corresponds to an agent's territory, and whether or
the object of most of the efforts of the litigants and the      not the geographical limitations in both contracts are
court." Bernal, 22 S.W.3d at 434. Predominance is de-           reasonable in view of the relevant market factors will
termined by identifying the substantive issues that [**9]       require [**11] individual determinations. If the trial
are dispositive of the litigation, assessing which issues       court does find any of the non-compete clauses unen-
will predominate, and determining whether these pre-            forceable because of unreasonable limitations -- for ex-
dominating issues are common to the class. See Bernal,          ample, a geographical restriction covering the entire li-
22 S.W.3d at 434. The (b)(4) requirement of predomi-            cense area -- the trial court is required by statute to reform
nance precludes class action litigation where the sheer         each covenant to the extent necessary to make it reason-
complexity and diversity of the individual issues would         able. See TEX. BUS. & COM. CODE ANN. § 15.51(c)
overwhelm or confuse a jury or severely compromise a            (Vernon 2002). Section 15.51(c) provides in part, that if
                                                                the covenant not to compete is "ancillary to or part of an
                                                                                                                    Page 4
                                   86 S.W.3d 801, *; 2002 Tex. App. LEXIS 6933, **


otherwise enforceable agreement but contains limitations       the advance agreements. As worded, the scope of the issue
as to time, geographical area, or scope of activity to be      necessarily encompasses any representations referenced
restrained that are not reasonable . . . the court shall re-   in the plaintiffs' pleadings. Plaintiffs pleaded oral modi-
form the covenant to the extent necessary to cause the         fications [**14] of the written contracts, misrepresenta-
limitations contained in the covenant . . . to be reasona-     tion, and fraud -- all issues that may turn on individual
ble[.]" Id.; see generally B.J. Software Sys., Inc. v.         circumstances. Although plaintiffs' letter brief to the trial
Osina, 827 S.W.2d 543, 546 (Tex. App.--Houston [1st.           court indicates plaintiffs do not rely on any oral repre-
Dist.] 1992, no pet.). In reforming covenants found to be      sentations regarding the written advance agreements, their
unreasonable, the court should take into account indi-         pleadings, both before and after the certification order,
vidual circumstances. See Evan's World Travel, Inc. v.         state otherwise. The issues, as broadly worded, include
Adams, 978 S.W.2d 225, 233- 34 (Tex. App.--Texarkana           the claims made in plaintiffs' pleadings. What each class
1998, no pet.) (geographical restriction [**12] re-            member in this case was told regarding monies owed
formed). Fact specific individual determinations would be      under the advance agreements, along with any reliance on
unavoidable here. See generally Dairyland County Mut.          those representations, would require individual determi-
Ins. Co. of Texas v. Casburg, 63 S.W.3d 590, 592 (Tex.         nation. Because individual issues predominate over
App.--Beaumont 2001, pet dism'd w.o.j.) ("Little value is      common issues, Rule 42(b)(4) is not satisfied. See gener-
gained from a class action where factual distinctions make     ally Peltier Enters., Inc. v. Hilton, 51 S.W.3d 616, 623
the class unmanageable.") (citing Barnes v. American           (Tex. App.--Tyler 2000, pet. denied) ("answering the
Tobacco Co., 161 F.3d 127, 143 (3d. Cir. 1998)). In this       questions of materiality and reliance as to one plaintiff
case, Section 15.50's reasonableness determinations            does not answer the same question as to other putative
cannot be made on a class-wide scale.                          class members.").
    CLASS B                                                        RULE 42(b)(2)
     For Class B claims, the plaintiffs request a declara-          The trial court also relied on Rule 42(b)(2) in certi-
tion that any balance owed by an agent under an advance        fying the class. A class action cannot be certified under
agreement does not have to be repaid. The plaintiffs           (b)(2) unless the "party opposing the class has acted or
pleaded the basis of their request as being representations    refused to act on grounds generally applicable [**15] to
made by appellants to plaintiffs to that effect. Yet in a      the class, thereby making appropriate final injunctive
supplemental letter brief to the trial court prior to class    relief or corresponding declaratory relief with respect to
certification, plaintiffs disavowed any reliance on oral       the class as a whole[.]" TEX. R. CIV. P. 42(b)(2). As under
representations as the basis for a declaration of no amount    section (b)(4), the merits of each putative class member's
owed; plaintiffs told the trial judge that their issue was     claims, under both the non-compete agreement and the
grounded in "the 'four corners' of the agreements.'"           advance payment agreement, depend on that individual's
Plaintiffs maintain the same argument on appeal.               circumstances: for example, the reasonableness of the
                                                               non-compete restrictions given the individual's circum-
     The issue certified for class treatment requires the
                                                               stances, and the individual's reliance on any misrepre-
[**13] trial court to declare whether any outstanding
                                                               sentation regarding advance payments. Under section
balance must be paid upon termination of the relationship.
                                                               (b)(2) these individual factors preclude injunctive relief or
The ANICO advance agreement provides that the com-
                                                               corresponding declaratory relief without consideration of
pany is authorized to bring suit for collection of any un-
                                                               individual circumstances, at least as the issues are broadly
paid balance. The general agent agreement also gives
                                                               worded in the certification order.
ANICO a first lien which it may foreclose as permitted
[*809] by law and provides that ANICO can offset the                Furthermore, in a section 42(b)(2) class action, the
indebtedness against the agent's commissions, fees, or         injunctive or declaratory relief sought must predominate
other compensation. In the ANPAC advance agreement,            over the monetary relief sought. See TCI Cablevision of
the agent assigns to the company the right, title, and in-     Dallas v. Owens, 8 S.W.3d 837, 847 (Tex.
terest in any compensation payable to the agent under the      App.--Beaumont 2000, pet. dism'd by agr.). Any mone-
advance agreement in consideration for the advance             tary relief sought in a (b)(2) class action must be inci-
payments. ANPAC is given the right to reduce and offset        dental to the related claims for injunctive relief or corre-
any amounts owed to it against commissions, fees, and          sponding declaratory relief. Incidental [**16] damages
other compensation payable to the agent. The written           flow directly from liability to the class as a whole on the
agreements clearly speak of an agent's indebtedness in         claims forming the basis of the injunctive or declaratory
connection with advance payments that are not repaid.          relief. See Allison v. Citgo Petroleum Corp., 151 F.3d
                                                               402, 415 (5th Cir. 1998) (applying FED. R. CIV. P.
    The Class B issue, as certified, involves more than a
                                                               23(b)(2), the counterpart to Rule 42(b)(2)). Rather than
determination of the precise meaning of the language in
                                                               being dependent on subjective, individual circumstances
                                                                                                                   Page 5
                                  86 S.W.3d 801, *; 2002 Tex. App. LEXIS 6933, **


of class members, incidental damages should be amenable           The trial court also relied on Rule 42(b)(1)(A) in cer-
to [*810] easy calculation, using objective standards.       tifying the class. Rule 42(b)(1)(A) requires a showing that
Allison, 151 F.3d at 425. As the Allison court explained,    the prosecution of separate actions by or against individ-
"Liability for incidental damages should not require ad-     ual members of the class would create a risk of incon-
ditional hearings to resolve the disparate merits of each    sistent or varying adjudications with respect to individual
individual's case; it should neither introduce new and       members of the class and establish incompatible standards
substantial legal or factual issues, nor entail complex      of conduct for the party opposing the class. But as we
individualized determinations. Thus, incidental damages      have noted, TEX. BUS. & COM. CODE ANN. § 15.50
will, by definition, be more in the nature of a group        requires an individual determination of the reasonableness
remedy, consistent with the forms of relief intended for     of the non- compete restrictions; the reasonableness de-
(b)(2) class actions." Id. at 415.                           pends on the individual facts and circumstances affecting
                                                             the individual agent. See generally Texas Dep't of
     Given the nature of the relief requested here and the
                                                             Transp. v. Barrier, 40 S.W.3d 153, 159-60 (Tex.
degree to which recovery of damages in both classes
                                                             App.--Houston [14th Dist.] 2001, no pet.). Similarly, the
requires individualized proof and determinations, the
                                                             enforcement of the advance [**18] agreements depends
damages requested by plaintiffs are not sufficiently
                                                             on the varying circumstances and merits of each potential
[**17] "incidental" to permit them in a class action un-
                                                             member's case. Rule 42(b)(1)(A) is not satisfied.
der Rule 42(b)(2). The damages sought here are more of
an individual remedy and less of a group remedy -- de-            The trial court's certification order is vacated and this
pendent more upon the varying circumstances and merits       case is remanded to the trial court for proceedings con-
of each potential member's case. Rule 42(b)(2) is not        sistent with this opinion.
satisfied. See generally Casburg, 63 S.W.3d at 592.
                                                                 REVERSED AND REMANDED.
    RULE 42(b)(1)(A)
                                                                 DAVID B. GAULTNEY
                                                                 Justice
                                                                                                                        Page 1




                 JEFF BAKER D/B/A JEFF BAKER PHOTOGRAPHY, Appellant v. INTERNA-
                            TIONAL RECORD SYNDICATE, INC., Appellee

                                                    No. 05-90-00914-CV

                               COURT OF APPEALS OF TEXAS, Fifth District, Dallas

                812 S.W.2d 53; 1991 Tex. App. LEXIS 1962; 15 U.C.C. Rep. Serv. 2d (Callaghan) 875


                                                     June 4, 1991, Filed

PRIOR HISTORY:             [**1] On Appeal from the
                                                                      International Record Syndicate (IRS) hired Baker to
116th Judicial District Court; Dallas County, Texas; Trial
                                                                 take photographs of the musical group Timbuk-3. Baker
Court Cause No. 89-5233-F.
                                                                 mailed thirty-seven "chromes" (negatives) to IRS [**2]
                                                                 via the business agent of Timbuk-3. When the chromes
DISPOSITION:          Reversed and Rendered.
                                                                 were returned to Baker, holes had been punched in thir-
                                                                 ty-four of them. Baker sued for the damages to these
                                                                 chromes. The trial court submitted the issues of actual
COUNSEL: Dana Andrew Lejune.
                                                                 damages and attorney's fees to the jury. The jury found $
                                                                 15,000 in actual damages and $ 5000 for attorney's fees.
Will Pryor.
                                                                 The trial court rendered judgment awarding $ 51,000 in
                                                                 actual damages and $ 5000 for attorney's fees. The dam-
JUDGES: Chief Justice Craig Trively Enoch and Justices
                                                                 age award was pursuant to a liquidated damages clause,
T.C. Chadick 1 and Spencer Carver. 2 Opinion by Chief
                                                                 which set damages at $ 1500 per chrome. The trial court
Justice Craig Trively Enoch.
                                                                 later modified the judgment, awarded Baker the $ 15,000
                                                                 actual damages found by the jury, and eliminated the
       1 The Honorable T.C. Chadick, Justice, Retired,
                                                                 attorney's fee award.
       Supreme Court of Texas, sitting by assignment.
       2 The Honorable Spencer Carver, Justice, Re-                  LIQUIDATED DAMAGES
       tired, Court of Appeals, Fifth District of Texas at
                                                                      The provision printed on Baker's invoice states:
       Dallas, sitting by assignment.
                                                                 "reimbursement for loss [*55] or damage shall be de-
                                                                 termined by a photograph's reasonable value which shall
OPINION BY: ENOCH
                                                                 be no less than $ 1,500 per transparency." A liquidated
                                                                 damages clause is meant to be the measure of recovery in
OPINION
                                                                 the event of nonperformance or breach of a contract.
      [*54] OPINION ON MOTION FOR REHEAR-                        Stewart v. Basey, 150 Tex. 666, 245 S.W.2d 484, 486 (Tex.
ING                                                              1952). The determination of whether a contractual clause
                                                                 is enforceable as a liquidated damages provision or [**3]
     The opinion of this court issued April 15, 1991 is
                                                                 void as a penalty is a question of law. Mayfield v. Hicks,
withdrawn. This is the opinion of the court. Jeff Baker,
                                                                 575 S.W.2d 571, 576 (Tex. Civ. App.--Dallas 1978, writ
d/b/a Jeff Baker Photography (Baker), appeals a judgment
                                                                 ref'd n.r.e.).
rendered in his favor in a breach of contract case. The trial
court determined that a liquidated damages provision was             The Uniform Commercial Code provides:
unenforceable and awarded damages to Baker based on
jury findings. We reverse the trial court's judgment and                      Damages for breach by either party may
render judgment for Baker.                                                 be liquidated in the agreement but only at
                                                                           an amount which is reasonable in light of
                                                                                                                   Page 2
                                   812 S.W.2d 53, *; 1991 Tex. App. LEXIS 1962, **;
                                        15 U.C.C. Rep. Serv. 2d (Callaghan) 875

       the anticipated or actual harm caused by               might be called the "actual harm" test. The burden of
       the breach, the difficulties of proof of loss,         proving this defense is upon the party seeking to invali-
       and the inconvenience or non-feasibility of            date the clause. Id. The party asserting this defense is
       otherwise obtaining an adequate remedy.                required to prove the amount of the other party's actual
       A term fixing unreasonably large liqui-                damages, if any, to show that the actual loss was not an
       dated damages is void as a penalty.                    approximation of the stipulated sum. Id. at 106-07;
                                                              Johnson Eng'rs, Inc. v. Tri-Water Supply Corp., 582
                                                              S.W.2d 555, 557 (Tex. Civ. App.--Texarkana 1979, no
TEX. BUS. & COM. CODE ANN. § 2.718(a) (Tex. UCC)              writ).
(Vernon 1968).
                                                                   While evidence was presented that showed the value
     Under Texas law, a liquidated damages provision          of several of Baker's other projects, this was not evidence
will be enforced when the court finds (1) the harm caused     of the value of the photographs in question. The evidence
by the breach is incapable or difficult of estimation, and    clearly shows that photographs are [**6] unique items
(2) the amount of liquidated damages is a reasonable          with many factors bearing on their actual value. Each of
forecast of just compensation. Advance Tank & Constr.         the thirty-four chromes may have had a different [*56]
Co. v. City of DeSoto, 737 F. Supp. 383, 384 (N.D. Tex.       value. Proof of this loss is difficult; where damages are
1990); Rio Grande Valley Sugar Growers, Inc. v.               real but difficult to prove, injustice will be done the in-
Campesi, 592 S.W.2d 340, 342 n.2 (Tex. 1979). This            jured party if the court substitutes the requirements of
might be termed the "anticipated harm" test. The party        judicial proof for the parties' own informed agreement as
asserting that a liquidated damages clause is, in fact, a     to what is a reasonable measure of damages. The evidence
penalty provision has the [**4] burden of proof. Com-         offered to prove Baker's actual damages lacks probative
mercial Union Ins. Co. v. La Villa School Dist., 779          force. IRS failed to establish Baker's actual damages as to
S.W.2d 102, 106 (Tex. App.--Corpus Christi 1989, no           these particular photographs.
writ). Evidence related to the difficulty of estimation and
                                                                   Even assuming that the jury's findings as to damages
the reasonable forecast must be viewed as of the time the
                                                              are an accurate assessment, we do not agree that that sum
contract was executed. Mayfield, 575 S.W.2d at 576.
                                                              is so disproportionate to the stipulated sum so as to ab-
     Baker testified that he had been paid as much as $       rogate the parties' agreement. Consequently, we conclude
14,000 for a photo session, which resulted in twenty-four     that the facts and circumstances of this case require that
photographs and that several of these photographs had         we reach a decision contrary to the one made by the trial
also been resold. Baker further testified that he had re-     court. We sustain Baker's first point of error and hold that
ceived as little as $ 125 for a single photograph. Baker      the liquidated damages clause is enforceable.
also testified he once sold a photograph for $ 500. Sub-
                                                                  ATTORNEY'S FEES
sequently, he sold reproductions of the same photograph
three additional times at various prices; the total income         In his original petition, Baker pleaded a breach of
from this one photo was $ 1500. This particular photo was     contract and sought attorney's fees pursuant to section
taken in 1986 and was still producing income in 1990.         38.001 of the Civil Practice and Remedies Code. At trial,
Baker demonstrated, therefore, that an accurate determi-      Baker's [**7] attorney took the stand and testified that a
nation of the damages from the loss of a single photograph    one-third or 40% contingency fee was reasonable. All
is virtually impossible.                                      testimony on reasonableness and necessity of attorney's
                                                              fees was unrebutted. The jury awarded Baker $ 5000 in
     Timbuk-3's potential for fame was an important fac-
                                                              attorney's fees. The trial court then rendered judgment
tor in the valuation of the chromes. At the time of the
                                                              setting aside the award of attorney's fees. For a trial court
photo session, Timbuk-3's potential was unknown. In
                                                              to disregard a jury's findings and enter a judgment not-
view of the inherent difficulty in determining [**5] the
                                                              withstanding the verdict, it must determine that there is no
value of a piece of art, the broad range of values and
                                                              evidence upon which the jury could have made its find-
long-term earning power of photographs, and the un-
                                                              ings. Dowling v. NADW Mktg., Inc., 631 S.W.2d 726, 728
known potential for fame of the subject, $ 1500 is not an
                                                              (Tex. 1982); Collision Center Paint & Body, Inc. v.
unreasonable estimate of Baker's actual damages.
                                                              Campbell, 773 S.W.2d 354, 356 (Tex. App.--Dallas 1989,
     Additionally, liquidated damages must not be dis-        no writ).
proportionate to actual damages. If the liquidated dam-
                                                                   We review the evidence in the light most favorable to
ages are shown to be disproportionate to the actual dam-
                                                              the jury finding, considering only the evidence and in-
ages, then the liquidated damages can be declared a pen-
                                                              ferences that support the finding and rejecting the evi-
alty and recovery limited to actual damages proven.
                                                              dence and inferences contrary to the finding. Navarette v.
Commercial Union Ins. Co., 779 S.W.2d at 107. This
                                                              Temple Indep. School Dist., 706 S.W.2d 308, 309 (Tex.
                                                                                                              Page 3
                                 812 S.W.2d 53, *; 1991 Tex. App. LEXIS 1962, **;
                                      15 U.C.C. Rep. Serv. 2d (Callaghan) 875

1986); Collision Center, 773 S.W.2d at 357. Where there         We reverse the judgment of the trial court. We render
is more than a scintilla of competent evidence to support   judgment for Baker in the amount of $ 51,000 for actual
the jury's finding, then the judgment notwithstanding the   damages and $ 5000 for attorney's fees. TEX. R. APP. P.
verdict should be reversed. Collision Center, 773 S.W.2d    80(b)(3).
at 356-57. [**8] We sustain Baker's second point of
                                                                Reversed and Rendered.
error.
                                                                                                                     Page 1




                        Board of Water Engineers of the State of Texas v. City of San Antonio

                                                          No. A-5083

                                                  Supreme Court of Texas

                                   155 Tex. 111; 283 S.W.2d 722; 1955 Tex. LEXIS 553


                                                 October 26, 1955, Decided

SUBSEQUENT HISTORY:                     [***1]    Rehearing      ment is germane to the subject matter of the original act or
Overruled November 23, 1955.                                     the portion thereof which the caption of the amendatory
                                                                 act declares to be amended.
PRIOR HISTORY:          Error to the Court of Civil Ap-
                                                                       Statutes -- Constitutional Law.
peals for the Third District, in an appeal from Travis
County.                                                               An amendment to an act of the legislature, creating a
                                                                 corporation to furnish water to certain entities and au-
DISPOSITION:           The judgments of both courts are          thorizing such agency to contract with federal authorities,
affirmed.                                                        to borrow money and issue bonds, and perform other
                                                                 duties for the promotion of said corporation, which con-
                                                                 tains new matter precluding the diversion of water from
HEADNOTES                                                        its watershed was void under the constitutional rule that
                                                                 no bill shall contain more than one subject which must be
    Declaratory Judgments -- Prerequisites.
                                                                 expressed in its caption.
    In an action seeking a declaratory judgment the pre-
requisite requirements for such process is that there shall      SYLLABUS
be a real controversy between the parties which will be
                                                                       The City of San Antonio, Texas, seeking to establish
actually determined by the judicial declaration asked for.
                                                                 a priority for securing a more ample supply of water for its
    Jurisdiction -- Statutes -- Rights and Remedies.             city needs, filed an application with the State Board of
                                                                 Water Engineers for permission to establish a priority to
     An action by a city to have the State Board of Water
                                                                 withdraw water from the Guadalupe River watershed.
Engineers approve its application to take water from a
                                                                 The board refused to grant [***3] such application be-
watershed other than its own, claiming that the statute
                                                                 cause Article 1434a R.S. prohibits the withdrawal of
forbidding such right and upon which the board, in re-
                                                                 water from said watershed, for the purpose of transporting
fusing such permit, based its action is unconstitutional,
                                                                 it to a point outside of said watershed. Other facts will be
presents a justiciable controversy as to the constitutional-
                                                                 found in the opinion of the Court.
ity of the statute and the rights of the parties thereunder.
Because plaintiff failed to ask for other specific relief than        The City of San Antonio filed a suit against said
that of a declaratory judgment was no bar to his action.         board seeking a declaratory judgment declaring the pro-
                                                                 visions of Section 1a of Article 1434a, to be unconstitu-
    Statutes -- Amendments.
                                                                 tional. The trial court rendered judgment favorable to the
     In construing the constitutional rule that no bill shall    city. The Court of Civil Appeals affirmed that judgment,
contain more than one subject which shall be expressed in        273 S.W. 2d 913. The Board of Water Engineers has
[***2] its title, the rule that the caption of an amendatory     brought error to the Supreme Court.
act is not necessarily deficient because it merely stated
that a particular prior law or a particular section thereof is
being amended does not apply unless the actual amend-
                                                                                                                   Page 2
                                          155 Tex. 111, *; 283 S.W.2d 722, **;
                                               1955 Tex. LEXIS 553, ***

COUNSEL: John Ben Shepperd, Attorney General,                 reason of a large and rapid increase in population and
Burnell Waldrep and Johns Reeves, Assistant Attorney          water consumption within and around its corporate limits,
Generals, for petitioner.                                     coupled with a serious fall in its potential underground
                                                              water supply. While the City is located outside of the
The Court of Civil Appeals erred in holding that a justi-     natural watershed of the Guadalupe River and could make
ciable controversy was presented, and that the provisions     use of the Canyon Dam waters only by means of an ex-
of section 1a of Article 1434a are in violation of Article    pensive pipe line, it has become interested in the dam
III, section 35, of the Constitution of Texas. Cowan v.       project, as other cities of the state have done in other and
Cowan, 254 S.W. 742, error refused; Cobb v. Harrington,       comparable situations, to the point of making detailed
144 Texas 360, 190 S.W. 2d 709; Praetorians v. State, 184     studies and attempting to secure priorities for a portion of
S.W. 2d 300; Gulf Ins. Co. v. James, 143 Texas 424, 185       the excess waters it might make or help to make available
S.W. 2d 966.                                                  [***6] if it should participate in the enterprise.
                                                                   In the latter connection, Art. 7496, Vernon's Tex.
Boyle, Wheeler, Gresham, Davis & Gregory and J. D.
                                                              Civ. Stats. Ann., provides, generally speaking, for an
[***4] Wheeler, all of San Antonio, for respondent.
                                                              application or "presentation" to the Board by "any person
                                                              who desires to investigate the feasibility of any water
In reply to petitioner's contentions cited Arnold v. Leon-
                                                              appropriation or use of water" in certain large quantities,
ard, 114 Texas 535, 273 S.W. 2d 799; Hamilton v. St.
                                                              upon approval and filing of which by the Board, the study
Louis, S.F. & T. Ry. Co., 115 Texas 455, 283 S.W. 475;
                                                              may be made and a priority for the corresponding work
Rodriguez v. Gonzales, 148 Texas 537, 227 S.W. 2d 791.
                                                              and water appropriation established as of the filing date,
                                                              subject to specified conditions as to beginning and com-
JUDGES: Mr. Justice Garwood delivered the opinion of
                                                              pletion of the work. The respondent City made such a
the Court.
                                                              presentation, but the Board refused to approve or file it,
                                                              stating in effect that it would have approved and filed it as
OPINION BY: GARWOOD
                                                              a proper and meritorious application under the statute, but
                                                              for the single fact of the City being located beyond the
OPINION
                                                              natural watershed of the river and thus prohibited from
       [*112] [**723] This so far successful suit by the      diverting the waters by the express terms of Sec. 1-a of
respondent, City of San Antonio, against our petitioner,      Art. 1434a, supra. 1
Board of Water Engineers of the State of Texas, presents
questions as to (a) existence vel non of a justiciable con-          1 "Sec. 1a. It shall be unlawful for any person,
troversy within our Uniform Declaratory Judgments Act                firm, association, or corporation to withdraw any
of 1943 (Art. 2524-1, Vernon's Tex. Civ. Stats. Ann.) and            water from the Guadalupe River or Comal River
(b) validity of a given statutory amendment (Sec. 1-a of             or any tributaries of such rivers or springs emp-
Art. 1434a, Vernon's Tex. Civ. Stats. Ann.) as against our           tying into such rivers, or either of them, for the
constitutional restrictions concerning subjects and cap-             purpose of transporting such water to any point or
tions of legislative acts (Art. III, Sec. 35) and local or           points located outside of the natural watersheds of
special laws (Art. III, Sec. 56), Vernon's Ann. State Con-           such rivers.
stitution.
                                                                          "Any such withdrawal or attempted with-
     [*113] The source of the controversy is the pro-                drawal of water from said rivers, springs, and/or
posed construction by the Guadalupe River Authority of               tributaries may be enjoined in a suit for injunction
the so-called Canyon Dam in Comal County, a flood                    brought by any person, municipality, or corpora-
control project to be financed in whole or part [***5] by            tion owning riparian rights in or along said rivers.
the United States. Evidently the corresponding federal               The venue of such suits shall be in the District
laws and regulations permit of municipalities such as the            Court of the county where such withdrawal or at-
respondent City participating in the project in order to             tempted withdrawal occurred."
augment their own water supply by building the dam
                                                                    [***7] The respondent City thereupon instituted
higher than it would otherwise be and furnishing the
                                                              this suit for declaratory [*114] judgment that Sec. 1-a
necessary funds for this purpose. This participation,
                                                              is unconstitutional. Its pleadings did not specifically
however, is in effect conditioned upon permission from
                                                              allege arbitrariness upon [**724] the part of the Board
the petitioner Board for the taking of the additional im-
                                                              nor specifically pray for ancillary relief such as mandatory
pounded waters in question.
                                                              injunction or mandamus. They did clearly allege the
    The respondent City, one of the three largest in          above-mentioned facts concerning the attempted filing of
Texas, is faced with a serious water-supply problem by        the respondent's presentation, including the Board's ex-
                                                                                                                        Page 3
                                             155 Tex. 111, *; 283 S.W.2d 722, **;
                                                  1955 Tex. LEXIS 553, ***

clusive reliance on Sec. 1-a for its refusal to approve and       which are not presumptively valid. That Sec. 1-a is
file. Parts of the relief prayed were (1) a determination         presumptively valid is all that the respondent has admit-
"that the plaintiff has the legal right to have the presenta-     ted, if admitting anything. The controversy is as to
tion      accepted and filed          with priority" and (2)      whether it is actually valid. Clearly this is a real and
"other relief, general and special."                              practical controversy, because the [***10] respondent
                                                                  insists on its application being approved and filed despite
     The trial court rendered the declaratory judgment as
                                                                  the statute, on which the Board relies, and asserts valuable
prayed. Following this the petitioner Board, pending its
                                                                  rights of a property nature to be effective or ineffective
appeal, proceeded to file the respondent's presentation but
                                                                  depending upon such approval and filing. Clearly, too,
with the express reservation that such filing was condi-
                                                                  the judicial declaration in suit will determine the contro-
tioned upon affirmance of the trial court judgment. The
                                                                  versy, because the Board will approve and file the City's
Austin Court of Civil Appeals has affirmed it. 273 S.W.
                                                                  application if the statute is declared invalid and will
2d 913.
                                                                  properly continue to refuse to do so if it is declared valid.
     No point appears to be made that the case is moot or
                                                                       Nor is there merit to the apparently further contention
otherwise nonjusticiable merely by reason of the actual
                                                                  that a justiciable controversy is absent because of the
filing of the application, [***8] and we think the con-
                                                                  failure of the respondent to pray specifically for other than
ditional character of the Board's approval would have
                                                                  declaratory relief. Even assuming the actual prayer for
rendered such a view untenable had it been urged. But
                                                                  "other relief, general [**725] and special" to be with-
lack of a justiciable controversy is argued, as we under-
                                                                  out significance, the argument is yet in the very teeth of
stand the briefs, on the theory that the respondent's failure
                                                                  Secs. 1 and 8 of Art. 2524-1, supra, and, indeed, of the
to allege an abuse of discretion or arbitrariness concedes a
                                                                  main purpose of declaratory judgments, which is to permit
discretion of the Board to treat Art. 1434a, Sec. 1-a, supra,
                                                                  of settling actual controversies by appropriate judicial
as valid in the absence of a contrary adjudication, and
                                                                  declaration, without necessarily invoking "traditional
therefore also the discretion to refuse approval and filing
                                                                  relief," such as injunction or other writs, damages and the
of the respondent's application. This alleged concession
                                                                  like. Indeed, it has been observed that some of the "tra-
is said to make the suit one for a mere "advisory opinion"
                                                                  ditional remedies," such [***11] as decrees removing a
as to the constitutionality of the statute in question. We
                                                                  cloud or cancelling an instrument, are themselves but
do not so regard it.
                                                                  declaratory judgments, despite that their names may
     The expressions "advisory opinion" and "justiciable          suggest otherwise. See Hodges, supra, p. VII. [*116]
controversy" as here used refer to the requirements, which        The lack of a prayer for traditional types of relief does not
undoubtedly exist as prerequisite to the declaratory              of itself even suggest absence of the essential require-
judgment process, that (a) there shall be a real controversy      ments of a real controversy, determinable by the suit.
between the parties, which (b) will be actually determined
                                                                       The real issue in the case is whether Sec. 1-a, supra 1
by the judicial declaration sought. See Hodges, General
                                                                  is void because of Art. III, Sec. 35 of our State Constitu-
Survey of the Uniform Declaratory [*115] Judgment
                                                                  tion, stating that:
Act in Texas, Vol. 8, Vernon's Tex. Civ. Stats. Ann., p. XI
(1951); also Sec. 6, Art. 2524-1, supra; Cobb v. Har-                  "No bill       shall contain more than one subject,
rington, [***9] 144 Texas 360, 190 S.W. 2d 709, 172               which shall be expressed in its title. But if any subject
A.L.R. 837; Railroad Commission v. Houston Natural Gas            shall be embraced in an act, which shall not be expressed
Corp., (Tex. Civ. App., cited in Cobb v. Harrington) 186          in the title, such act shall be void only as to so much
S.W. 2d 117; Garwood Irr. Co. v. Lundquist (Tex. Civ.             thereof, as shall not be so expressed."
App.), 252 S.W. 2d 759; wr. of er. refused; McDonald,
Texas Civil Practice, Vol. 1, Sec. 2.01.                                  1   See note one on page 113.
     But to admit the legal fact, if it is a fact, that the pe-         Well prior to the existence of Sec. 1-a, the bulk of the
titioner Board may properly await the judgment of a court         present Art. 1434a was enacted as Senate Bill No. 103,
before ignoring the prohibition of Sec. 1-a, supra, is not to     Chapter 76, p. 202, Acts of the First Called Session, 43rd
admit that there is no dispute over whether the Board has         Legislature (1933). The object of the Act, expressed in
the ultimate duty to cease refusing to approve and file the       its [***12] first section, was to provide for the formation
respondent's application and whether the respondent has           of corporations by three or more citizens of the State "for
the present right, which it expressly pleaded and prayed to       the purpose of furnishing a water supply to towns, cities,
have declared, that such approval be given and filing             and private corporations and individuals." Sec. 1 of the
accepted. If it were otherwise, there would rarely be a           Act also detailed sundry provisions concerning dividends,
proper case for declaratory judgment concerning the va-           sinking fund for replacements and the like as properly
lidity of a statute, because there will be very few statutes      includible in the charter. Sec. 2 of the Act authorized
                                                                                                                     Page 4
                                           155 Tex. 111, *; 283 S.W.2d 722, **;
                                                1955 Tex. LEXIS 553, ***

such corporations as might be organized under the Act to       Mortgage Company, 82 Texas 496, 501-2, 17 S.W. 840,
contract with all federal agencies, borrow money, issue        842-3; English and Scottish-American Mortgage and
bonds and do other such things for the promotion of their      Investment Company, Ltd. v. Hardy, 93 Texas 289, 297-8,
corporate purposes. The remaining six sections provided        55 S.W. 169, 171. But this rule, of course, has its limits.
for additional specific powers and duties of such corpo-       Indeed, it might well be argued that the [***15] "one
rations, more or less in elaboration of Sections 1 and 2.      subject" requirement of the Constitution, although part of
In no part of the Act does a word such as "river," "stream,"   the same sentence containing the title or caption re-
"watercourse," "watershed," "dam" or "lake" occur.             quirement, should operate independently of the latter, so
                                                               as to invalidate an amendatory or original act containing
     Sec. 1-a was enacted in 1941 as part, although a large
                                                               more than one subject, even though all of the diverse
part, of a purported amendment to Sections 1 and 2 of the
                                                               subjects be covered in full detail in the caption. In any
1933 Act above mentioned by House Bill 953, Chap. 407,
                                                               event, as hereinafter shown, the cited rule sustaining
Acts 47th Legislature, Regular Session. The caption of
                                                               general captions of amending acts does not apply unless
the Amendatory Act read:
                                                               the actual amendment is germane to the subject matter of
    "An Act amending Sections 1 and 2 of Chapter 76,           the original act or, as the case may be, the portion thereof
Senate Bill No. 103, page 202, General and Special             which the caption of the amendatory act declares to be
[***13] Laws, passed at the First Called Session of the        amended. And [*118] while conceivably a lack of
Forty-third Legislature; and declaring an emergency."          germaneness in the instant case between Sec. 1-a and the
                                                               rest of the Act might invalidate the section under either
     The body of the Act declared Sec. 1 of the earlier Act
                                                               the "one subject" or caption requirements, the more rele-
to be "amended so as to read as follows." Then followed
                                                               vant decisions speak largely in terms of the latter, and
"Section 1," in terms identical with the original Sec. 1       therefor so shall we.
except for the insertion [*117] of a few words giving
these corporations the additional powers to supply "sewer           The Gunter case, supra, voided an amendatory act
service" and to serve "military camps and bases." Then as      because the caption, while giving numbers of a title and
a distinct paragraph, although without any separate en-        sections as being amended, omitted to state to what ex-
acting clause, came "Section 1-a" 1, which was completely      isting body of laws or law these numbers corresponded.
new. Then followed an enacting clause re-enacting              The opinion acknowledges the rule relied on by [***16]
"Section 2" with addition of merely a few words so as          the petitioner Board; but it does so with the observation "
expressly to permit corporate borrowings from sources in       although it might seem to us that a different rule would be
addition to federal agencies. The next provision, or           more in harmony with the requirements of the Constitu-
emergency clause, referred only to the need of "the addi-      tion," and shows clearly that the purposes of these re-
tional powers hereby conferred upon water supply cor-          quirements would be defeated by extending the rule so as,
porations authorized by said Chapter 76" (emphasis ours)       in effect, to make the body of the amendatory act itself
as the emergency, thus omitting any reference to the           explanatory of its own caption 2. Similarly the English
subject matter of Sec. 1-a" 1,                                 and Scottish-American Mortgage Co., case, supra, in
                                                               referring to the rule, said:
       1    See note one on page 113.
                                                                    "The reason       must be that the naming of the arti-
      [***14] Keeping in mind the constitutional provi-        cle to be amended directs attention to all of the provisions
sion above quoted, we thus note two features of the            therein, as the subject of the amending act, and that such
amending act: (a) there is conceivably more than "one          provisions can be ascertained by reading the article to be
subject" involved in an act, of which Sec. 1-a prohibits all   amended." (93 Texas 289, 298, 55 S.W. 169, 171.)
persons from taking water from [**726] the Guadalupe
and Comal Rivers to other watersheds, and of which the         In other words, the rule invoked by the petitioner Board is
remainder deals with the general subject of organization       justified only because and to the extent that the reader of
and corporate powers of water supply and sewer corpo-          the caption of the amendatory bill and the existing law or
rations; and (b) the caption of the amending act does not      section to which the caption refers will thereby ascertain
expressly refer to Sec. 1-a or its content, unless by the      the subject of the amendatory bill without having to read
words "amending Sections 1 and 2 of" the former law.           the amendatory bill itself.
     The petitioner Board, in upholding Sec. 1-a, relies              2 "The constitution declares that the 'subject
largely on the rule that the caption of an amending act is            shall be expressed in the title,' and it cannot be said
not necessarily deficient because it merely states that a
                                                                      that this has been done where the title does no
particular prior law or particular section thereof is being
                                                                      more than to furnish a reference to some other
amended and does not give further particulars. The State
                                                                      writing, document, or law from which by search
v. McCracken, 42 Texas 383; Gunter v. Texas Land and
                                                                                                                      Page 5
                                            155 Tex. 111, *; 283 S.W.2d 722, **;
                                                 1955 Tex. LEXIS 553, ***

       the true purpose of a title may be ascertained. If               State v. McCracken, 42 Texas 384. The reason for
       such had been the intention of the people           the          the holding appears to be that the naming of the
       peremptory language           would not have been                article to be amended directs attention to all of the
       used.       No one would contend that a title as                 provisions therein, as the subject of the amending
       follows, 'An Act in reference to the subject em-                 act, and that such provisions can be ascertained by
       braced in the bill to which this is the title' would be          reading the article to be amended. However, when
       sufficient, although such a title attached to a bill             the Legislature restricts the title of an amendatory
       would give most easy reference to sources of in-                 act by reference to the number in the code of the
       formation from which the subject of the contem-                  article amended, and announces its purpose to deal
       plated law might be ascertained.             This is so          with the original bill in respect to particular mat-
       because the Constitution requires the subject of an              ters therein, it is bound to govern itself accord-
       act to be given in the title to it, and a mere refer-            ingly, and keep within what it had itself declared
       ence to something else for the information thus                  would be the limits of its proposed action. Suth-
       required to be given is not sufficient." (82 Texas               erland Statutory Construction (2d Ed.), vol. 1, sec.
       502, 17 S.W. 842).                                               139; State v. American Sugar Refining Co., 106
                                                                        La. 553, 31 So. 181, 186."
      [***17]      [**727] Obviously, however, if the
provisions of the law or section to be amended involve a               [***19] Thus the essential germaness of Sec. 1-a
subject different from that actually dealt with in the body      of Art. 1434a to the subject matter of Secs. 1 and 2 of the
of the amending act, a reading of the [*119] former              original act depends on whether a reader of the latter
will not disclose to the reader the true subject of the          sections, concerning organization and powers of water
amending act but, on the contrary, will mislead him as to        supply corporations and nowhere mentioning rivers in
the latter. And so, as in the English and Scot-                  general or in particular, would by his reading reasonably
tish-American Mortgage Co., case, supra, we find that            be forewarned of a subject such as a general prohibition
references to the rule of general amendatory captions are        against diverting waters from the Guadalupe or Comal
couched in limiting language such as "any amendment              Rivers to points beyond their respective watersheds. To
germane to the subject treated in the article referred to"       state the question is, we think, to answer it, particularly
(emphasis supplied).                                             when we consider that the hypothetical readers of the
                                                                 caption and earlier law are not merely members of the
     In Katz v. State, 122 Texas Crim. Rep. 231, 54 S.W.
                                                                 legislature but also "the people." See Gulf Ins. Co. v.
2d 130, the body of the amendatory bill dealt with the
                                                                 James, 143 Texas 424, 431-2, [*120] 185 S.W. 2d 966,
occupation tax on "money lenders," which in the original
                                                                 970. As the respondent appropriately argues, the City of
act ( Art. 7047 R.C.S. 1925) was the subject matter of Sec.
                                                                 San Antonio, or perhaps some individual citizen or part-
15. The caption of the amendatory bill read, "           to
                                                                 nership not the least interested in the subject of the or-
amend Section 14        relating to and imposing an occu-
                                                                 ganization and corporate powers of water supply corpo-
pation tax on money lenders and defining same            ."
                                                                 rations, but very interested in the waters of the Guadalupe
Actually Sec. 14 of Art. 7047 dealt with the tax on "loan
                                                                 and Comal Rivers. might reasonably have read the caption
brokers," and accordingly the amendment was held void,
                                                                 in question and old Secs. 1 and 2 (or, for that matter, every
notwithstanding that its caption reference to Sec. 14 of
                                                                 section) of Art. 1434a and concluded [***20] that the
Art. 7047 [***18] (loan brokers) was qualified by the
                                                                 proposed amendment would in all probability not affect
words "money lenders," which was the actual subject of
                                                                 their interests.
the amendment. The language of the court is of interest. 3
Ex parte Turner, 122 Texas Crim. Rep. 357, 55 S.W. 2d                We thus consider Sec. 1-a to be invalid under Sec. 35
833, is to the same effect.                                      of Art. III of the Constitution and accordingly find it
                                                                 unnecessary to consider the effect of Sec. 56 of Art. III,
       3 "The courts of this state have held that a ref-         concerning local or special laws.
       erence to number of an article in a code, such as
                                                                    The judgments of the trial court and Court of Civil
       our Revised Statutes, is sufficient in the title of an
                                                                 Appeals are affirmed.
       act amendatory thereof, to allow any amendment
       germane to the subject treated in the article re-             Opinion delivered October 26, 1955.
       ferred to. English & Scottish-American Mortg. &
       Inv. Co. v. Hardy, 93 Texas 289, 55 S.W. 169;                 Rehearing overruled November 23, 1955.
                                                                                                                       Page 1




                     California Products, Incorporated, Et Al v. Puretex Lemon Juice, Incorporated

                                                          No. A-7421

                                                  Supreme Court of Texas

                         160 Tex. 586; 334 S.W.2d 780; 1960 Tex. LEXIS 563; 3 Tex. Sup. J. 255


                                                  March 23, 1960, Decided

SUBSEQUENT HISTORY:                     [***1]    Rehearing      Strickland, Wilkins, Hall & Mills and J. E. Wilkins [***2]
Overruled May 18, 1960.                                          , of Mission, for respondents.

PRIOR HISTORY:           Error to the Court of Civil Ap-         JUDGES: Mr. Justice Griffin delivered the opinion of the
peals for the Fourth District in an appeal from Willacy          Court.
County.
                                                                 OPINION BY: GRIFFIN
DISPOSITION:            Judgment of the Court of Civil Ap-
peals is affirmed.                                               OPINION
                                                                       [*587]       [**780] Petitioners herein, hereafter
                                                                 called plaintiffs, filed this suit in the 107th District Court
HEADNOTES
                                                                 of Willacy County, Texas, against respondent herein,
    Declaratory Judgments.                                       hereafter called defendant, seeking a declaratory judg-
                                                                 ment to determine whether or not a certain bottle in which
     The declaratory judgment statute was not designed to
                                                                 plaintiffs expected to sell lemon and lime juice would
aid litigants to seek legal advice at the hands of the courts,
                                                                 violate a judgment of the 107th District Court entered
but there must be a justiciable controversy between the
                                                                 June 3, 1952. The prior suit in the 107th District Court
parties in suit before a declaratory judgment action will
                                                                 was between the same parties, except petitioners herein
lie.
                                                                 were defendants and respondent herein was plaintiff. In
                                                                 the first suit between the parties, Puretex, as plaintiff,
SYLLABUS
                                                                 recovered a permanent injunction against California
     This is a suit by petitioners seeking a declaratory         Products and Davis prohibiting them from marketing their
judgment as to whether a bottle which they proposed to           lemon and lime juice in bottles which resembled in ap-
manufacture and use for the production of their products         pearance the bottles used by plaintiff. This judgment
would be in violation of an injunction previously issued         was an agreed judgment and there was no appeal taken
enjoining them from using a bottle similar to the one used       from it and it became final. After the entry of the above
by respondents, before they proceed further in its manu-         decree, petitioner files this declaratory judgment suit.
facture. A trial court's judgment in favor of petitioners
                                                                        [**781] Trial was had before a jury and two spe-
was reversed and judgment rendered by the Court of Civil
                                                                 cial issues were answered [***3] by the jury. The first
Appeals that they take nothing. 334 S.W. 2d 449. Peti-
                                                                 issue asked the jury to find from a preponderance of the
tioners have brought error to the Supreme Court.
                                                                 evidence whether plaintiff planned to have bottles made
                                                                 of the kind set out in a blueprint introduced in evidence,
COUNSEL: Robert H. Kern, Jr., of McAllen, James &
                                                                 such bottles to be used as containers in which to market its
Conner and Allen B. Conner, of Fort Worth, for petition-
                                                                 lemon and lime juice. The jury answered this issue in the
ers.
                                                                 affirmative which was favorable to the plaintiff. The
                                                                 second issue asked the jury to find from a preponderance
                                                                                                                    Page 2
                                           160 Tex. 586, *; 334 S.W.2d 780, **;
                                       1960 Tex. LEXIS 563, ***; 3 Tex. Sup. J. 255

of the [*588] evidence whether the bottle and its               16 Am. Jur. 282, section 9; Hodges, General Survey of the
markings which plaintiff proposed to use to market its          Uniform Declaratory Judgments Act in Texas, Vernon's
lemon and lime juice "will not so closely resemble in           Texas Civil Statutes, Vol. 8, p. VII. The Court of Civil
appearance the bottle of the defendant and its markings as      Appeals has cited and discussed some additional authori-
to be liable to deceive a reasonably prudent buyer, exer-       ties and we will not repeat them.
cising such ordinary care and observation as shoppers
                                                                     "The rule with respect to the necessity for a justicia-
generally may be expected to use so as to mislead such
                                                                ble controversy may be stated [***6] in the vernacular in
buyer into believing that this bottle contains Puretex
                                                                this wise: The Uniform Declaratory Judgments Act does
lemon or lime juice." The jury answered, "It will not be
                                                                not license litigants to fish in judicial ponds for legal
likely to deceive." On this verdict, the court rendered
                                                                advice." Anderson, Declaratory Judgments, 2d. Ed., Vol.
judgment for plaintiff-California Products, Inc. The
                                                                1, p. 47, quoting from Lide v. Mears, 231 N.C. 111, 56
judgment entered by the trial court reads, in part, as fol-
                                                                S.E. 2d 404.
lows:
                                                                      [**782] The case nearest in point to the case at bar
     "That the terms of the agreed judgment entered by
                                                                which we have been able to find is the case of Ladner v.
this Court on June 3, 1952, in Cause No. 1860, [***4]
                                                                Siegel, 294 Pa. 368, 114 Atl. 274, (1928). Plaintiffs
entitled Puretex Lemon Juice, Inc. v. California Products,
                                                                Ladners owned certain residences on land purchased from
Inc., and Charles H. Davis, properly construed, do not
                                                                defendant Siegel. On the remaining land adjoining
prohibit the use by Plaintiffs herein, in the marketing of
                                                                plaintiffs' residences, Siegel proposed to erect a shopping
lemon and lime juices, of a bottle resembling the said
                                                                center. One of the buildings was to be occupied by a
bottle of Defendant in any respect whatsoever, but the
                                                                garage operated for the general repair and service of au-
purport and meaning thereof is to prevent the use by
                                                                tomobiles for the public. The Ladners brought suit
Plaintiffs of a bottle so resembling in appearance that of
                                                                against Siegel seeking to restrain him from erecting and
Defendant's bottle as to be calculated to mislead and de-
                                                                occupying the garage as a violation of the residential
ceive the buying public, and;
                                                                district use. The Ladners won this suit and secured their
     "That the use by Plaintiff, California Products, Inc. of   injunction. That cause became final.
its proposed bottle, above described in the marketing of its
                                                                    Thereafter Siegel filed a declaratory judgment action
lemon and lime juices will not be violative of, or incon-
                                                                asking the court to fix his rights in the conduct of the
sistent with, the injunction issued by this Court in said
                                                                garage in case it was carried on in such a way as not to
Cause No. 1860."
                                                                constitute a private nuisance. The court was presented
     Defendant appealed to the Court of Civil Appeals.          with [***7] the question of determining a method by
That Court reversed and rendered denying plaintiff any          which Siegel would operate the garage, and then asked to
relief. The basis for the opinion of the Court of Civil         determine whether or not such method of operation would
Appeals was (1) plaintiffs had shown no justiciable in-         be permitted in this residential district. The trial court
terest, and were only seeking an advisory opinion from          entered a judgment setting out a method whereby the
the Court and (2) the trial court had no right to modify and    garage could be operated so as not to constitute a private
change the terms of the judgment entered some five years        nuisance.
in the past. 324 S.W. 2d 449.
                                                                     On appeal the Supreme Court of Pennsylvania says
     We granted the petition for writ of error on [***5]        the crucial question is "do the circumstances here dis-
plaintiffs' first point. This asserted error by the Court of    closed give any jurisdiction to the court below to enter a
Civil Appeals in holding there was not an actual, real, or      declaratory judgment?" [*590] The Court then quotes
bona fide controversy between the parties. Petition-            from the Declaratory Judgments Act which provides that
ers-plaintiffs also have points on the error of the Court of    courts of record "within their respective jurisdictions,
Civil Appeals in holding that the trial court had no right to   shall have power to declare rights, status, and other legal
modify and change the terms of the previous judgment.           relations" between parties where there is a real matter in
                                                                controversy. (These are the identical provisions in our
     All parties agree that there must be a justiciable con-
                                                                statute -- Art. 2524-1.) The Court then says the Declara-
troversy between the parties before a declaratory judg-
                                                                tory Judgments Act gives the court no power to grant
ment action [*589] will lie. That is well settled law.
                                                                advisory opinions, or to determine matters not essential to
Board of Water Engineers v. City of San Antonio, 1955,
                                                                the decision of the actual controversy although such
155 Texas 111, 283 S.W. 2d 722(1); Parks v. Francis,
                                                                questions may in the future require adjudication, or
Texas Civ. App., 1947, 202 S.W. 2d 683(5), no writ his-
                                                                passing upon contingent or certain other situations. The
tory; Southern Traffic Bureau v. Thompson, Texas Civ.
                                                                court then says:
App., 1950, 232 S.W. 2d 742(10), ref., n.r.e.; Anderson,
Declaratory Judgments, 2d Ed., Vol. 1, p. 38, section 9;
                                                                                                                     Page 3
                                          160 Tex. 586, *; 334 S.W.2d 780, **;
                                      1960 Tex. LEXIS 563, ***; 3 Tex. Sup. J. 255

    "* * [***8] * In the present case, the question of              "It is further a well established rule that a declaratory
whether the use of the garage as now contemplated would        judgment should not be based upon facts which are par-
constitute an offensive business in the neighborhood, and      ticularly subject to mutation and change as are the facts
a private nuisance, affecting not only complaints, but         here. Anderson on Declaratory Judgments, p. 195, sec-
others residing near by, could not be determined until its     tion 72."
actual operation at some future date."
                                                                    A declaratory judgment rendered herein would not
    And the Court further says:                                settle the controversy between the parties. The perma-
                                                               nent injunction in Cause No. 1860 is still outstanding. A
     "* * * If such a proceding [as sought] was to be
                                                               violation of that judgment is subject to be punished for
countenanced, then approval would be given to applica-
                                                               contempt in a proper proceeding. It cannot be deter-
tions in any like equity case to have a determination as to
                                                               mined whether or not a proposed [***10] bottle will be
whether the court's order should be held ineffective, under
                                                               violative of the injunction issued on June 3, 1952 until
stated facts depending on contingent and future events,
                                                               California Products seeks to market its product in a bottle
with resulting confusion, and the decree would lack the
                                                               in the same market with Puretex. Only in this way can it
finality which is contemplated in law. If petitioners
                                                               be determined whether the California Products' bottle is of
believe the operation intended to be unobjectionable un-
                                                               the size and appearance that it misleads and deceives the
der the order made, they may proceed at their own risk. *
                                                               buying public into believing that it is securing Puretex
* * 'Construction of a decree cannot be given until the
                                                               products rather than California products.
question comes regularly before the court in proceedings
requiring construction and application to acts alleged to           We agree with the Court of Civil Appeals that this
have been done or omitted under it.' 21 C.J. 689."             proceeding is one in which an advisory opinion is sought.
                                                               Should we decide that the bottle proposed to be used by
     To the same effect see Shattuck v. Shattuck, 1948, 67
                                                               California Products did violate the injunction, we would
Ariz. 122, 192 P. 2d 229(18); Glassford v. Glassford,
                                                               settle nothing. California could continue indefinitely to
1953, 79 Ariz. 220, 262 P. [***9] 2d 382(3); National
                                                               propose bottles of different sizes, shapes and colors on
Biscuit Co. v. Kellogg Co., 1938 (Dist. Ct. Del.) 2 F. Supp.
                                                               which it could seek an equally indefinite number of ad-
801; J. Greenebaum Tanning Co. v. National Labor Re-
                                                               visory opinions as to whether such bottles violate the
lations Board (7th Cir.) 129 F. 2d 487(2); 154 A.L.R.
                                                               injunction. Such procedure would accomplish nothing.
740, et seq.
                                                               California Products should propose a bottle which it
     In the case of Southern Traffic Bureau v. Thompson,       thinks does not violate the injunction, use it and litigate
Texas Civ. App., 1950, 232 S.W. 2d 742, ref., n.r.e., it was   the material issue on a contempt hearing.
said:
                                                                   We affirm the judgment of the Court of Civil Ap-
     "The Uniform Declaratory Judgments Act does not           peals.
provide for the giving of merely advisory opinions on the
                                                                   Associate Justice Greenhill not sitting.
part of courts. In government this is a duty of the exec-
utive branch. In private [*591] business it is the                 Opinion delivered March 23, 1960.
function of [**783] the legal profession. City and
                                                                    [***11] Rehearing overruled May 18, 1960.
County of Denver v. Lynch, 92 Colo. 102, 18 P. 2d 907, 86
A.L.R. 907.
                                                                                                                      Page 1




                 H. C. Carter, Appellant v. Dripping Springs Water Supply Corporation, Appellee

                                                    NO. 03-03-00753-CV

                          COURT OF APPEALS OF TEXAS, THIRD DISTRICT, AUSTIN

                                                 2005 Tex. App. LEXIS 461


                                                  January 21, 2005, Filed

PRIOR HISTORY:        [*1] FROM THE DISTRICT
COURT OF HAYS COUNTY, 274TH JUDICIAL                            FACTUAL AND PROCEDURAL BACKGROUND
DISTRICT. NO. 02-1912, HONORABLE ROBERT T.
                                                                    Carter is an individual residing in Hays County,
PFEUFFER, JUDGE PRESIDING.
                                                                Texas. DSWSC is a non-profit member-owned Texas
                                                                water-supply corporation [*2] with its principal place of
DISPOSITION:          Reversed and Remanded.
                                                                business in Dripping Springs, Texas. In February 1997,
                                                                Carter entered into an unimproved-property purchase
                                                                contract with DSWSC for the sale of approximately
COUNSEL: For APPELLANT: Mr. Matthew T. Slimp,
                                                                seventeen acres. DSWSC acquired the property for the
Mr. Terry L. Scarborough, HANCE, SCARBOROUGH ,
                                                                purpose of building a wastewater treatment facility. The
WRIGHT, WOODWARD & WEISBART, L.L.P., Aus-
                                                                contract contained the following buyback provision:
tin, TX.
                                                                           In the event [DSWSC] is unable to ob-
For APPELLEE: Ms. Karey Nalle Oddo, Mr. Craig T.
                                                                       tain environmental, historical, archeolog-
Enoch, WINSTEAD, SECHREST & MINICK, P.C.,
                                                                       ical, permitting or such other clearance or
Austin, TX.
                                                                       approvals from governmental regulatory
                                                                       agencies after the purchase of the property,
JUDGES: Before Justices Kidd, Patterson and Puryear;
                                                                       or for any other reason [DSWSC]'s
Justice Kidd Not Participating.
                                                                       wastewater facility cannot go forward,
                                                                       [DSWSC] must hold the property for a
OPINION BY: David Puryear
                                                                       period of two years from the date of clos-
                                                                       ing. [DSWSC] must then offer [to] resell
OPINION
                                                                       the exact same property to [Carter] for $
                                                                       87,500.00 and hold such offer to [Carter]
MEMORANDUM OPINION
                                                                       open for six (6) months from date of no-
    H.C. Carter ("Carter") entered into an agreement with              tice. At anytime after receiving notice to
Dripping Springs Water Supply Corporation ("DSWSC")                    repurchase the land, but not after six
in which Carter agreed to sell property to DSWSC for the               months from receipt of notice, [Carter]
purpose of developing a wastewater treatment facility.                 shall repurchase the land for the sum of $
One of the provisions of the contract allowed Carter to                87,500.00, plus the cost of any boundary
repurchase the property in question if Drippings Springs               survey which may be required by [Carter]
was unable to build the treatment facility. Carter filed suit          or any third party lender. [DSWSC] shall
to enforce the buyback provision, but the district court               furnish a title policy [*3] and convey
granted DSWSC's plea to the jurisdiction and dismissed                 good title by general warranty deed to
the case. Carter appeals the district court's grant of the             [Carter] in the event of such repurchase.
plea to the jurisdiction. We will reverse the order and                (altered to substitute "DSWSC" for "Buy-
remand the cause.                                                      er" and "Carter" for "Seller").
                                                                                                                   Page 2
                                               2005 Tex. App. LEXIS 461, *


                                                               stated that the plans for an organized disposal system will
                                                               not be approved if any portion of the system's treatment
                                                               facilities, storage ponds, or surface irrigation components
     The parties interpret the buyback provision in dif-
                                                               are located within 500 feet of the boundary of any city
ferent ways. Carter takes the position that the buyback
                                                               park or any land owned by an organization whose purpose
agreement creates a two-year time limit in which DSWSC
                                                               is to protect, promote, maintain, or restore any structure
is required to obtain all the necessary permits to build the
                                                               listed on the National Register of Historic Places. In the
facility and proceed in building the facility. Further,
                                                               ordinance, an organized disposal system is defined as
Carter alleges that when the two-year period of time ex-
                                                               "any publicly or privately owned system for the collec-
pired, the contract gave Carter the right to repurchase the
                                                               tion, treatment and/or disposal of sewage from more than
property for six months thereafter. Carter insists that
                                                               one residence, [*6] duplex or commercial building that
DSWSC did not satisfy the two-year provision because it
                                                               is installed and operated in accordance with the terms and
did not obtain all the permits necessary to build the facil-
                                                               conditions of a valid permit issued by" the Commission.
ity; he asserts that DSWSC never applied for nor received
                                                               The facility discussed in the contract was a wastewater
a site-development permit from the City of Dripping
                                                               treatment facility that could provide service to 120 sin-
Springs, which is necessary for the development of any
                                                               gle-family lots. Carter claims the seventeen acres is next
land that is within the corporate limits of the City of
                                                               to a park and a recorded historical landmark. Therefore,
Dripping Springs or its extraterritorial jurisdiction. See
                                                               Carter insists the 500-foot provision applies to the prop-
Dripping Springs, Tex., Ordinance No. 52-B § 10A
                                                               erty in question.
(2001), at p. 13. 1 However, DSWSC counters by con-
tending that it has been able to obtain the necessary per-          DSWSC counters and contends that, under the con-
mits to proceed with the [*4] facility. Specifically,          tract, it has a reasonable amount of time to exhaust all
DSWSC insists its proposed wastewater facility has been        alternatives, that the buyback provision does not have a
permitted by the Texas Commission on Environmental             two-year time limit, and that before Carter can seek to
Quality ("the Commission"). 2 Further, DSWSC asserts           repurchase the property, DSWSC must give Carter notice.
that it has a certificate of convenience and necessity au-     Further, DSWSC contends the ordinance does not apply
thorizing it to provide water service in portions of Hays      to the property in question, it is not impossible for
County and a Texas Pollutant Discharge Elimination             DSWSC to build the facility on the property in question,
System permit, which allows it to provide wastewater           and unless Carter can prove as a matter of law that it is
treatment and disposal services in Hays County.                physically impossible for it to build the facility, then
                                                               Carter's claims are not ripe, and he is not entitled to pro-
       1 It is worth noting that the City of Dripping          ceed in district court.
       Springs passed an ordinance specifying that the
                                                                    In July 1997, Carter offered to purchase lot twenty,
       seventeen acres in question lie within the ex-
                                                               which is another piece of property owned by DSWSC that
       tra-territorial jurisdiction of Dripping Springs. See
                                                               was [*7] purchased in order to access the original sev-
       Dripping Springs, Tex., Ordinance No. 1310.26
                                                               enteen acres. Carter contends that the offer did not contain
       (2003).
                                                               a time limit and that the offer was never revoked. Carter
       2 For convenience, we will refer to both the
                                                               also alleges the Board of Directors of DSWSC held a
       Commission and its predecessor, the Texas Nat-
                                                               meeting and agreed to accept Carter's offer to purchase lot
       ural Resource Conservation Commission, as the
                                                               twenty. In August 1997, Joel Wilkinson, who was an
       Commission.
                                                               employee of DSWSC, sent Carter a letter stating that the
     Carter also contends that it is not possible for          Board had agreed to grant Carter the first right to purchase
DSWSC to build the treatment facility and insists that, as     the lot at the price DSWSC had paid in the event the lot
a result, Carter is entitled to repurchase the property.       and the seventeen-acre tract were not used for developing
[*5] Carter asserts that because of the passage of an          wastewater facilities. Carter asserts that he believed,
ordinance by the City of Dripping Springs and because of       based on his prior interactions with Wilkinson during the
a provision in the contract requiring DSWSC to construct       original contract formation, that Wilkinson was author-
a 150-foot natural-vegetative buffer along the property        ized to accept Carter's offer; however, DSWSC denies
boundary, it is physically impossible for DSWSC to build       that Wilkinson had the authority to accept Carter's offer.
a treatment facility on the property in question. The or-      Further, Carter asserts that his offer and DSWSC's ac-
dinance in question was enacted in May 2001, and the           ceptance letter created an amendment to the original
ordinance listed restrictions for building an organized        contract and that he is entitled to purchase the seventeen
disposal system within Dripping Springs or within its          acres and lot twenty.
extraterritorial jurisdiction. See Dripping Springs, Tex.,
                                                                  In April 2001, Carter wrote a letter to the president of
Ordinance No. 52-D (2001). Specifically, the ordinance
                                                               DSWSC asking to purchase lot twenty and the original
                                                                                                                      Page 3
                                               2005 Tex. App. LEXIS 461, *


seventeen acres under the buyback provision of the con-         should not reach the merits of the case. Id. A court should
tract, [*8] and he tendered $ 10,000 as a down pay-             look to the facts alleged in the pleadings and may consider
ment. Carter stated in the letter that if DSWSC refused to      evidence when necessary to resolve the jurisdictional
sell the property to him, he would be forced to sue             questions in issue. Id. at 555. A court should construe
DSWSC. DSWSC refused to sell any of the property to             the pleadings liberally in a way that favors jurisdiction
Carter.                                                         unless the petition affirmatively demonstrates a lack of
                                                                jurisdiction. See Peek v. Equip. Serv. Co., 779 S.W.2d
     Carter filed suit seeking a declaratory judgment re-
                                                                802, 804, 33 Tex. Sup. Ct. J. 77 (Tex. 1989).
garding his rights and obligations under the buyback
provision of the contract. Carter contended that DSWSC              Ripeness
had not received all the necessary permits and approvals
                                                                     In its plea to the jurisdiction, which the district court
for the wastewater facility to go forward and that it was
                                                                granted, DSWSC alleged that Carter's claims were not
not possible for DSWSC to build the wastewater facility
                                                                ripe. Specifically, DSWSC's plea to the jurisdiction con-
as required under the terms of the contract. Carter sought a
                                                                tended that Carter's claims were not ripe because (1) no
declaration that, as a result of DSWSC's alleged inability
                                                                facts support Carter's charge that it was impossible for
to obtain permits and inability to build the facility, he was
                                                                DSWSC to build its wastewater facility; (2) the property
entitled to exercise his right to purchase the seventeen
                                                                in question is outside Dripping Springs's city limits and,
acres and lot twenty.
                                                                therefore, not bound by the city ordinances that Carter
     Carter then filed an amended motion for summary            alleges prevent DSWSC from building its [*11] facility;
judgment. In response, DSWSC filed its own motion for           (3) the buyback provision does not specify when DSWSC
summary judgment and a plea to the jurisdiction, styled as      must send notice to Carter of his right to repurchase the
a motion to dismiss for lack of jurisdiction, and asserted      property; and (4) no notice has been received by Carter, so
the following: (1) Carter's claims were not ripe for review     Carter is not entitled to enforce the buyback provision.
and (2) Carter lacked standing to sue. Both parties at-
                                                                    For a claim to be justiciable, the claim must be ripe,
tached attorney's fees affidavits to their pleadings.
                                                                and the concept of ripeness emphasizes the need for a
     The district [*9] court denied both motions for            concrete injury and focuses on when an action may be
summary judgment and granted DSWSC's plea to the                brought. Waco Indep. Sch. Dist. v. Gibson, 22 S.W.3d
jurisdiction without findings of fact or conclusions of law.    849, 851, 43 Tex. Sup. Ct. J. 731 (Tex. 2000). Under the
Further, the district court also awarded $ 22,986.94 to         ripeness doctrine, courts consider whether, at the time a
DSWSC for attorney's fees. In response, Carter filed a          lawsuit is filed, the facts are sufficiently developed and
motion for reconsideration and contended that the district      show that an injury has or is likely to occur. Id. at 852. A
court could not award attorney's fees if it granted             case is not ripe if determining whether a plaintiff has a
DSWSC's plea to the jurisdiction. The district court de-        concrete injury depends on events that have not come to
nied the motion for reconsideration, signed an order dis-       pass or that are based on hypothetical or contingent facts.
missing Carter's action without prejudice, and awarded          Id.
DSWSC $ 22,986.94 in attorney's fees.
                                                                      A declaratory judgment, on the other hand, is ap-
     Carter filed a request for findings of fact and con-       propriate if a justiciable controversy exists as to the rights
clusions of law to determine what evidence the trial court      and status of the parties and if the controversy will be
had relied on in sustaining DSWSC's plea to the jurisdic-       resolved by the declaration sought. Bonham State Bank
tion. Also, Carter filed a motion for new trial. The district   v. Beadle, 907 S.W.2d 465, 467, 38 Tex. Sup. Ct. J. 768
court denied both the request and the motion for new trial.     (Tex. 1995). Determining whether a court has jurisdiction
Carter appeals the district court's decisions and asserts the   [*12] over a declaratory-judgment action is a question of
district court erred by granting DSWSC's plea to the ju-        law and is subject to de novo review. Paulsen v. Texas
risdiction, by awarding DSWSC attorney's fees, by               Equal Access to Justice Found., 23 S.W.3d 42, 44 (Tex.
denying Carter's motion for a new trial, and by concluding      App.--Austin 1999, pet. dism'd), order withdrawn on other
that some of Carter's objections to the attorney's fees were    grounds (April 26, 2001); see Texas Dep't of Transp. v.
waived.                                                         City of Sunset Valley, 146 S.W.3d 637, 646, 47 Tex. Sup.
                                                                Ct. J. 1252 (Tex. 2004) (subject matter jurisdiction re-
DISCUSSION                                                      viewed de novo). The Uniform Declaratory Judgment Act
                                                                gives an individual whose rights and legal relations are at
    The purpose of a plea to the jurisdiction [*10] is to
                                                                issue in a contractual dispute a vehicle where he can so-
defeat a cause of action without regard to whether the
                                                                licit the court to resolve questions of construction or va-
claims raised are meritorious. Bland Indep. Sch. Dist. v.
                                                                lidity under a contract. National County Mut. Fire Ins.
Blue, 34 S.W.3d 547, 554, 44 Tex. Sup. Ct. J. 125 (Tex.
                                                                Co. v. Johnson, 829 S.W.2d 322, 324 (Tex. App.--Austin
2000). When deciding a plea to the jurisdiction, the court
                                                                                                                      Page 4
                                                2005 Tex. App. LEXIS 461, *


1992), aff'd, 879 S.W.2d 1, 37 Tex. Sup. Ct. J. 75 (Tex.         tion on the merits. Essentially what the trial court did was
1993). Section 37.004(b) of the Uniform Declaratory              to decide on the merits that DSWSC was still "going
Judgment Act provides that "[a] contract may be con-             forward" under the contract, but, under this view, the case
strued before or after there has been a breach." Tex. Civ.       would never be ripe for resolution.
Prac. & Rem. Code Ann. § 37.004(b) (West 1997).
                                                                      For ripeness to bar Carter's claim, we would have to
     DSWSC asserts on appeal that, in this case, deter-          assume that DSWSC's construction of the contract is
mining whether Carter has a concrete injury depends upon         correct. However, the contract can be construed in other
events that have not yet come to pass; therefore, DSWSC          ways. Under DSWSC's interpretation, the events trigger-
insists that [*13] the case is not ripe. Further, DSWSC          ing the buyback provision have not occurred; however,
contends that the facts supporting Carter's right to seek a      under Carter's interpretation, the events triggering the
declaratory judgment were not in existence at the time           buyback provision have already occurred. Carter asserts
Carter filed suit and that the conditions that needed to be      that the buyback provision requires DSWSC to resell the
met in order for Carter to demand DSWSC resell the               property to Carter two years after the date of closing if
property to him had not occurred. Specifically, DSWSC            DSWSC is not able to obtain all the necessary permits and
asserts that Carter's ability to repurchase the seventeen        approvals by that time and that the failure to do so is a
acres and lot twenty was contingent upon DSWSC being             breach of the contract. Further, Carter insists that the
unable to obtain permits for the wastewater facility or          language "and hold such offer to Seller open for six (6)
being prevented from going forward with development.             months from date of notice" does not create a condition
However, DSWSC insists that neither one of these events          precedent under which DSWSC must give Carter notice
has occurred. In addition, DSWSC urges that the                  before he can repurchase the property. Rather, Carter
six-month-notice provision requires that DSWSC send              contends that the [*16] six-month provision refers to the
notice to Carter informing him of his right to repurchase        six-month period after Carter has been offered the prop-
the property before the buyback provision takes effect and       erty in which he could exercise his mandatory right to
that the requirement does not specify when DSWSC must            purchase the property. DSWSC, on the other hand, alleges
send notice to Carter. Because no notice has been sent,          that the six-month notice requirement means that DSWSC
DSWSC insists that Carter is not able to force the sale of       must give Carter notice of his buyback right before Carter
the properties and that his claims are, therefore, not ripe.     can sue. Both Carter's and DSWSC's readings of the
                                                                 contract are reasonable, and Carter is entitled to have the
     In support of its position that a case is not ripe if the
                                                                 court determine what the buyback provision means.
injury depends on events that have not yet occurred and
that a court may not rule on a hypothetical fact [*14]               Whether it is possible for DSWSC to build its facility
situation, DSWSC relies on many cases. See, e.g.,                on the property in question as a result of the city ordi-
Camarena v. Texas Employment Comm'n, 754 S.W.2d                  nances and the vegetative buffer requirement is a deter-
149, 31 Tex. Sup. Ct. J. 563 (Tex. 1988) (exemption de-          mination the trial court must make because it is an argu-
nied most agricultural workers benefits, but case not ripe       ment on the merits. Because the only way to resolve these
because Commission had, at time of judgment, not at-             disputed issues is a trial on the merits, we hold that
tempted to deny benefits); Firemen's Ins. Co. v. Burch,          Carter's claims are ripe for consideration.
442 S.W.2d 331, 12 Tex. Sup. Ct. J. 49 (Tex. 1968) (asking
                                                                     Standing
court to declare liability of insurance company upon a
judgment that may be rendered in the future is purely                 Although DSWSC's plea to the jurisdiction contained
speculative, so declaratory judgment inappropriate).             allegations of both ripeness and standing, the district court
However, these cases are distinguishable from this case          did not differentiate between the two allegations when it
because here a court is not being asked to make a decla-         granted DSWSC's plea. On appeal, DSWSC has only
ration based upon facts that may or may not occur in the         argued the ripeness issue. However, we will examine the
future. Rather, this case asks a court to choose between         standing issue briefly.
two competing interpretations of a contract whose terms
                                                                      In DSWSC's plea to the [*17] jurisdiction, which
are dependent upon future events. See, e.g., Kel-
                                                                 the trial court granted, DSWSC alleged that Carter did not
ley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462,
                                                                 have standing to file this suit because there was a variation
42 Tex. Sup. Ct. J. 130 (Tex. 1998) (court asked to declare
                                                                 in how Carter was identified in his original petition and
whether insurance contract's pollution exclusion clause
excluded Kelley from clean up costs).                            request for declaratory relief and in the general warranty
                                                                 deed.
     Thus, DSWSC is urging an interpretation contrary to
                                                                      We review a claim that a trial court lacks sub-
Carter's, but if these issues are not determined by a trial
                                                                 ject-matter jurisdiction under a de novo standard. See
court on the merits and [*15] if the contract provisions
                                                                 Mayhew v. Town of Sunnyvale, 964 S.W.2d 922, 928, 41
are not construed, the parties will never receive a resolu-
                                                                                                                     Page 5
                                               2005 Tex. App. LEXIS 461, *


Tex. Sup. Ct. J. 517 (Tex. 1998). A party interested in a            Further, to the extent that DSWSC argued that Carter
contract or other writings constituting a contract who          does not have the capacity to sue because the deed names
desires to have the contract construed by a court in order      H.C. Carter, Trustee, DSWSC is urging a distinction that
to determine his rights, status, or other legal relations       does not matter under the facts of this case. Even assum-
affected by the contract has standing to file suit. See Tex.    ing Carter acted as an agent, an agent may sue in his own
Civ. Prac. & Rem. Code Ann. § 37.004(a) (West 1997).            name when the agent [*19] contracts in his own name.
                                                                See Perry v. Breland, 16 S.W.3d 182, 187 (Tex.
    Name Discrepancy
                                                                App.--Eastland 2000, pet. denied). Carter contracted in
     DSWSC contends that because the general warranty           his own name as evidenced by the contract at issue in this
deed names H.C. Carter, Trustee as guarantor and because        case, which defines Carter as the seller. In addition, Carter
the plaintiff's original petition and request for declaratory   and DSWSC should be allowed to present evidence at trial
judgment was filed by H.C. Carter, individually, then the       on whether or not Carter has satisfied all the necessary
trial court lacked subject-matter jurisdiction over the         prerequisites for filing suit.
claim. DSWSC contends that because the property was
                                                                     We hold that the trial court has subject-matter juris-
conveyed by H.C. Carter, Trustee rather than H.C. Carter,
                                                                diction over this case, and we hold that Carter has stand-
then Carter was not [*18] the "seller" under the contract
                                                                ing to file this claim.
and, therefore, Carter had no interest to adjudicate. Fur-
ther, DSWSC argues that, as a result of the discrepancy in
                                                                CONCLUSION
names, Carter did not possess title to the seventeen acres
at the time of contract or at the time the general warranty          Because we conclude that the claims presented were
deed was obtained and, therefore, did not satisfy all the       ripe for resolution, that the trial court had subject-matter
conditions precedent required to maintain this suit.            jurisdiction, and that Carter had standing to file the suit,
                                                                we reverse the district court's order granting DSWSC's
     However, a party does not always have to be identi-
                                                                plea to the jurisdiction and remand the case for further
fied in the exact same manner in every document for a
                                                                proceedings not inconsistent with this opinion. 3
claim to be valid, especially when there is no evidence
that a different person was meant to be identified. See,
                                                                       3 Because we are reversing the order of the
e.g., Salazar v. Tower, 683 S.W.2d 797, 799 (Tex.
                                                                       district court, we need not address the issue of
App.--Corpus Christi 1984, no writ) (omission of "Jr."
                                                                       attorney's fees or objections to attorney's fees.
insufficient to establish lack of identity). This proposition
seems especially true where, as here, the difference was             [*20] David Puryear, Justice
the presence of a title and not a difference in a name.
                                                                                                                  Page 1




                COMMERCIAL UNION INSURANCE COMPANY AND TOCON CONSTRUC-
                 TION CORPORATION, Appellants, v. LA VILLA INDEPENDENT SCHOOL
                DISTRICT, Appellee. and LA VILLA INDEPENDENT SCHOOL DISTRICT, Ap-
                                  pellant, v. BILL CAUDLE, SR., Appellee

                                                   No. 13-88-642-CV

                      COURT OF APPEALS OF TEXAS, Thirteenth District, Corpus Christi

                                     779 S.W.2d 102; 1989 Tex. App. LEXIS 2568


                                                    October 12, 1989

SUBSEQUENT HISTORY:              [**1]         Motion for
                                                                   La Villa entered into a construction contract with
Rehearings Overruled November 9, 1989.
                                                              Tocon, the general contractor, dated March 16, 1983, for
                                                              the construction of a new gymnasium. Pursuant to the
PRIOR HISTORY:             On Appeal from the 332nd
                                                              requirements of the contract and Tex. Rev. Civ. Stat. Ann.
District Court of Hidalgo County, Texas.
                                                              art. 5160 (Vernon 1987), Tocon furnished La Villa with a
                                                              performance bond, dated March 16, 1983, for $
                                                              196,050.00, with Commercial as surety. This amount was
JUDGES: Norman L. Utter, Seerden and Benavides, JJ.
                                                              later increased to $ 196,462.00 to reflect the full amount
                                                              of the contract price. On April 1, 1983, Rudy Gomez, La
OPINION BY: UTTER
                                                              Villa's architect, issued notice to Tocon to proceed. This
                                                              notice informed Tocon that work was to begin within ten
OPINION
                                                              days of the notice and that Tocon had until August 8, 1983
      [*104] La Villa Independent School District (La         to complete the project. Tocon thereafter commenced
Villa), brought suit against Commercial Union Insurance       construction of the gymnasium.
Company (Commercial), Tocon Construction Corpora-
                                                                   On November 7, 1983, a certificate of substantial
tion (Tocon), and Bill Caudle, Sr., alleging numerous
                                                              completion was issued by the architect and La Villa, as
theories of recovery as to each defendant for problems
                                                              reflected on that certificate, accepted the work completed
that developed with respect to a gymnasium that Tocon
                                                              and assumed full possession on January 19, 1984. Tocon
constructed. Commercial filed a performance bond on this
                                                              was subsequently notified of various deficiencies which
project in favor of La Villa, and Caudle was the president,
                                                              needed correction. A letter from Gomez dated January 16,
chief executive officer, and majority shareholder of
                                                              1984 informed Tocon that there was a problem [**3]
Tocon. After a bench trial, the court ordered that La Villa
                                                              with paint discoloration. Although Tocon corrected sev-
recover $ 12,950.00 and attorneys' fees from Commercial
                                                              eral other defects and represented that it would correct the
and Tocon, jointly and severally, but denied any recovery
                                                              problem with the paint discoloration, Tocon failed to
against Caudle. The trial court's order specifically denies
                                                              remedy this problem. On August 13, 1985, La Villa ac-
La Villa's Deceptive Trade Practice Act claims, but does
                                                              cepted a $ 12,950.00 bid to re-paint the gymnasium from
not otherwise specify under which theory La Villa is
                                                              another contractor. On February 20, 1986, La Villa filed
being permitted to recover. The court further denied all of
                                                              this suit to recover its losses.
the defendant's counterclaims, including Tocon's coun-
terclaim regarding a "liquidated damage provision"                In considering a "no evidence", "insufficient evi-
[**2] in its contract with La Villa. We affirm in part and    dence" or "against the great weight and preponderance of
reverse in part.                                              the evidence" point of error, we will follow the
                                                              well-established test set forth in Pool v. Ford Motor Co.,
                                                              715 S.W.2d 629 (Tex. 1986); Dyson v. Olin Corp., 692
                                                                                                                        Page 2
                                   779 S.W.2d 102, *; 1989 Tex. App. LEXIS 2568, **


S.W.2d 456 (Tex. 1985); Glover v. Texas General In-                         3. August 8, 1983 -- date of comple-
demnity Co., 619 S.W.2d 400 (Tex. 1981); Garza v.                      tion as specified in the architect's notice to
Alviar, 395 S.W.2d 821 (Tex. 1965); Allied Finance Co. v.              proceed
Garza, 626 S.W.2d 120 (Tex. App. -- Corpus Christi 1981,
                                                                            4. November 7, 1983 -- date of sub-
writ ref'd n.r.e.); and Calvert, No Evidence and Insuffi-
                                                                       stantial completion signed by architect
cient Evidence Points of Error, 38 Texas L. Rev. 361
(1960).                                                                     5. January 16, 1984 -- architect states
                                                                       that there is a problem with paint discol-
     There were no findings of fact and conclusions of law
                                                                       oration
filed in this cause. Absent findings of fact and conclusions
of law, all questions of fact should be presumed to support                  6. January 19, 1984 -- date of sub-
the judgment, and the judgment [**4] should be af-                     stantial completion accepted [**6] by
firmed if it can be upheld on any legal theory that finds              school district
support in the pleadings and in the evidence. Point
                                                                          7. February 14, 1984 -- last payment
Lookout West, Inc. v. Whorton, 742 S.W.2d 277, 278 (Tex.
                                                                       made by school district received by Tocon
1987); Campbell & Son Construction Co. v. Housing
Authority of Victoria, 655 S.W.2d 271, 274 (Tex. App. --                   8. March 26, 1984 -- letter by architect
Corpus Christi 1983, no writ).                                         regarding paint problem
     Commercial and Tocon's first through third points of                   9. November 27, 1984 -- Cau-
error contend that the trial [*105] court erred in grant-              dle/Tocon letter stating that paint work
ing a recovery against Commercial upon the surety bond.                will be subcontracted out
They argue that the evidence conclusively showed that the
claim was barred by limitations and that the trial court's                10. October 1, 1985 -- attorney de-
holding to the contrary was against the overwhelming                   mand letter
weight and preponderance of the evidence.                                   11. February 20, 1986 -- suit filed.
      The record reflects that the performance bond stated
that "any suit under this bond must be instituted before the
expiration of two (2) years from the date on which final             Under Tex. Rev. Civ. Stat. Ann. art. 5160 G, no suit
payment under the Contract falls due." However, the             shall be instituted on a bond after the expiration of one
performance bond also stated that it was being ". . . exe-      year after the date of final completion of such contract.
cuted pursuant to the provisions of Article 5160 of the         However, the performance bond in question stated that
Revised Civil Statutes of Texas as amended, and all lia-        any suit must be instituted before the expiration of two
bilities on this bond . . . shall be determined in accordance   years from the date on which final payment under the
with the provisions of said Article [**5] . . . ." Gomez        contract falls due.
filed a certificate of substantial completion on November
7, 1983, and Tocon requested final payment on November               We find that under either application of the statute of
29, 1983. Gomez sent La Villa a letter dated December 1,        limitations, this case is barred by limitations. The evi-
1983, wherein he submitted Tocon's request for final            dence was that on November 7, 1983, La Villa's architect
payment, but stated various amounts were going to be            signed the certificate of substantial completion. On Jan-
retained to correct deficiencies and for liquidated dam-        uary 19, 1984, La Villa accepted the certificate of sub-
ages. La Villa made this payment by check dated Febru-          stantial completion. On February 14, 1984, payment was
ary 14, 1984. La Villa filed this suit to recover its losses    received. Suit was not filed until February 20, 1986,
on February 20, 1986.                                           which is more than two years after La Villa accepted the
                                                                certificate of substantial [**7] completion.
     The issues are whether the one or two year statute of
limitations is applicable, and whether the trial court's            It is settled that a surety on a bond is entitled to rely
determination that the case was not barred by limitations       on the architect's certificate of completion as final dis-
is supported by the evidence.                                   charge of its duty on the bond. Transamerica Insurance
                                                                Co. v. Victoria Housing Authority, 669 S.W.2d 818 (Tex.
    The events of this transaction occurred as follows:         App. -- Corpus Christi 1984, writ ref'd n.r.e.); City of
                                                                Midland v. Waller, 430 S.W.2d 473 (Tex. 1968). In
          1. March 16, 1983 -- parties enter a                  Transamerica, this Court held that substantial completion
       contract and bond                                        of a contract is regarded as full performance.
            2. April 1, 1983 -- notice to proceed is            Transamerica, 669 S.W.2d at 822. The contract between
       issued by the architect                                  La Villa and Tocon defines the date of substantial com-
                                                                                                                    Page 3
                                     779 S.W.2d 102, *; 1989 Tex. App. LEXIS 2568, **


pletion as "the Date certified by the Architect when Con-             for each calendar day of delay until the
struction is sufficiently complete, in accordance with the            work is Substantially Complete:
Contract Documents, so the Owner can [*106] occupy
                                                                           One Hundred Dollars ($ 100.00)
or utilize the work or designated portion thereof for the
use of which it is intended." If we apply Article 5160 G,
this case should have been filed no later than one year
                                                               Pursuant to this provision, La Villa withheld $ 9,100.00
after January 19, 1984, the date the school district ac-
                                                               from Tocon's payment because of Tocon's failure to
cepted the certificate of substantial completion. If we
                                                               complete the project on the date set forth in the contract.
apply the two year statute, the suit should have been
                                                               Alejas Salazar, the superintendent of the La Villa Inde-
brought before the expiration of two years from February
                                                               pendent School District, testified that the teachers and the
14, 1984, the date the last payment was made to Tocon by
                                                               students suffered an inconvenience because they did not
[**8] the school district. Under either interpretation, the
                                                               have full use of the building. Salazar further testified that
case is barred.
                                                               he could not actually calculate dollar [**10] for dollar
     La Villa argues that the statute was extended by the      the damages suffered by the inconvenience, but that a
representations by Tocon that they were going to repair        hundred dollars a day would be a reasonable amount to
the paint problems. The representations by Tocon might         retain as liquidated damages. Salazar also testified that the
have been used to toll the statute of limitations regarding    liquidated damage provision was included in the contract
any liability the contractor might have had to the owner if    to provide retribution should they suffer monetarily.
such question was in issue, but we hold that it would not
                                                                    The right of parties to make their own bargains is not
serve to toll the statute regarding the surety whose duty
                                                               unlimited, but rather is limited by the universal rule for
under the bond is discharged upon completion of the
                                                               measuring contractual damages based on just compensa-
contract. La Villa does not direct us to any portions of the
                                                               tion for the loss or damage actually sustained. Stewart v.
record in which Commercial took any affirmative act
                                                               Basey, 150 Tex. 666, 245 S.W.2d 484, 486 (1952). A
which would toll the statute of limitations as to it. We
                                                               liquidated damage provision will be enforced when the
sustain Tocon and Commercial's first three points of error.
                                                               court finds: (1) the harm caused by the breach is incapable
     Commercial and Tocon's fourth through sixth points        or difficult of estimation; and (2) that the amount of liq-
of error contend the trial court erred in refusing to grant    uidated damages called for is a reasonable forecast of just
Tocon an offset of $ 9,100.00, plus interest and attorneys'    compensation. Rio Grande Valley Sugar Growers, Inc.
fees. They complain that the evidence conclusively             v. Campesi, 592 S.W.2d 340, 342 n.2 (Tex. 1979); Stewart,
showed that the "liquidated damage provision" under            245 S.W.2d at 486; Stewart v. Basey, 241 S.W.2d 353, 357
which La Villa retained the $ 9,100.00 was a penalty           (Tex. Civ. App. -- Austin 1951, writ ref'd). However, the
provision and that the trial court's holding to the contrary   party asserting that a liquidated damages clause is, in fact,
was against the overwhelming weight and preponderance          a penalty provision has the burden of proving this defense.
of the [**9] evidence.                                         Johnson Engineers, Inc. v. Tri-Water [**11] Supply
                                                               Corp., 582 S.W.2d 555, 557 (Tex. Civ. App. -- Texarkana
        The contract between Tocon and La Villa provided
                                                               1979, no writ). In order to meet this [*107] burden, the
that:
                                                               party asserting the defense is required to prove the amount
                                                               of the other parties' actual damages, if any, to show that
            TIME OF COMMENCEMENT AND
                                                               the liquidated damages are not an approximation of the
          SUBSTANTIAL COMPLETION
                                                               stipulated sum. Id.; see also Robinson v. Granite Equip-
               The Work to be performed under this             ment Leasing Corp., 553 S.W.2d 633, 637 (Tex. Civ. App.
          Contract shall be commenced as noted in              -- Houston [1st Dist.] 1977, writ ref'd n.r.e.); Oetting v.
          the Notice to Proceed, and, subject to au-           Flake Uniform & Linen Service, Inc., 553 S.W.2d 793,
          thorized adjustments, Substantial Com-               795 (Tex. Civ. App. -- Fort Worth 1977, no writ). If the
          pletion shall be achieved not later than as          liquidated damages are shown to be disproportionate to
          noted in the Notice to Proceed.                      the actual damages, then the liquidated damages must be
                                                               declared a penalty and recovery limited to the actual
               The Owner will suffer financial loss if
                                                               damages proven.
          the Project is not Substantially Complete
          on the date set forth in the Contract                      Since no findings and conclusions were filed by the
          Documents. The Contractor (and his                   trial court, we presume that the trial court found that the
          Surety) shall be liable for and shall pay to         damages caused by Tocon's breach were either incapable
          the Owner the sums thereinafter stipulated           or difficult to estimate and that the liquidated damages
          as fixed, agreed and liquidated damages              constituted just compensation. No evidence was offered
                                                               regarding the extent, if any, of La Villa's actual damages
                                                                                                                        Page 4
                                     779 S.W.2d 102, *; 1989 Tex. App. LEXIS 2568, **


pertaining to the inability to use the gymnasium, and the         (1952); Aransas Natural Gas Co. v. Renfro, 430 S.W.2d
record clearly supports the [**12] difficulty in ascer-           591, 592 (Tex. Civ. App. -- Waco 1968, writ ref'd n.r.e.).
taining damages resulting from the delay in use to a sec-         We finally note that the trial court could have found and
ondary school's gymnasium. See City of Marshall v. At-            concluded that Tocon failed to make a good faith attempt
kins, 60 Tex. Civ. App. 336, 127 S.W. 1148, 1151 (Tex.            to settle this case.
Civ. App. 1910, writ dism'd); but see Loggins Construc-
                                                                        Raymundo Lopez, La Villa's attorney, testified that
tion Co. v. Steven F. Austin State University Board of
                                                                  he spent 126 hours on the case prior to trial, and an addi-
Regents, 543 S.W.2d 682, 685-86 (Tex. Civ. App. -- Tyler
                                                                  tional twenty [*108] hours during the trial of the case.
1976, writ ref'd n.r.e.) (held that withholding $ 250.00 a
                                                                  He further testified that his normal rate is $ 85.00 an hour
day for delayed usage of a football stadium was a penalty
                                                                  for out of court time and $ 100.00 an hour for court time,
as a matter of law). Therefore, after reviewing the entire
                                                                  and requested various amounts for post-judgment attor-
record, we hold that the trial court did not err in refusing to
                                                                  ney's fees. He also testified that the above amounts were
offset $ 9,100.00, plus attorneys' fees and interest from the
                                                                  fair, reasonable and customary attorney's fees in Hidalgo
damages it awarded La Villa. Appellants' fourth through
                                                                  County, [**15] Texas.
sixth points of error are overruled.
                                                                       In the absence of findings of fact and conclusions of
     By their seventh through tenth points of error,
                                                                  law, we will presume that the court found such facts as
Commercial and Tocon contend the trial court erred in
                                                                  were necessary to support the judgment. Commercial
awarding attorney's fees to La Villa. They complain that
                                                                  Credit Corp. v. Smith, 143 Tex. 612, 187 S.W.2d 363, 365
the award of attorney's fees was unreasonable and un-
                                                                  (1945); Bennett v. State National Bank, 623 S.W.2d 719,
necessary because Tocon agreed to pay the full amount
                                                                  722 (Tex. Civ. App. -- Houston [1st Dist.] 1981, writ ref'd
due, plus attorney's fees, prior to suit being filed, but that
                                                                  n.r.e.). We hold that there is sufficient evidence to support
La Villa declined such payment when "Tocon refused to
                                                                  La Villa's amount of attorney's fees to La Villa. Tex. Civ.
surrender its right to claim that the 'liquidated damage
                                                                  Prac. & Rem. Code Ann. § 38.001 (Vernon 1986). We
provision' [**13] was invalid and to recover sums
                                                                  overrule Commercial and Tocon's seventh through tenth
withheld thereby." They also argue that there is either no
                                                                  points of error.
evidence or insufficient evidence to support an award of
attorney's fees to La Villa.                                           By its first point of error, La Villa contends the trial
                                                                  court erred in refusing to enter judgment against Caudle in
      The record and the above complaints reveal that
                                                                  his individual capacity for his own conduct and for the
Tocon placed a condition upon its settlement offer; i.e.
                                                                  conduct of Tocon. By its second point of error, La Villa
that Tocon would retain the right to claim that the liqui-
                                                                  asserts the trial court erred in refusing to modify or correct
dated damage provision was invalid. We further disa-
                                                                  the judgment and in not granting a new trial. By its fourth
gree with Commercial and Tocon's assertions that the
                                                                  point of error, La Villa argues that the trial court erred
amount offered was all that La Villa was entitled to re-
                                                                  because entering judgment for Caudle was so against the
ceive. The contract expressly permits the liquidated
                                                                  great and overwhelming weight of the evidence as to be
damages, and La Villa was within their rights to seek such
                                                                  manifestly erroneous and unjust.
an award. Therefore, La Villa was not offered to be paid
all that it was seeking in damages.                                    When reviewing a jury verdict to determine the
                                                                  [**16] factual sufficiency of the evidence, the court of
     Although Tex. Civ. Prac. & Rem. Code Ann. §
                                                                  appeals must consider and weigh all the evidence, and
38.002(3) (Vernon 1986) does include, as a prerequisite to
                                                                  should set aside the verdict only if it is so contrary to the
a recovery of attorney's fees, that "payment for the just
                                                                  overwhelming weight of the evidence as to be clearly
amount owed must not have been tendered before the
                                                                  wrong and unjust. Cain v. Bain, 709 S.W.2d 175, 176
expiration of the 30th day after the claim is presented
                                                                  (Tex. 1986); Dyson v. Olin Corp., 692 S.W.2d 456, 457
(emphasis added)," an offer to settle is insufficient as a
                                                                  (Tex. 1985). However, absent findings of fact and con-
defense to a claim for attorney's fees. Even had there been
                                                                  clusions of law, all questions of fact should be presumed
a tender in this case, it has been held that a tender of an
                                                                  to support the judgment, and the judgment should be
amount less than the amount claimed is [**14] legally
                                                                  affirmed if it can be upheld on any legal theory that finds
insufficient to avoid the awarding of attorney's fees.
                                                                  support in the pleadings and in the evidence. Point
Hoot v. Quality Ready-Mix Co., 438 S.W.2d 421, 428-29
                                                                  Lookout West, Inc. v. Whorton, 742 S.W.2d 277, 278 (Tex.
(Tex. Civ. App. -- Corpus Christi 1969, no writ); Barreda
                                                                  1987); Campbell & Son Construction Co. v. Housing
v. Merchants National Bank, 206 S.W. 726, 727 (Tex. Civ.
                                                                  Authority of Victoria, 655 S.W.2d 271, 274 (Tex. App. --
App. -- San Antonio 1918, no writ). Further, attorney fees
                                                                  Corpus Christi 1983, no writ).
are recoverable under the statute regardless of when suit is
filed if payment is not made within the thirty day period.            The corporate fiction shall be disregarded, even
Gateley v. Humphrey, 151 Tex. 588, 254 S.W.2d 98, 101             though corporate formalities have been observed and
                                                                                                                     Page 5
                                   779 S.W.2d 102, *; 1989 Tex. App. LEXIS 2568, **


corporate and individual property have been kept sepa-         business. Luksa left Tocon in January of 1984 after de-
rately, when the corporate form has been used as part of a     ciding not to purchase the corporation. The record reflects
basically unfair device to achieve an inequitable result.      that this occurred after the La Villa contract had been
Castleberry v. Branscum, 721 S.W.2d 270, 271 (Tex.             substantially completed and that Tocon was solvent and in
1986). Specifically, the corporate fiction shall be disre-     good operating condition when he [**19] left. Thereaf-
garded: [**17]                                                 ter, Tocon bought Luksa's shares for around $ 25,000.00.
                                                                    Vaughn's subsequent death triggered a buy/sell
          (1) when the fiction is used as a means
                                                               agreement that had been previously created. Tocon
       of perpetrating fraud;
                                                               thereafter purchased Vaughn's interest as follows: 3,050
           (2) where a corporation is organized                shares at $ 3.57 per share; 3,050 shares to be bought at a
       and operated as a mere tool or business                 future date at ten percent of the book value established by
       conduit of another (alter ego);                         a 1984 audit report. Ultimately, Tocon suffered a cash
                                                               shortage which resulted in Caudle, as the sole remaining
            (3) where the corporate fiction is re-
                                                               shareholder, loaning cash to the corporation, which by the
       sorted to as a means of evading an existing
                                                               time of trial amounted to $ 20,000.00. However, all other
       legal obligation;
                                                               debts, including pre-1984 loans made by Caudle, have
           (4) where the corporate fiction is em-              been paid and Tocon still has a substantial amount of
       ployed to achieve or perpetrate monopoly;               equipment and computer software.
            (5) where the corporate fiction is used                 Caudle received $ 1,500.00 in salary in 1985, but has
       to circumvent a statute, and(6) where the               not received remuneration of any kind from Tocon since
       corporate fiction is relied upon as a pro-              that time. The record, as a whole, reveals that Tocon has
       tection of crime or to justify wrong.                   always been operated as an independent entity and that the
                                                               shareholder's personal accounts have not been commin-
                                                               gled with Tocon's accounts. The record further reveals
 Id. at 272. However, the corporate veil should be pierced     that La Villa contracted with Tocon without personal
and personal liability imposed upon an individual only         guarantees from its shareholders and that Luksa, not
under the most compelling of circumstances. Aztec              Caudle, originally handled the La Villa project.
Management & Investment Co. v. McKenzie, 709 S.W.2d
                                                                     [**20] After weighing all the evidence, we hold
237, 239 (Tex. App. -- Corpus Christi 1986, no writ);
                                                               that the verdict is not so contrary to the overwhelming
Hickman v. Rawls, 638 S.W.2d 100, 102 (Tex. App. --
                                                               weight of the evidence as to be clearly unjust and wrong.
Dallas 1982, writ ref'd n.r.e.). The fact that a majority or
even all of the stock in a corporation is owned by a single         We can find no basis which would permit us to pierce
individual does not of itself make the corporation the alter   Tocon's corporate veil or to impose liability upon Caudle
ego of the individual or, without more, justify the piercing   as an individual. Although Caudle did write various letters
of the corporate veil. See Massachusetts v. Davis, 140         stating that he would personally fund the payment for the
Tex. 398, [**18] 168 S.W.2d 216, 224 (1942), cert.             corrective work, these letters were apparently written for
denied, 320 U.S. 210, 87 L. Ed. 1848, 63 S. Ct. 1447           settlement purposes so as to avoid litigation and these
(1943); Aztec Management, 709 S.W.2d at 239.                   offers were obviously not accepted by La Villa. We
                                                               overrule La Villa's first, second, and fourth points of error.
      [*109] Tocon commenced business sometime
around March 15, 1978 and has received both a corporate             By its third point of error, La Villa contends the trial
charter and a certificate of good standing from the State of   court erred in admitting exhibits M21-M36 and M38 into
Texas. Tocon has enacted bylaws, filed franchise and           evidence. La Villa complains that although it requested
income tax returns, appointed or elected directors and         Caudle to produce these documents by a "Request for
officers, and held stockholder and director's meetings.        Production and Inspection of Documents" on January 9,
Eugene Vaughn was the original president, but Caudle is        1989, Caudle failed to produce these documents prior to
the current president of the corporation. Tocon issued         the time he offered them at trial.
shares of stock for cash consideration when it was first
                                                                    The record reveals that La Villa expressly stated that
organized with Vaughn and Caudle each receiving fifty
                                                               it had no objection when M21 was offered for admission
percent of the shares in the corporation. In 1980-1981,
                                                               into evidence and that M22-25 either do not exist or were
Vaughn and Caudle each sold Marvin Luksa five percent
                                                               never offered and admitted into evidence. In fact, [**21]
of the shares they owned.
                                                               M22-25 do not appear to be listed in the exhibit index and
    It was decided near the completion of the La Villa         have not been made a part of the record on appeal. The
project that Tocon was going to terminate its construction     record further reveals that Caudle testified regarding the
                                                                                                                    Page 6
                                   779 S.W.2d 102, *; 1989 Tex. App. LEXIS 2568, **


contents of M26-M36 and M38 in detail without objection        tents of M26-M36 and M38 before lodging its objection.
just before they were offered for admission into evidence.     We overrule La Villa's third point of error.
The record also reflects that La Villa called Caudle to
                                                                   By its fifth point of error, La Villa contends the trial
testify during its case-in-chief and that Caudle testified
                                                               court erred in refusing to file findings of fact and conclu-
that he had personally loaned money to Tocon so that it
                                                               sions of law. La Villa argues that its motion for new trial
could handle its financial obligations. M26-36 constitute
                                                               had the effect of extending the time within which a re-
various promissory notes and the respective checks which
                                                               quest for findings of fact and conclusions of law could
were executed between Caudle/Bill Caudle Properties and
                                                               have been properly filed.
Tocon.
                                                                    Tex. R. Civ. P. 296 expressly provides that the request
     We hold that La Villa has waived error, if any,
                                                               for findings of fact and conclusions [**23] of law "shall
committed by the trial court. A party may not complain on
                                                               be filed within ten days after the final judgment is signed."
appeal [*110] of the improper admission of evidence
                                                               Although the filing of a motion for new trial used to ex-
when that party, itself, introduced evidence of a similar
                                                               tend the period within which such a request could be filed,
character. McInnes v. Yamaha Motor Corp., U.S.A., 673
                                                               amendments to Tex. R. Civ. P. 296 which became effec-
S.W.2d 185, 188 (Tex. 1984), cert. denied, 469 U.S. 1107,
                                                               tive April 1, 1984, expressly deleted all references re-
105 S. Ct. 782, 83 L. Ed. 2d 777 (1985); Pouncy v. Gar-
                                                               garding a motion for new trial. Further, Tex. R. Civ. P.
ner, 626 S.W.2d 337, 340 (Tex. App. -- Tyler 1981, writ
                                                               306a now provides that "the date of judgment or order is
ref'd n.r.e.). The admission of improper evidence is also
                                                               signed as shown of record shall determine the beginning
waived when testimony to the same effect has [**22]
                                                               of the periods prescribed by these rules . . . [including]
been previously admitted without objection. Badger v.
                                                               requests for findings of fact and conclusions of law."
Symon, 661 S.W.2d 163, 164 (Tex. App. -- Houston [1st
Dist.] 1983, writ ref'd n.r.e.); Hundere v. Tracy & Cook,           The record reflects that the judgment in this case was
494 S.W.2d 257, 263-64 (Tex. Civ. App. -- San Antonio          signed on September 7, 1988, but that La Villa did not file
1973, writ ref'd n.r.e.). Moreover, to be timely, an objec-    a request for findings of fact and conclusions of law until
tion to the admission of evidence must be made before          September 19, 1988. Therefore, La Villa's request was
testimony has been adduced regarding the substance of          untimely and the trial court did not err in refusing to file
the objectionable evidence. Montes v. Lazzara Shipyard,        findings of fact and conclusions of law. Lynd v. Wesley,
657 S.W.2d 886, 889 (Tex. App. -- Corpus Christi 1983,         705 S.W.2d 759, 764 (Tex. App. -- Houston [14th Dist.]
no writ); Harry Brown, Inc. v. McBryde, 622 S.W.2d 596,        1986, no writ). We overrule La Villa's fifth point of error.
600 (Tex. App. -- Tyler 1981, no writ). Here, La Villa
                                                                    The judgment is REVERSED and RENDERED that
waited until after Caudle testified in detail as to the con-
                                                               La Villa take nothing against Commercial. The judgment
                                                               of the trial court is otherwise AFFIRMED. [**24]
                                                                                                                       Page 1
                                   679 S.W.2d 721, *; 1984 Tex. App. LEXIS 6484, **




                COMMUNITY DEVELOPMENT SERVICE, INC., d/b/a CHAMPION EQUITY
               CORPORATION, APPELLANT v. REPLACEMENT PARTS MANUFACTURING,
                                     INC., APPELLEE

                                                    No. 01-84-0092-CV

                             COURT OF APPEALS OF TEXAS, First District, Houston

                                      679 S.W.2d 721; 1984 Tex. App. LEXIS 6484


                                                     October 18, 1984

PRIOR HISTORY:             [**1]    Appeal from the
                                                                   The jury found that appellant materially breached the
268th District Court of Fort Bend County, Texas Trial
                                                               contract and found that appellee suffered damages in the
Court Cause No. 37,750A.
                                                               amount of $71,820 based on the lost profits on the
                                                               non-sale of 114 residential lots.
OPINION BY: DOYLE                                                   In its first two points of error, appellant contends that
                                                               the trial court erred in entering judgment based on the
OPINION                                                        jury's response to special issue numbers 11 and 12 be-
                                                               cause appellant did not have a contractual obligation to
      [*722] This is an appeal from a judgment awarding
                                                               pay property taxes as they accrued or to pay interest to
appellee damages for breach of contract in the amount of
                                                               appellee in October 1980. Thus, as a matter of law, such
$71,820 actual damages, plus $11,440.60 prejudgment
                                                               failure did not constitute a material breach of the contract
interest.
                                                               in question.
     [*723] On October 6, 1978, appellant, Community
                                                                    In response to special issues 11 and 12, the jury spe-
Development Service, Inc., d/b/a, Champion Equity
                                                               cifically found that appellant's failure to pay interest and
Corporation (Champion Equity) entered into a contract
                                                               property taxes as they accrued to appellee in October 1980
with appellee, Replacement Parts Manufacturing, Inc.
                                                               constituted a material breach of the contract.
(RPM) to purchase 144 residential lots over a three-year
period. Title to the lots was to be acquired as each one            Appellant relies on his contractual interpretation of
was "taken down" or closed. Appellant was also re-             paragraphs II (b) and (c) of the contract of sale to sub-
quired to pay interest to appellee and property taxes on       stantiate his contention. [**3] These paragraphs de-
any of the 144 lots for which legal title had not been ac-     scribe the manner in which the purchase price of the lots
quired.                                                        shall be paid:
     Between October 1978 and October 1980, appellant
                                                                           (c) The balance of the total purchase
"took down" only 30 lots. Additionally, appellant
                                                                        price shall be payable to Seller as follows:
stopped making tax and interest payments to appellee.
Consequently, in October, 1980 appellee notified appel-                      (1) The sum of $310,500.00 (repre-
lant that the contract was cancelled. In response thereto,              senting remaining 90% of lot price multi-
appellant filed suit alleging that appellee had breached his            plied by 30 lots) shall be paid to Seller 60
contract by failing to deliver lots with construction of the            days after notification to Buyer by Seller,
roads in [**2] accordance with the City of Stafford and                 which shall include certification of lot
Federal Housing Authority (FHA) specifications. Ap-                     completion, at which time Seller shall
pellee filed a counter-claim, alleging that appellant's                 convey to Buyer by general warranty deed,
failure to pay property taxes and interest constituted a                insured by owners title policy, good and
material breach of the contract.                                        indefeasible title to Buyer to 30 lots se-
                                                                        lected by Buyer, and
                                                                                                                      Page 2
                                   679 S.W.2d 721, *; 1984 Tex. App. LEXIS 6484, **


            ***                                                           (a) Seller shall clear the street
                                                                       right-of-way and utility easements within
            (4) The sum of $351,900.00 (repre-
                                                                       Kingsway, it being understood that (1) any
       senting remaining 90% of lot purchase
                                                                       additional clearing shall be done by Buyer
       price multiplied by 34 lots) shall be paid to
                                                                       at its expense, and (2) Seller shall mini-
       Seller within 1095 days of said notification
                                                                       mize damage to the trees within Kingsway;
       to Buyer by Seller of lot completion at
                                                                       (b) each lot or reserve being conveyed
       which time Seller shall convey title as
                                                                       shall be free of trash, garbage, or any im-
       above described to remaining 34 lots.
                                                                       provements not contemplated hereby, and
            Provided however, (a) Buyer may at                         except for clearing of trees, be in a condi-
       any time tender to Seller $10,350.00 per                        tion suitable for commencement of con-
       lot and demand that Seller convey title to                      struction of single family detached hous-
       lots selected by Buyer and the purchase                         ing; . . .
       price of any lots so acquired shall be
       counted in reduction of the next due in-
       stallment of Buyer to Seller as above de-
                                                                    Appellant claims that because appellee failed to keep
       scribed; (b) Buyer shall pay all taxes as
                                                                each lot free of trash, the appellee had not fulfilled the
       due from the date of [**4] lot completion
                                                                conditions which activate appellant's responsibility for
       and furnish Seller with copy of said paid
                                                                taxes and interest. The appellee argues that the language
       tax receipts and (c) Buyer shall pay Seller
                                                                does not constitute a condition precedent, but merely a
       interest at the rate of 10% per annum on
                                                                covenant, the breach of which might be a defense to any
       the unpaid balance outstanding, such in-
                                                                contract action by appellee against appellant.
       terest to commence upon the date of lot
       completion and to be payable quarterly                        As a general rule, where neither party has alleged that
       thereafter.                                              the contract is vague or ambiguous, the construction of the
                                                                contract is a question of law for the court. City of Pine-
                                                                hurst v. Spooner Addition Water Co., 432 S.W.2d 515
                                                                (Tex. 1968). The court also construes [**6] the meaning
    Specifically, the appellant contends for the first time
                                                                of contracts where neither party makes allegations spec-
on appeal, that the last paragraph cited above, which
                                                                ifying the language subject to different interpretation, so
describes the appellant's duty to pay taxes and interest to
                                                                that the opposing party is prepared to offer evidence ex-
appellee, is part of paragraph II (c).
                                                                plaining the meaning. Sale v. Contran Corporation, 486
    The contract also provides as follows:                      S.W.2d 161 (Tex. Civ. App. -- Dallas 1972, writ ref'd
                                                                n.r.e.). The court is required to give effect to the inten-
          Provided that the obligations of Seller               tion of the parties as expressed or as it is apparent in the
       as enumerated in paragraphs (a) - (f) of                 writing. Pitts v. Ashcraft, 586 S.W.2d 685 (Tex. Civ.
       Paragraph I on pages 1-2 of this Contract                App. -- Corpus Christi 1979, writ ref'd n.r.e.).
       [*724] shall be conditions precedent to
                                                                    In the instant case, reading the contract as a whole
       the obligations of Buyer as set forth in
                                                                and considering the surrounding circumstances, the trial
       Paragraphs II(b) and (c) of this Contract
                                                                court could have reasonably concluded that the paragraph
       with respect to each group of lots to be
                                                                which contained the language, "Buyer shall pay all taxes
       purchased thereunder.
                                                                as due from the date of lot completion and furnish Seller
                                                                with copy of said paid tax receipts", was not part of par-
                                                                agraph II (b) and (c) of the contract which set forth the
      Appellant urges this court to find that the above         conditions precedent to the obligation of buyer to pay the
contractual language requires the seller (appellee) to ful-     balance of the purchase price. Instead, the court could
fill certain "conditions precedent" before the buyer (ap-       have construed the provision as being a written covenant,
pellant) will be responsible for payment of taxes and           contained in a separate paragraph.
interest as allegedly required in paragraph II (c). Some
                                                                     The passage containing the language starts a new
of the conditions which the seller is required to fulfill are
                                                                paragraph which [**7] introduces an alternative method
described in paragraph [**5] I(a):
                                                                of purchasing the lots, and outlines the seller's obligation
    Seller agrees to the following:                             to pay taxes and interest. If the parties had intended this
                                                                section to be part of paragraph II (c), they could have
                                                                easily included it numbered as (c)(5) or clearly shown that
                                                                                                                       Page 3
                                   679 S.W.2d 721, *; 1984 Tex. App. LEXIS 6484, **


it was part of (c)(4). Moreover, it is well established that    supported by data from the actual contract price. Wilfin,
if the intent of the parties is doubtful, or if a condition     Inc. v. Williams, 615 S.W.2d 242, 244 (Tex. Civ. App. --
would impose an absurd or impossible result, then the           Dallas 1981, writ ref'd n.r.e.). However, a witness may
agreement will be interpreted as creating a covenant rather     also provide evidence of lost profits by testifying as to
than a condition. Hohenberg Bros. Co. v. George E.              what his profit would have been, based on his knowledge
Gibbons & Co., 537 S.W.2d 1, 3 (Tex. 1976).                     of the cost of performance of each element of the contract
                                                                and subtracting the total of such costs from the contract
     In the case at bar, to hold that the appellee's
                                                                price. Wilfin, Inc., supra at 245.
three-year obligation to make tax and interest payments
on the lot was suspended until appellant cleared the oc-            In the instant case, the jury was given the following
casional debris that accumulated on the lots would impose       [**10] instructions for determining the damages:
"an absurd result" particularly in light of the other condi-
tions which suspend tax and interest payments.                            INSTRUCTION
     Paragraph II (b) provides for payment only upon the                    In connection with the following
completion of the development of 144 lots. Paragraph II                Special Issue, you are only to consider
(c) provides that the balance of the total purchase price is           such damage, if any, that you find from a
only payable sixty days after seller notifies [*725] the               preponderance of the evidence was shown
buyer by sending certification of lot [**8] completion                 to have been the natural, probable, and
and conveying to buyer a general warranty deed.                        foreseeable consequence of Champion
                                                                       Equity's conduct or to have been within the
     The paragraph clearly demonstrates the parties' in-
                                                                       contemplation of the parties. You may
tention to condition appellant's obligation to pay the bal-
                                                                       consider only those losses, if any, the
ance on the lots on their certification as being complete.
                                                                       payment of which would place R.P.M.,
Since such intent is not clearly demonstrated in the para-
                                                                       Inc. as nearly as possible in the position it
graph requiring the payment of taxes and interest, we find
                                                                       would have occupied had Champion Eq-
that the appellee's obligation to pay taxes and interest was
                                                                       uity performed the contract, if, indeed it
not part of paragraph II (b) or (c) and was therefore not
                                                                       did not. You may consider only such
conditioned on appellee's keeping the lots clear of trash
                                                                       damage, if any, that was actually sustained
and debris. Points of error one and two are overruled.
                                                                       and you shall not speculate as to damages
     In points of error three, four, and five, appellant               which, although possible, have not been
contends that the trial court erred in granting judgment in            proved by a preponderance of the credible
favor of appellee for damages because there was no evi-                evidence.
dence, or alternatively insufficient evidence of the "ben-
efit of the bargain" or the value of the property at the time
appellee knew or should have known of the breach as             The jury was also to consider only such damage, if any,
compared to the value the property should have had at that      that they found from
time.                                                                      a preponderance of the evidence would
                                                                        give Champion Equity the benefit of its
     Generally, the measure of damages for breach of
                                                                        bargain as of the date Champion Equity
contract is the amount necessary to place plaintiff in a                knew of the breach or should have known
financial position equal to that which it would have had if             of the breach, if any, of R.P.M., Inc. You
the contract had been performed by both parties. [**9]
                                                                        are further instructed that benefit of its
Little Darling Corp. v. Ald, Inc., 566 S.W.2d 347 (Tex.
                                                                        bargain is the difference between the value
Civ. App. -- Dallas 1978, no writ). Under this standard,
                                                                        of what Champion Equity had at [**11]
the injured party is compensated only for the damages or                the time it knew or should have known of
loss actually sustained. North American Corp. v. Allen,                 the breach and the value of what Cham-
636 S.W.2d 797 (Tex. App. -- Corpus Christi 1982, no
                                                                        pion Equity should have had at that time.
writ).
     Lost profits are recoverable under this standard if the
evidence shows that the loss of profits was a material and      The jury was instructed to consider only such losses that
probable consequence of the breach of the act complained        would place appellee in the position it would have occu-
of and the amount due is shown with sufficient certainty.       pied had the breach not occurred. According to this
Id. at 799; see also Little Darling Corp., supra.               instruction, lost profits would be included [*726]
                                                                within the foreseeable consequences of a lost sale, and
    Generally, lost profits are properly calculated by
deducting the costs of the injured party's performance
                                                                                                                      Page 4
                                    679 S.W.2d 721, *; 1984 Tex. App. LEXIS 6484, **


would be recoverable if supported by the evidence.                    The leading case relating to appellant's contention is
Wilfin, Inc., supra.                                             Stewart v. Basey, 150 Tex. 666, 245 S.W.2d 484, 486
                                                                 (1952) which sets out the applicable rule in cases similar
      Evidence of appellee's lost profits was provided by
                                                                 to the instant one:
Mr. Webster, who was the president and sole stockholder
in appellee's corporation. Mr. Webster testified without
                                                                            In those cases in which courts enforce
objection that the costs of appellee's performance in-
                                                                        stipulations of the parties as a measure of
cluded a 10% down payment on its lots owned by Mr.
                                                                        damages for the breach of covenants, the
Shipwash, which were to be resold by appellee to appel-
                                                                        principle of just compensation is not
lant.
                                                                        abandoned and another principle substi-
    The appellee had contracted to pay Mr. Shipwash                     tuted therefor. What courts really do in
$9720 per lot. Appellee then contemplated selling these                 those cases is to permit the parties to es-
same lots to appellant for $11,500 each.                                timate in advance the amount of damages,
                                                                        provided they adhere to the principle of
     Appellant had paid a down payment of 10% or
                                                                        just compensation. Restatement of Con-
$1,150 per lot to appellee, and had contracted to pay the               tracts, Sec. 339, accurately expresses the
remaining $10,350 per lot over a period of three years.                 rule as follows:
Appellee had anticipated that his gross profit would be
$630 per lot. Appellant's [**12] breach of contract,
                                                                                   (1) An agreement, made
after purchasing only 30 of the 144 lots, caused appellee
                                                                                in advance of breach fixing
to lose $630 profit on each of the remaining 114 lots, or a
                                                                                the damages therefor, is not
total of $71,820. Mr. Webster's testimony provided                              [**14] enforceable as a
competent evidence of appellee's "benefit of the bargain"                       contract and does not affect
which included lost profits. Appellant's third, fourth, and
                                                                                the damages recoverable
fifth points of error are overruled.
                                                                                for the breach, unless
      In its sixth point of error, appellant contends that the
                                                                                     (a) the amount so fixed
trial court erred in awarding appellee damages because the                      is a reasonable forecast of
damages awarded were barred by the liquidated damages                           just compensation for the
clause contained in the contract for deed.
                                                                                harm that is caused by the
    The contract for deed provided as follows:                                  breach, and
                                                                                     (b) the harm that is
           Seller shall give Buyer thirty (30) days
                                                                                caused by the breach is one
        written notice of any default hereunder and                             that is incapable or very
        should the Buyer fail to correct such de-                               difficult of accurate esti-
        fault within ten (10) days from receipt of
                                                                                mation. (emphasis added)
        notice, Seller, its successors or assigns,
        shall have, as its sole remedy the right to
        declare this agreement terminated and
        Buyers earnest money forfeited. In the
        event of default by Seller, Buyer's sole
        remedy is that the earnest money shall be                     In Stewart, the court held that the "stipulated damage
        refunded and this agreement terminated.                  provision" in a lease would be treated as a penalty because
                                                                 the provision was not narrowly drawn or limited to the
                                                                 breach of any one major covenant, but could also be
Appellant contends that this provision limited damages           triggered by the breach of a trivial or unimportant
for any default by buyer to the earnest money paid to            convenant. The Texas [*727] Supreme Court em-
appellee. The jury [**13] found in response to special           phasized that the provision did not adhere to the rule of
issue no. 15 that the earnest money totalled $165,600.           "just compensation." Id. See also Bethel v. Butler Drilling,
Appellant further contends that since the above provision        635 S.W.2d 834 (Tex. App. -- Houston [14th Dist.] 1982,
is enforceable as liquidated damages, and the appellee           writ ref'd n.r.e.); (Court refused to uphold a liquidated
was in possession of the earnest money, the trial court was      damages provision in a lease, which was triggered equally
barred from awarding additional damages to appellee.             by the nonpayment of rent or the breach of any other
The appellant further contends that the provision is un-         covenant); Mayfield v. Hicks, 575 S.W.2d 571 (Tex. Civ.
enforceable because it provides for a penalty to secure          App. -- Dallas 1978, writ ref'd n.r.e.); (Court condemned a
performance of the contract.                                     similar provision as a penalty because the contract [**15]
                                                                                                                     Page 5
                                   679 S.W.2d 721, *; 1984 Tex. App. LEXIS 6484, **


provided the same reparation for breach of each and every             In its last point of error, appellant contends that the
covenant); Loggins Constr. Co. v. Stephen F. Austin St.         trial court erred in awarding damages to appellee based on
Univ., 543 S.W.2d 682 (Tex. Civ. App. -- Tyler 1976, writ       the jury's response to special issue 13 because the appellee
ref's n.r.e.).                                                  receives an inequitable windfall, recovering both the
                                                                earnest money and $71,820 in lost profits. Appellant
     Under the principle of just compensation, "The gen-
                                                                contends that this result is inequitable in that the award
eral rule is that if such a provision is for a penalty to se-
                                                                grants recovery of both liquidated damages and recovery
cure performance of the contract, it is unenforceable and
                                                                of profits.
the party claiming a breach is required to prove his actual
damages." However, if the parties actually intended the             In special issue 13, the jury was instructed to consider
provision to constitute their estimate of the damages that      only those losses, if any, the payment of which would
would actually be sustained by the party harmed by the          place appellee as nearly as possible in the position it
breach, and the amount so fixed is a reasonable estimate        would have occupied had the appellant performed the
of just compensation for the harm contemplated by the           contract. The jury was further instructed to consider only
breach, and the amount of the damages is incapable or           those damages that were shown to be the natural, proba-
hard to determine, it is enforceable. The parties' intention    ble, [*728] and foreseeable consequences [**18] of
in making the provision is not controlling in this respect.     appellant's conduct.
Loggins Construction Co., supra; Brace v. Dante, 466
                                                                     The appellee contends that the jury correctly found
S.W.2d 66, 69 (Tex. Civ. App. -- Dallas 1971, no writ).
                                                                that appellant's forfeited earnest money did not give ap-
     Applying this principle of law to the contractual          pellee the benefit of its bargain and did not put appellee in
provision before this court, we conclude that the parties       the position it would have occupied had appellant per-
intended that the provision constitute an estimate of their     formed the contract. Appellee points out that except for
damages in the event of a breach. However, [**16]               the defective liquidated damages provision, the contract
the amount fixed is not a reasonable forecast of just           does not provide that the earnest money must be returned
compensation for the harm caused by any breach of the           once the parties began performance. Appellee urges this
contract.                                                       court to find that the jury rightfully considered the "reali-
                                                                ties of the transaction made the basis of this lawsuit."
     The provision states that "upon any default hereunder
by the buyer" or "in the event of default" by the seller, the        The jury had sufficient evidence before it from which
sole remedy shall be the retention, or refund respectively,     it could conclude that the retention of appellant's earnest
of any earnest money tendered. The defect in this pro-          money by appellee did not adequately compensate ap-
vision which makes it a penalty rather than a liquidated        pellee for the harm caused by appellee's breach and did
damage provision, is that upon the occurrence of any            not place appellee in the position it would have occupied
default, even a minor one, by either party, the injured         had the appellant performed the contract.
party may terminate the contract and keep over $160,000
                                                                     The record reflects that the earnest money contracted
in earnest money as damages.
                                                                for and received by appellee reduced the amount of the
     A provision becomes a penalty if it provides for un-       outstanding purchase price. Both parties agree that be-
reasonable damages for trivial breaches as well as rea-         tween November 10, 1978 and March 1979, appellant
sonable damages for major breaches. Stewart, supra;             closed or "took down" 30 lots under the contract for deed.
Bethel, supra; and Mayfield, supra. It is immaterial that       Moreover,      [**19]      appellant paid approximately
the actual breach was for default in tax and interest pay-      $222,021 in interest on lots not taken down. Several
ments. Mayfield, supra. If the seller failed to keep any        homes were built and sold on the lots "taken down."
one lot entirely free from trash, or if the buyer paid the      Clearly, both parties had begun performance of the
taxes but failed to furnish seller with a copy of paid tax      three-year contract. This is important because there is no
receipts, either injured party could terminate the contract     evidence that any of the "earnest money" was placed in an
and demand to keep the earnest money. Certainly, such           escrow account to secure performance of the contract. In
minor breaches could [**17] not be held to warrant              fact, appellee testified that the majority of the money
termination of the contract plus the award or retention of      appellant paid to appellee was immediately passed to Mr.
any earnest money.                                              Shipwash in order to pay off the appellee's debt to Mr.
                                                                Shipwash on the parallel contract. The record also re-
     Because the clause in this case subjects the parties to
                                                                flects that appellee subtracted the amounts received from
the same reparation for any default under the contract, we
                                                                appellant on the "taken down" lots, including the
hold that the provision is a penalty rather than one of
                                                                $165,000 earnest money, before appellee computed his
liquidated damages. Therefore, the trial court did not err
                                                                lost profits.
in awarding damages to appellee and the appellant's sixth
point of error is overruled.
                                                                                                               Page 6
                                 679 S.W.2d 721, *; 1984 Tex. App. LEXIS 6484, **


     Therefore, the jury's finding, that appellee would     constitute a "double recovery." Appellant's seventh point
need an additional $71,820 in order to be fairly and rea-   of error is overruled.
sonably compensated for damages sustained by appel-
                                                                The judgment of the trial court is affirmed.
lant's breach, was supported by the evidence and did not
                                                                                                                    Page 1
                                    132 S.W.3d 471, *; 2003 Tex. App. LEXIS 9952, **




               Continental Holdings, Ltd., Appellant v. Jim Leahy, Individually; Brown, Parker &
                           Leahy, L.L.P.; and Thompson & Knight, L.L.P., Appellees

                                                  No. 11-02-00326-CV

                   COURT OF APPEALS OF TEXAS, ELEVENTH DISTRICT, EASTLAND

                                      132 S.W.3d 471; 2003 Tex. App. LEXIS 9952


                                              November 20, 2003, Decided

PRIOR HISTORY:              [**1]     Appeal from Dallas
                                                                   In this case, Continental alleged that the Lawyers
County.
                                                              breached their duties to Continental in the arbitration
                                                              proceeding by failing to introduce evidence that was suf-
DISPOSITION:         Affirmed.
                                                              ficient to satisfy its burden of proof on the benefit of the
                                                              bargain damages. Continental also alleged [**2] that the
                                                              arbitrators would have awarded it benefit of the bargain
COUNSEL: For Plaintiff or Petitioner: Coyt Randal
                                                              damages but for the Lawyers' negligence. The Lawyers
Johnston, Robert L. Tobey, Johnston & Tobey, Dallas,
                                                              moved for summary judgment, asserting that their alleged
TX. Roy Ryden Anderson, Professor of Law, Southern
                                                              negligence did not proximately cause any damage to
Methodist University School of Law, Dallas, TX.
                                                              Continental because a limitation-of-liability provision in
                                                              Continental's contract with Western excluded recovery of
For Defendant or Respondent: David N. Kitner, Christine
                                                              benefit of the bargain damages. The trial court granted
Roseveare, Strasburger & Price, Attorneys At Law, Dal-
                                                              summary judgment to the Lawyers. We affirm.
las, TX. P. Michael Jung, Strasburger & Price, Dallas,
TX.
                                                              Issues Presented
JUDGES: Panel consists of: Arnot, C.J., and Wright, J.,            Continental presents five issues for review. In its first
and McCall, J.                                                issue, Continental asserts a general complaint that the trial
                                                              court erred in granting summary judgment. In its second
OPINION BY: TERRY McCALL                                      and third issues, Continental asserts that the trial court
                                                              erred in granting summary judgment because (a) the ar-
OPINION                                                       bitrators ruled that the limitation-of-liability provision in
                                                              the contract did not prevent the recovery of benefit of the
      [*472] This is a legal malpractice case. Continental
                                                              bargain damages and (b) the arbitrators' ruling on the
Holdings, Ltd. sued its former lawyers, Jim Leahy, Indi-
                                                              limitation-of-liability issue was binding on the trial court.
vidually; Brown, Parker & Leahy, L.L.P.; and Thompson
                                                              In its fourth issue, Continental argues that the trial court
& Knight, L.L.P. (the Lawyers). The Lawyers represented
                                                              erred in granting summary judgment because, irrespective
Continental in an arbitration proceeding in which Conti-
                                                              of the arbitrators' ruling, the contract permitted it to re-
nental sought to recover damages from Western Atlas
                                                              cover benefit of the bargain [**3] damages for Western's
International, Inc. resulting from Western's breach of a
                                                              breach. In its fifth issue, Continental asserts that, if the
contract. The arbitrators determined that Western
                                                              contract did not unambiguously permit or deny recovery
breached the contract and awarded some of the damages
                                                              of Continental's benefit of the bargain damages, the cause
sought by Continental. However, the arbitrators found
                                                              should be remanded to the trial court for a resolution of
that Continental did not meet its burden of proof on its
                                                              the factual dispute presented by the ambiguous contract.
alleged benefit of the bargain damages and denied Con-
tinental recovery of those damages.
                                                              Background Facts
                                                                                                                      Page 2
                                  132 S.W.3d 471, *; 2003 Tex. App. LEXIS 9952, **


     Continental agreed to perform geophysical services       earned on the Pacific Titan Contract itself, but for
for Western under the contract. [*473] The contract           [Western's] breach." Continental argues that it is entitled
required Continental to provide Western with the vessel,      to recover those lost profits from the Lawyers. In their
the M/V Pacific Titan, fully crewed, for a period of 12       motion for summary judgment, the Lawyers asserted that,
months. The start date for the contract was October 1,        because the limitation-of-liability provision in Continen-
1998. A number of disputes arose between Continental          tal's contract with Western precluded Continental's re-
and Western; and, on December 29, 1998, Western issued        covery of lost profits damages, their alleged negligence in
a notice of termination of the contract. Continental as-      failing to present sufficient evidence of lost profits in the
serted that Western's termination of the contract was         arbitration proceeding did not proximately cause any
wrongful.                                                     damage to Continental. The trial court granted summary
                                                              judgment to the Lawyers on this ground.
     Continental and Western submitted a number of their
disputes to arbitration, including the issue whether
                                                              Standard of Review
Western had the right to terminate the contract. The arbi-
trators determined that Western's termination of the con-          This appeal involves the review of a traditional mo-
tract constituted a breach of the contract. Under the con-    tion for summary judgment. We will apply the
tract, the charter rate for the M/V Pacific Titan was $       well-recognized standard of review for traditional sum-
33,000 per day. Continental argued [**4] that, as a result    mary judgments. We must consider the summary judg-
of Western's breach, it was entitled to recover $ 33,000 a    ment evidence in the light most favorable to the
day for the full contract term of one year. The arbitrators   non-movant, indulging [**6] all reasonable inferences
disagreed in their findings:                                  in favor of the non-movant, and determine whether the
                                                              movant proved that there were no genuine issues of ma-
          20. The classic measure of contract                 terial fact and that it was entitled to judgment as a matter
       damages is to put the injured party in the             of law. Nixon v. Mr. Property Management Company,
       position it would have been in had the                 Inc., 690 S.W.2d 546, 28 Tex. Sup. Ct. J. 384 (Tex.1985);
       contract been performed. Awarding Con-                 City of Houston v. Clear Creek Basin Authority, 589
       tinental the day rate of $ 33,000 per day for          S.W.2d 671, 23 Tex. Sup. Ct. J. 7 (Tex.1979). A defendant
       a full year, as urged by Continental, does             [*474] is entitled to summary judgment if it either dis-
       not, however, accomplish this goal. If the             proves an element of each of the plaintiff's causes of ac-
       contract clearly called for such a remedy in           tion or establishes an affirmative defense on each of the
       the event of early termination, and we find            plaintiff's causes of action as a matter of law. American
       that it does not, the remedy would consti-             Tobacco Company, Inc. v. Grinnell, 951 S.W.2d 420, 425,
       tute an impermissible penalty.                         40 Tex. Sup. Ct. J. 658 (Tex.1997); Science Spectrum, Inc.
                                                              v. Martinez, 941 S.W.2d 910, 911, 40 Tex. Sup. Ct. J. 438
            21. One way to compensate Conti-
                                                              (Tex.1997).
       nental for its damages would be to con-
       sider the revenues expected to be earned,
                                                              The Effect of the Arbitration Award
       less the expenses saved as a consequence
       of the breach. It was Continental's burden                   The Lawyers argue that Continental waived the issue
       to prove its damages with reasonable cer-              of the conclusive effect of the arbitrators' award - that the
       tainty. The undated budget produced at the             contract did not prevent recovery of benefit of the bargain
       hearing does not alone constitute compe-               damages - by failing to present the issue to the trial court
       tent evidence of the expenses saved as a               in its response to the Lawyers' motion for summary
       consequence of the breach. Continental did             judgment. The record establishes that Continental raised
       not sustain its burden of proof on any                 the issue for the first [**7] time in its motion for re-
       "benefit of the bargain" damages, and we               hearing and/or new trial. TEX.R.CIV.P. 166a(c) provides
       therefore decline to award such damages.               that "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." Continen-
The arbitrators did, however, award the following dam-        tal's failure to raise the issue of the conclusive effect of the
ages [**5] to Continental: (1) $ 1,056,000 for services       arbitrators' award in its response to the Lawyers' motion
performed under the contract before Western terminated        for summary judgment constituted a waiver of the issue.
it; and (2) $ 2,251,405 for costs that Continental incurred   Kelley-Coppedge, Inc. v. Highlands Insurance Company,
in performing the contract.                                   980 S.W.2d 462, 467, 42 Tex. Sup. Ct. J. 130
                                                              (Tex.1998)(holding that a party waived reliance on an
    Continental defines its benefit of the bargain damages
                                                              argument that it asserted for the first time in a motion for
under the contract as "those profits that it would have
                                                                                                                         Page 3
                                    132 S.W.3d 471, *; 2003 Tex. App. LEXIS 9952, **


new trial)(citing McConnell v. Southside Independent             arbitration award. Postlewaite v. McGraw-Hill, supra at
School District, 858 S.W.2d 337, 343, 36 Tex. Sup. Ct. J.        48; Tarter v. Metropolitan Savings & Loan Association,
792 (Tex.1993), and City of Houston v. Clear Creek Basin         supra at 927. We need not determine whether the arbi-
Authority, supra at 676). Continental's second and third         trators decided the limitation-of-liability issue because,
issues are overruled.                                            even if they did, their ruling on the issue was not essential
                                                                 to their award. The limitation-of-liability provision in the
     Even if Continental had presented this issue in its
                                                                 contract constitutes an affirmative defense. See Regency
response to the Lawyers' motion for summary judgment,
                                                                 Advantage Limited Partnership v. Bingo Idea-Watauga,
the arbitration award would not have bound the trial court
                                                                 Inc., 928 S.W.2d 56, 63 (Tex.App. - Fort Worth 1995),
on the limitation-of-liability issue. Continental argues
                                                                 aff'd in part and rev'd in part, 936 S.W.2d 275, 39 Tex.
that, although the arbitrators did not refer to the limita-
                                                                 Sup. Ct. J. 1040 (Tex.1996). The arbitrators ruled that
tion-of-liability provision [**8] in their award, the arbi-
                                                                 Continental failed to meet its burden of proof on the issue
trators addressed the limitation-of-liability issue and de-
                                                                 of its "lost profits" damages. It is not necessary to address
cided the issue in its favor. To support its argument,
                                                                 an affirmative defense when a plaintiff does not first
Continental asserts that "the arbitrators would never have
                                                                 establish its affirmative claims for relief. Therefore, a
discussed Continental's lost revenue and absence of evi-
                                                                 finding on the limitation-of-liability issue was not essen-
dence of expenses saved, had those profits been excluded
                                                                 tial to the arbitrators' award because of their finding of
by the Pacific Titan Contract." The Lawyers respond that
                                                                 failure of proof. Even if Continental had presented a col-
the limitation-of-liability provision in the contract was an
                                                                 lateral estoppel defense in the trial court, the doctrine of
affirmative defense of Western and that the arbitrators
                                                                 collateral estoppel would not have [**11] barred the
never reached that affirmative defense issue because of
                                                                 Lawyers from litigating the limitation-of-liability issue.
Continental's insufficient evidence on benefit of bargain
                                                                 Postlewaite v. McGraw-Hill, supra at 48.
damages.
      An arbitration award is conclusive on the parties as to    Continental's Alleged Damages           and   the    Limita-
all matters of fact and law submitted to the arbitrators         tion-of-Liability Provision
because the award has the effect of a judgment of a court
                                                                       The limitation-of-liability provision in Paragraph
of last resort. CVN Group, Inc. v. Delgado, 95 S.W.3d
                                                                 13.2 of the general agreement of the contract provides
234, 238, 46 Tex. Sup. Ct. J. 366 (Tex.2002); Powell v.
                                                                 that:
Gulf Coast Carriers, Inc., 872 S.W.2d 22, 24 (Tex.App. -
Houston [14th Dist.] 1994, no writ). This case is not a
                                                                           Neither [Western] or [Continental]
direct appeal from an arbitration award. Rather, Conti-
                                                                        shall bear any liability to the other for loss
nental attempts to rely on the arbitration award in this
                                                                        of production, loss of profits, loss of
collateral proceeding against its former lawyers. In col-
                                                                        business or any other indirect or conse-
lateral proceedings, [**9] the courts apply collateral
                                                                        quential damages, including, inter-alia,
estoppel principles to arbitration awards. Postlewaite v.
                                                                        special and punitive damages.
McGraw-Hill, 333 F.3d 42, 48 (2nd Cir. 2003); Drago
Daic, Trustee v. Nauru Phosphate Royalties, (Texas),
Inc., 27 S.W.3d 695, 701 (Tex.App. - Beaumont 2000,
                                                                 Continental asserts that the term "loss of profits" is mod-
pet'n den'd); Fluor Daniel, Inc. v. H.B. Zachry Company,
                                                                 ified by the phrase "or any other indirect or consequential
Inc., 1 S.W.3d 166, 169 (Tex.App. - Corpus Christi 1999,
                                                                 damages" so as to prevent only the recovery of "indirect"
pet'n den'd). "The doctrine of collateral estoppel precludes
                                                                 or "consequential" lost profits damages. Continental ar-
relitigation of any ultimate issue of fact actually litigated
                                                                 gues that the limitation-of-liability provision does not
and essential to the judgment in a prior suit." Tarter v.
                                                                 preclude its claim for damages because it is seeking to
Metropolitan Savings & Loan Association, 744 S.W.2d
                                                                 recover "direct" lost profits damages.
926, 927, 31 Tex. Sup. Ct. J. 195 (Tex.1988). If an issue
was not actually [*475] decided in a prior arbitration                Continental correctly states that breach of contract
proceeding or if its resolution was not necessary to the         damages are categorized as (1) "direct" or "general"
arbitration award, its litigation in a subsequent proceeding     damages or (2) "consequential" or "special" damages. See
is not barred by collateral estoppel. Postlewaite v.             Frost Nat. Bank v. Heafner, 12 S.W.3d 104, 111 n. 5
McGraw-Hill, supra at 48.                                        (Tex.App. [**12] - Houston [1st Dist.] 1999, pet'n
                                                                 den'd). Furthermore, lost profits damages may take the
     Thus, collateral estoppel would have precluded the
                                                                 form of "direct" damages or the form of "consequential"
Lawyers from litigating the limitation-of-liability issue
                                                                 damages. See Hycel, Inc. v. American Airlines, Inc., 328
only if (1) the arbitrators decided the limita-
                                                                 F. Supp. 190, 193 (S.D. Tex. 1971); Imaging Systems
tion-of-liability issue and (2) the arbitrators' ruling on the
                                                                 International, Inc. v. Magnetic Resonance Plus, Inc., 227
limitation-of-liability [**10] issue was essential to the
                                                                                                                     Page 4
                                  132 S.W.3d 471, *; 2003 Tex. App. LEXIS 9952, **


Ga. App. 641, 490 S.E.2d 124 (Ga. 1997). Profits lost on          Paragraphs 2 and 3 of the supplemental agreement
the breached contract itself, such as the amount that Con-    provided in part:
tinental would have received on the contract less its saved
expenses, are classified as "direct" damages. Profits lost               2. The daily charter rate for the Pacific
on other contracts or relationships resulting from the               Titan is US $ 33,000.00 per day. This
breach are classified as "indirect" damages. See Imaging             amount is payable for each day the vessel
Systems International, Inc. v. Magnetic Resonance Plus,              is under contract, regardless of whether or
Inc., supra. Continental's alleged lost profits damages are          not the vessel is acquiring seismic data.
"direct" damages.
                                                                          3. In addition, the Pacific Titan will
     The issue is whether the limitation-of-liability pro-           receive US $ 55.00 per CMP kilometer for
vision precludes the recovery of "direct" profits damages.           all accepted CMP kilometers.
In construing a written contract, the primary concern of
[*476] the court is to ascertain the true intentions of the
parties as expressed in the instrument. R & P Enterprises
                                                                   Thus, the early termination remedy [**15] set forth
v. LaGuarta, Gavrel & Kirk, Inc., 596 S.W.2d 517, 518,
                                                              in Section III, Paragraph 6 of the general agreement and
23 Tex. Sup. Ct. J. 280 (Tex.1980). [**13] To achieve
                                                              Paragraphs 2 and 3 of the supplemental agreement pro-
this objective, courts should examine and consider the
                                                              vided that Continental would receive: (1) $ 33,000 for
entire writing in an effort to harmonize and give effect to
                                                              each day that the vessel was under contract and (2) $ 55
all of the provisions of the contract so that none will be
                                                              per CMP kilometer for all accepted CMP kilometers. The
rendered meaningless. Coker v. Coker, 650 S.W.2d 391,
                                                              vessel was under contract until December 29, 1998, the
26 Tex. Sup. Ct. J. 368 (Tex.1983); Southland Royalty
                                                              date that Western terminated the contract.
Company v. Pan American Petroleum Corporation, 378
S.W.2d 50, 7 Tex. Sup. Ct. J. 171 (Tex.1964); Universal C.         The early termination remedy limited Continental's
I. T. Credit Corp. v. Daniel, 150 Tex. 513, 243 S.W.2d        recovery of damages under the schedule to the time period
154, 158 (Tex.1951). No single provision taken alone will     that the vessel was under contract. In this case, however,
be given controlling effect; rather, all of the provisions    Continental seeks to recover "direct" lost profits for the
must be considered with reference to the whole instru-        time period that the contract would have been in effect
ment. Myers v. Gulf Coast Minerals Management Cor-            had Western not terminated it. As such, Continental's
poration, 361 S.W.2d 193, 196, 6 Tex. Sup. Ct. J. 24          alleged "direct" lost profits damages relate to a time pe-
(Tex.1962); Citizens Nat. Bank in Abilene v. Texas & P.       riod that the vessel was no longer under contract; there-
Ry. Co., 136 Tex. 333, 150 S.W.2d 1003, 1006 (Tex.1941).      fore, Continental's requested remedy is inconsistent with
The courts give terms their plain, ordinary, and generally    the early termination remedy. The contract's early termi-
accepted meaning unless the instrument shows that the         nation remedy is consistent with interpreting the limita-
parties used them in a technical or different sense. Her-     tion-of-liability provision to preclude the recovery of
itage Resources, Inc. v. NationsBank, 939 S.W.2d 118,         "direct" lost profits. Otherwise, Continental would be
122, 39 Tex. Sup. Ct. J. 537 (Tex.1996).                      permitted to recover [*477] damages in excess of those
                                                              permitted by the early termination remedy.
    We will apply these rules of construction in deter-
mining whether the contract precludes [**14] Conti-                 [**16] Other rules of contract construction also
nental's recovery of "direct" lost profits damages. The       support a conclusion that Western and Continental in-
contract included: (1) a general agreement; (2) a supple-     tended to preclude the recovery of "direct" lost profits
mental agreement; and (3) a supplemental agreement No.        damages. The plain, ordinary, and generally accepted
2. The contract provided Continental with a specific          meaning of the term "loss of profits" includes "direct"
remedy in the event of early termination for reasons other    damages and "indirect" damages. Hycel, Inc. v. American
than Continental's default. Section III, Paragraph 6 of the   Airlines, Inc., supra; Imaging Systems International, Inc.
general agreement provided:                                   v. Magnetic Resonance Plus, Inc., supra. Continental's
                                                              and Western's use of the phrase "or any other indirect or
CONTRACT RATE                                                 consequential damages" does not establish that they in-
                                                              tended to alter the plain meaning of "loss of profits." If
     [Western] shall pay [Continental] in accordance with
                                                              Continental and Western had intended to preclude only
the rates, charges and fees, and on the terms set out in
                                                              the recovery of "indirect" lost profits, they did not need to
Supplemental Agreement....Additionally, in the event of
                                                              include the phrase "loss of profits" in the provision be-
early termination for reasons other than [Continental's]
                                                              cause a general prohibition of recovery of "indirect"
default, [Continental] shall be compensated according to
                                                              damages would include "indirect" lost profits. Therefore,
the schedule contained in Supplemental Agreement.
(Emphasis added)
                                                                                                                Page 5
                                  132 S.W.3d 471, *; 2003 Tex. App. LEXIS 9952, **


to adopt Continental's interpretation of Paragraph 13.2       [**17] This Court's Ruling
would render the term "loss of profits" meaningless.
                                                                 The judgment of the trial court is affirmed.
    We find that Paragraph 13.2 unambiguously pre-
                                                                 TERRY McCALL
cludes the recovery of "direct" and "indirect" lost profits
damages. Continental's first, fourth, and fifth issues are       JUSTICE
overruled.
                                                                                                                      Page 1
                                        80 S.W.3d 549, *; 2002 Tex. LEXIS 58, **;
                                                   45 Tex. Sup. J. 680




                 COUNTY OF CAMERON, PETITIONER v. CHARLENE MILLS BROWN, IN-
                 DIVIDUALLY, CLIFTON LINWOOD BROWN, INDIVIDUALLY AND AS LE-
                 GAL REPRESENTATIVES OF THE ESTATE OF NOLAN BARRETT BROWN,
                         DECEASED, AND JEFF FARRINGTON, RESPONDENTS

                                                        NO. 00-1020

                                             SUPREME COURT OF TEXAS

                                80 S.W.3d 549; 2002 Tex. LEXIS 58; 45 Tex. Sup. J. 680

                                                October 3, 2001, Argued
                                             May 23, 2002, Opinion Delivered

PRIOR HISTORY:          [**1] ON PETITIONS FOR                  darkness and constituted a premises defect for which the
REVIEW FROM THE COURT OF APPEALS FOR THE                        Texas Tort Claims Act waives governmental immunity.
THIRTEENTH DISTRICT OF TEXAS.                                   The trial court ruled that the plaintiffs' pleadings fail to
Brown v. Texas DOT & Cameron County, 2000 Tex. App.             state a claim under the Act, [**2] and granted the de-
LEXIS 5560 (Tex. App. Corpus Christi Aug. 17, 2000)             fendants' pleas to the jurisdiction. The court of appeals
                                                                reversed, holding that the pleadings and evidence estab-
DISPOSITION:          Judgment of the Court of Appeals          lished a premises defect for which immunity was waived.
reversing dismissal by the trial court is affirmed; cause       S.W.3d        . We must decide whether the plaintiffs'
remanded to the trial court for further proceedings.            pleadings, together with pertinent jurisdictional evidence,
                                                                are sufficient to raise a premises-defect claim within the
                                                                Act's immunity waiver.
COUNSEL: For PETITIONER: Kraehe, Mr. George
                                                                      The defendants argue that the failed lighting cannot
Christian, Brownsville, TX.
                                                                under any circumstances constitute a premises defect
                                                                because the resulting darkness was open and obvious, and
For RESPONDENT: Jensen, Mr. Brian L., Jensen Rosen
                                                                not an unreasonably dangerous condition. But whether or
& Steinberg, Houston, TX, Bright, Mr. David T., Watts &
                                                                not that ultimately proves to be the case, we hold that the
Heard, Corpus Christi, TX, Prestia, Mr. Joseph, Presita &
                                                                pleadings and jurisdictional evidence do not affirmatively
Ornelas, Edinburg, TX.
                                                                negate the existence of an unreasonably dangerous con-
                                                                dition. Thus, the trial court should not have dismissed the
JUDGES: JUSTICE O'NEILL delivered the opinion of
                                                                plaintiffs' claims on this basis. The plaintiffs' pleadings do
the Court, in which CHIEF JUSTICE PHILLIPS, JUS-
                                                                fail, however, to allege another necessary premises-defect
TICE ENOCH, JUSTICE BAKER, JUSTICE
                                                                element -- that the plaintiffs did not actually know of the
HANKINSON, and JUSTICE RODRIGUEZ joined.
                                                                dangerous condition. Because the plaintiffs must be af-
JUSTICE JEFFERSON filed a concurring opinion, in
                                                                forded an opportunity to amend to remedy this omission,
which JUSTICE OWEN joined. JUSTICE RODRIGUEZ
                                                                we affirm the court of appeals' judgment reversing and
filed a concurring opinion. JUSTICE HECHT filed a
                                                                remanding [**3] the case to the trial court.
dissenting opinion.
                                                                      I. Background
OPINION BY: Harriet O'Neill
                                                                     This case arises from an auto accident that occurred
                                                                on the Queen Isabella Causeway, which is the only bridge
OPINION
                                                                connecting [*553] South Padre Island to the Texas
     [*552] In this wrongful-death action, plaintiffs           mainland. Nolan Brown was crossing the causeway at
claim that a failed block of lights at the end of an elevated   about 3:00 a.m., traveling east toward South Padre, when
and curving causeway, with narrow shoulders and limited         he lost control of his truck. Brown's truck struck the con-
access, suddenly and unexpectedly plunged motorists into        crete median that separates the two east-bound lanes from
                                                                                                                    Page 2
                                        80 S.W.3d 549, *; 2002 Tex. LEXIS 58, **;
                                                   45 Tex. Sup. J. 680

the two west-bound lanes, skidded, and turned over on its       gued that providing roadway illumination is a discretion-
side. When it came to rest, Brown's passenger exited the        ary function, so that they owed no duty to ensure illumi-
vehicle through the sunroof. While Brown was attempting         nation on the causeway. Defendants further argued that
the same escape, an oncoming car driven by Hector               there was no duty to warn motorists of the failed lighting
Mucio Martinez crashed into Brown's truck. Brown died           because the defective condition, which they describe as
at the scene.                                                   "darkness," was open and obvious, and not an unreason-
                                                                ably dangerous condition as a matter of law.
     The record indicates that the causeway curves, has
narrow shoulders, and rises approximately 109 feet above             In response, [**6] the plaintiffs acknowledged
the bay. Once drivers enter the causeway, a concrete me-        that the defendants had no initial duty to illuminate the
dian prevents them from turning around. When the acci-          causeway, but claimed that the decision to install street-
dent in this case occurred, a block of streetlights on the      lights gave rise to a nondiscretionary duty to maintain
causeway's eastern section was not functioning. The first       [*554] them. Plaintiffs further responded that, because
part of the bridge was illuminated for traffic heading          the causeway entrance was illuminated, the sudden
toward South Padre Island, but there was no illumination        darkness from the block of failed lighting came upon
at the accidents' scene.                                        drivers unexpectedly, thus leaving the question of the
                                                                condition's open and obvious nature for the jury to con-
     The [**4] State owns the causeway and its street-
                                                                sider.
light system. However, Cameron County assumed certain
maintenance responsibilities over the causeway's street-             After an evidentiary hearing, and without ruling on
light system under an agreement with the Texas Depart-          the defendants' special exceptions, the trial court granted
ment of Transportation ("TxDOT"). 1 Correspondence              the defendants' jurisdictional pleas, dismissed the claims
between TxDOT and the County shows that maintaining             against them, and severed them from the underlying
the causeway's streetlights had been a problem since at         claims against the contractor and Martinez. The court of
least 1995. In November of that year, Kenneth Conway, a         appeals reversed the trial court's judgment, holding that
county park-system director, wrote to TxDOT's district          (1) maintaining the causeway's streetlights was not a
engineer that thirty causeway streetlights were not func-       discretionary function exempt from the Tort Claims Act's
tioning and presented a "serious safety hazard." In an          immunity waiver, and (2) the plaintiffs' allegations and
April 1996 letter to TxDOT, Conway wrote that "incon-           the pertinent jurisdictional evidence were sufficient to
sistent lighting on the causeway presents a safety hazard       raise a premises-defect claim under the Act. 2000 Tex.
to the traveling public, particularly motorists who may be      App. LEXIS 5560, __ S.W.3d __. We granted review to
stranded in poorly lit sections." By August 1996, over          consider whether the plaintiffs' claims fall within the Tort
thirty streetlights had failed, and the record indicates that   Claims Act's sovereign-immunity [**7] waiver.
at least that many were not functioning a month later
when the accidents occurred.                                    II. The Tort Claims Act
                                                                     The State, its agencies, and subdivisions, such as
       1 Among themselves, TxDOT and the County
                                                                counties, generally enjoy sovereign immunity from tort
       disputed their respective responsibilities under the
                                                                liability unless immunity has been waived. See TEX.
       maintenance agreement. The lower courts did not
                                                                CIV. PRAC. & REM. CODE §§ 101.001(3)(A)-(B),
       consider this issue, nor do the parties raise it here.
                                                                101.025; Texas Dep't of Transp. v. Able, 35 S.W.3d 608,
      [**5] Brown's survivors sued TxDOT, the County,           611, 43 Tex. Sup. Ct. J. 1055 (Tex. 2000). The Tort Claims
the contractor the County hired to repair the streetlights,     Act expressly waives sovereign immunity in three general
and Martinez. The plaintiffs alleged that Brown was             areas: "'use of publicly owned automobiles, premises
stranded in a poorly lit section of the causeway when he        defects, and injuries arising out of conditions or use of
was fatally injured, and that defective wiring caused the       property.'" 2 Able, 35 S.W.3d at 611 (quoting Lowe v.
streetlights to fail, creating an unreasonably dangerous        Texas Tech Univ., 540 S.W.2d 297, 298 (Tex. 1976)). But
condition. They alleged that the causeway's condition           the Act does not waive immunity for discretionary deci-
constituted a premises defect, a special defect, or a misuse    sions, such as whether and what type of safety features to
of personal property, for which the Tort Claims Act             provide. See TEX. CIV. PRAC. & REM. CODE §
waives governmental immunity. Brown's passenger in-             101.056; State v. San Miguel, 2 S.W.3d 249, 251, 42 Tex.
tervened to seek recovery for his own injuries.                 Sup. Ct. J. 1139 (Tex. 1999).
     TxDOT and the County filed special exceptions and
                                                                       2     Although the plaintiffs alleged that the
pleas to the jurisdiction, arguing that the plaintiffs' alle-
                                                                       causeway's failed lighting constituted a premises
gations failed to state claims within the Act's sover-
                                                                       defect, a special defect, and a misuse of tangible
eign-immunity waiver. Specifically, the defendants ar-
                                                                       property, the court of appeals considered only
                                                                                                                    Page 3
                                        80 S.W.3d 549, *; 2002 Tex. LEXIS 58, **;
                                                   45 Tex. Sup. J. 680

       their premises-defect claim. Here, too, the parties      868, 44 Tex. Sup. Ct. J. 667 (Tex. 2001); Bland Indep.
       focus almost exclusively on that claim. Thus, we         Sch. Dist. v. Blue, 34 S.W.3d 547, 554, 44 Tex. Sup. Ct.
       consider only whether the pleadings and jurisdic-        J. 125-55 (Tex. 2000). 3 When we consider a trial court's
       tional evidence raise a premises-defect claim            order on a plea to the jurisdiction, we construe the
       within the Act's sovereign-immunity waiver.              pleadings in the plaintiff's favor and look to the pleader's
                                                                intent. See Texas Ass'n of Bus. v. Texas Air Control
      [**8] The Act provides that a governmental unit is
                                                                Bd., 852 S.W.2d 440, 446 (Tex. 1993); Peek v. Equip-
liable for injury and death caused by a condition of real
                                                                ment Serv. Co. of San Antonio, 779 S.W.2d 802, 804-05
property "if the governmental unit would, were it a private
                                                                (Tex. 1989). When a plaintiff fails to plead facts that
person, be liable to the claimant according to Texas law."
                                                                establish jurisdiction, but the petition does not af-
TEX. CIV. PRAC. & REM. CODE § 101.021(2). With
                                                                firmatively demonstrate incurable defects in jurisdic-
respect to ordinary premises defects, however, the Act
                                                                tion, the issue is one of pleading sufficiency and the
specifically limits the governmental duty owed to a
                                                                plaintiff should be afforded the opportunity to amend.
claimant to "the duty that a private person owes to a li-
                                                                See Peek, 779 S.W.2d at 804-05; Texas Dep't of Cor-
censee on private property." TEX. CIV. PRAC. & REM.
                                                                rections v. Herring, 513 S.W.2d 6, 9-10 (Tex. 1974). On
CODE § 101.022(a). Thus, a governmental unit may be
                                                                the other hand, if the pleadings affirmatively negate
liable for an ordinary premises defect only if a private
                                                                the existence of jurisdiction, then a plea to the juris-
person would be liable to a licensee under the same cir-
                                                                diction may be granted without allowing the [**11]
cumstances.
                                                                plaintiff an opportunity to amend. See Peek, 779
     A licensee asserting a premises-defect claim gener-        S.W.2d at 804-05.
ally must show, first, that the defendant possessed -- that
is, owned, occupied, or controlled -- the premises where               3    The County argues that the court of ap-
the injury occurred. Wilson v. Texas Parks & Wildlife                  peals erred in considering evidence outside of
Dep't, 8 S.W.3d 634, 635, 43 Tex. Sup. Ct. J. 148 (Tex.                the pleadings in reviewing the pleas to the ju-
1999) (per curiam denying petition for review) (citing                 risdiction. Given our holdings in Bland and
City of Denton v. Van Page, 701 S.W.2d 831, 835 (Tex.                  White, which the County does not cite, this
1986)). A property possessor must not injure a licensee by             argument has no merit. Bland, 34 S.W.3d at
willful, wanton, [**9] or grossly negligent conduct,                   554-55; White, 46 S.W.3d at 868.
and must use ordinary care either to warn a licensee of a
                                                                    IV. Discussion
condition that presents an unreasonable risk of harm of
which the possessor is actually aware and the licensee is             Defendants argue that, for several reasons, the plain-
not, or to make the condition reasonably safe. [*555]           tiffs have either failed to allege or their pleadings effec-
State Dep't of Highways & Pub. Transp. v. Payne, 838            tively negate certain elements of a premises-defect claim
S.W.2d 235, 237 (Tex. 1992).                                    within the Act's immunity waiver. First, the County con-
                                                                tends that it neither owned nor exercised exclusive control
     Here, the plaintiffs have not alleged that the de-
                                                                over the causeway or its streetlight system, and therefore
fendants injured them willfully or wantonly, or that they
                                                                cannot be held liable for the alleged premises defect.
were grossly negligent. And although the defendants
                                                                Second, the County contends that the plaintiffs have not
argue generally, as a policy matter, that the court of ap-
                                                                alleged a condition posing an unreasonable risk of harm
peals' decision impinges upon governmental units' dis-
                                                                because it was not foreseeable that Brown would lose
cretion in deciding whether and what kind of lighting to
                                                                control [**12] of his vehicle and then be struck by a
install along roadways, they do not challenge the court of
                                                                motorist while attempting to exit the wreckage. Third, the
appeals' holding that the plaintiffs' claims in this case are
                                                                defendants claim that any risk of harm presented by the
based upon the defendants' maintenance of the causeway
                                                                alleged defect was not unreasonable when weighed
lighting and thus do not concern discretionary acts. Ac-
                                                                against the burden that governmental entities would face
cordingly, we consider only whether the plaintiffs'
                                                                if the defendants here could be held liable for the failed
pleadings and jurisdictional evidence are sufficient to
                                                                block of lighting. Fourth, the defendants characterize the
allow them to maintain a premises-defect claim within the
                                                                alleged dangerous condition as "darkness at night," and
Act's immunity waiver.
                                                                argue that this condition is so open and obvious that
    III. Standard of Review                                     knowledge of the condition should be imputed to cause-
                                                                way motorists. Finally, the defendants contend that, even
    In deciding a plea to the jurisdiction, a court may         if knowledge of the dangerous condition cannot be
not weigh the claims' [**10] merits but must con-
                                                                [*556] imputed to the plaintiffs, the plaintiffs neverthe-
sider only the plaintiffs' pleadings and the evidence           less failed to plead an element necessary to maintain their
pertinent to the jurisdictional inquiry. Texas Natural
Res. Conservation Comm'n v. White, 46 S.W.3d 864,
                                                                                                                     Page 4
                                        80 S.W.3d 549, *; 2002 Tex. LEXIS 58, **;
                                                   45 Tex. Sup. J. 680

premises-defect claim, that is, that they did not actually      ble-risk-of-harm element. As the court of appeals ob-
know of the danger.                                             served, "the Causeway is more dangerous than an ordi-
                                                                nary road" upon the complete failure of a large block of
A. Possession of the Premises                                   streetlights.       2000 Tex. App. LEXIS 5560 at *8,
                                                                S.W.3d at       . The causeway curves and ascends to an
      The County argues that it cannot be subjected to a
                                                                approximate height of 109 feet above the water, its
premises-liability claim within the Act's immunity waiver
                                                                shoulders are narrow, and concrete barriers prevent mo-
because it neither owned nor exercised exclusive control
                                                                torists who drive onto it from turning around. We cannot
over the causeway or its streetlight system. See Wilson, 8
                                                                say, as a matter of law, that it is unforeseeable that a sig-
S.W.3d at 635. But a premises-liability defendant may be
                                                                nificant and unexpected change in lighting at night on a
held liable for a dangerous [**13] condition on the
                                                                narrow and curving causeway could impair a motorist's
property if it "assumed control over and responsibility for
                                                                ability to avoid obstacles that lie ahead. While Brown's
the premises," even if it did not own or physically occupy
                                                                alleged lack of care may be an issue of comparative re-
the property. Van Page, 701 S.W.2d at 835; see also
                                                                sponsibility for the jury to decide, see TEX. CIV. PRAC.
Wilson, 8 S.W.3d at 635. The relevant inquiry is whether
                                                                & REM CODE § 33.012, it does not render the subsequent
the defendant assumed sufficient control over the part of
                                                                harm in this case unforeseeable. [*557] Furthermore,
the premises that presented the alleged danger so that the
                                                                we cannot determine from the pleadings and the limited
defendant had the responsibility to remedy it. Cf. Van
                                                                jurisdictional evidence that Brown was in fact negligent in
Page, 701 S.W.2d at 833-34 (concluding that the city did
                                                                operating his vehicle.
not assume control over a storage building, which was on
plaintiff's lot and which housed the alleged dangerous               Importantly, correspondence in the record reveals
condition). Here, the plaintiffs allege that the County         that the defendants themselves knew of the general [**16]
"maintained the [causeway] pursuant to a contract with          danger that the causeway's numerous, nonfunctioning
the State." And it is undisputed that the County assumed        streetlights posed. Kenneth Conway, the County's
certain maintenance responsibilities over the causeway's        park-system director, described the failed lighting as "a
streetlight system. Construing the pleadings in the plain-      serious public safety issue" and "a serious safety hazard."
tiffs' favor, we conclude that they adequately allege the       In a letter to TxDOT, Conway specifically identified the
first element of a premises-liability claim - that the          danger posed to motorists "stranded in poorly lit sections"
County possessed the property. See id.                          of the causeway. The general foreman of the contractor
                                                                hired to repair the lights, too, recognized the danger. He
B. Foreseeablity of Harm                                        wrote in a letter that the causeway's lighting system posed
                                                                an "extreme hazard." Considering the pleaded facts and
     A condition poses an unreasonable risk of harm for
                                                                the record evidence, we cannot conclude that the events in
premises-defect purposes when there [**14] is a "suffi-
                                                                question were not foreseeable.
cient probability of a harmful event occurring that a rea-
sonably prudent person would have foreseen it or some
                                                                C. Unreasonableness of Risk
similar event as likely to happen." Seideneck v. Cal
Bayreuther Assocs., 451 S.W.2d 752, 754 (Tex. 1970) .                The defendants argue that conditions on the cause-
The County contends that the pleaded condition did not          way did not present a risk of harm that was unreasonable
pose an unreasonable risk of harm because a reasonably          when measured against the burden that governmental
prudent person could not have foreseen that a driver such       entities would face if the County and TxDOT could be
as Brown would lose control of his vehicle and then, while      held liable in this case. They contend that allowing the
exiting the wreckage, be struck by another motorist. But        plaintiffs' claims to proceed will effectively require gov-
foreseeability does not require that the exact sequence of      ernmental entities to either light every stretch of public
events that produced an injury be foreseeable. See              roadway or remove all lighting, because any unexpected
Walker v. Harris, 924 S.W.2d 375, 377, 39 Tex. Sup. Ct. J.      illumination change might constitute a premises defect for
777 (Tex. 1996); see also Clark v. Waggoner, 452                which they [**17] may be held liable. Governmental
S.W.2d 437, 440 (Tex. 1970) (stating that foreseeability        entities could face liability, they claim, for every street-
prong of proximate cause does not "require that [de-            light that might flicker or go out. But our holding is not so
fendants] anticipate just how injuries will grow out of         broad. A governmental unit's sovereign immunity is not
[the] dangerous situation"). Instead, only the general          waived for failure to install lighting, which is a discre-
danger must be foreseeable. Walker, 924 S.W.2d at 377.          tionary decision, or even for not repairing lighting that has
Here, focusing on the general danger and the causeway's         been installed if an unreasonably dangerous condition is
particular characteristics, we cannot say that the plaintiffs   not thereby created. Our decision rests upon the cause-
failed to plead, or that their [**15] pleadings affirma-        way's unique characteristics and the nature of the partic-
tively negate, their premises-liability claim's unreasona-      ular dangerous condition alleged.
                                                                                                                   Page 5
                                       80 S.W.3d 549, *; 2002 Tex. LEXIS 58, **;
                                                  45 Tex. Sup. J. 680

     The County analogizes the dangerous condition al-         travel lanes in each direction and prevents drivers from
leged here to visual obstructions along roadways caused        turning back once embarking upon the bridge. Only a
by overgrown vegetation. We have recognized that               relatively narrow shoulder beside the traffic lanes is
holding counties liable for failing to remove such ob-         available to accommodate vehicles in emergency situa-
structions could impose a significant burden on counties.      tions.
See Jezek v. City of Midland, 605 S.W.2d 544, 546-47
                                                                    On the evening in question, the causeway was lit at
(Tex. 1980). But the County misconstrues the plaintiffs'
                                                               the point of entry, but there was no illumination further
pleadings. Unlike Jezek, the condition alleged here is not
                                                               [**20] along the causeway at the accident scene. The
simply a naturally occurring one that causes a visual ob-
                                                               relevant inquiry is whether the lighting failure was open
struction, but rather a malfunctioning block of artificial
                                                               and obvious to motorists entering the causeway, because
lighting that the defendants failed to maintain, causing a
                                                               that is the point at which they could choose to avoid the
sudden and unexpected change in driving [**18] condi-
                                                               condition or otherwise protect themselves. Cf. Harvey v.
tions.
                                                               Seale, 362 S.W.2d 310, 312 (Tex. 1962) (stating that a
                                                               licensee "can remain off the premises if he does not wish
D. Knowledge of the Condition
                                                               to subject himself to the risk of injury" from an open and
     Tort law has long recognized that a landowner has a       obvious condition). Construing the pleadings and the
privilege to "make use of the land for his own benefit, and    jurisdictional evidence in the plaintiffs' favor, and con-
according to his own desires." PROSSER & KEETON,               sidering the causeway's particular characteristics, we
PROSSER & KEETON ON TORTS § 57, at 386 (Law-                   cannot say that sudden darkness created by the failed
yers' ed. 1984). The extent of that privilege, however,        lighting at the accident scene was a danger open and ob-
varies depending upon the character of the owner's con-        vious to motorists entering the illuminated causeway so
sent to others' entry on the premises. See RESTATEMENT         that knowledge of the condition should be imputed to
(SECOND) OF TORTS § 342 cmt. h. Because a licensee             them as a matter of law. Accordingly, we cannot conclude
enters for his or her own purposes, "he has no right to        that the pleadings affirmatively negate the plaintiffs' lack
demand that the land be made safe for his reception, and       of actual knowledge.
he must in general . . . look out for himself." PROSSER &
KEETON, PROSSER & KEETON ON TORTS § 60, at                     2. Actual Knowledge
412 (Lawyers' ed. 1984). If a licensee is aware of a dan-
                                                                    The defendants contend that, even if we cannot im-
gerous condition, he has all that he is entitled to expect,
                                                               pute knowledge of the alleged dangerous condition from
that is, an opportunity for an intelligent choice as to
                                                               the pleadings, the plaintiffs failed to plead that they did
whether the advantage to be gained by coming on the
                                                               not actually know of the [**21] condition. 4 The de-
[*558] land is sufficient to justify him in incurring the
                                                               fendants contend that the trial court's dismissal order
risks involved. RESTATEMENT (SECOND) OF TORTS §
                                                               should be upheld on this basis. We agree that the plaintiffs
342 cmt. l. Thus, to establish liability for a premises de-
                                                               failed to allege this necessary premises-defect element.
fect, a licensee must prove that he or she did not actually
                                                               Moreover, we disagree with the court of appeals' conclu-
know of the condition. See Payne, 838 S.W.2d at 237.
                                                               sion that we can infer this element from the pleadings.
[**19]
                                                               Nevertheless, the court of appeals did not err in reversing
                                                               the trial court's judgment and remanding, because the
1. Imputed Knowledge
                                                               plaintiffs'    [*559]     pleadings do not affirmatively
      Defendants contend that the dangerous condition          demonstrate an incurable jurisdictional defect, but merely
here is nothing but "darkness at night," which is so open      a pleading deficiency. Because the trial court did not rule
and obvious that knowledge of the condition must be            on the defendants' special exceptions and allow the
imputed to causeway users. This imputed knowledge,             plaintiffs an opportunity to amend their pleadings, omit-
they claim, negates an essential element of the plaintiffs'    ting this element cannot support the trial court's judgment.
premises-defect claims. See id. But construing the plain-      See Herring, 513 S.W.2d at 9-10 (holding that when the
tiffs' allegations in favor of jurisdiction, as we must, the   allegations do not "affirmatively negate" a claim, dis-
dangerous condition alleged is not merely "darkness" but       missal for failure to state a claim is appropriate only when
a failed block of artificial lighting that caused a sudden,    the plaintiff has been "given an opportunity to amend after
unexpected and significant transition from light to dark-      special exceptions have been sustained"); see also 7
ness. This condition may or may not have been open and         WILLIAM V. DORSANEO III, TEXAS LITIGATION
obvious to ordinary users considering the causeway's           GUIDE § 70.03[4][f] (stating that after a trial court sus-
particular characteristics. Specifically, the record indi-     tains special exceptions, "the pleader must [**22] be
cates that the causeway is narrow, curves, and rises high      given, as a matter of right, an opportunity to amend").
above the bay. A cement median barrier separates the two       Accordingly, we affirm the court of appeals' judgment
                                                                                                                     Page 6
                                        80 S.W.3d 549, *; 2002 Tex. LEXIS 58, **;
                                                   45 Tex. Sup. J. 680

reversing and remanding the case, because the plaintiffs        spondents have failed to state a cause of action under the
should be afforded an opportunity to amend their plead-         Torts Claims Act. But because the respondents' pleadings
ings.                                                           do not negate jurisdiction, I respectfully concur in the
                                                                Court's judgment only.
       4 At oral argument, plaintiffs suggested for the
                                                                     Certainly, the facts of the case are disturbing. The
       first time that the relevant inquiry is not whether
                                                                accident occurred on the South Padre Island Causeway, a
       Brown actually knew of the dangerous condition,
                                                                lengthy stretch of elevated, curving highway connecting a
       but whether Martinez, the motorist who struck
                                                                major tourist destination to the mainland. Although con-
       him, knew. While it is true that Martinez is also a
                                                                tinuous illumination was installed along the route, on the
       licensee, the ultimate issue is whether the de-
                                                                night of the accident a bank of lights was not functioning.
       fendants acted reasonably toward Brown and his
                                                                They had been malfunctioning for some time, and the
       passenger. Thus, the proper focus is whether the
                                                                County's park-system director considered this fact to be "a
       plaintiffs themselves actually knew of the alleged
                                                                serious safety hazard." Nolan Brown lost control of his
       dangerous condition.
                                                                truck at that site [*560] and the truck hit a median and
                                                                overturned. Another vehicle crashed into the overturned
V. Conclusion
                                                                truck, resulting in Brown's death. These tragic facts are
     We hold that, considering the causeway's particular        unique, but then, so are the facts of many other accidents.
characteristics, the large block of nonfunctioning street-
                                                                     The Court identifies a number of factors that pur-
lights, and the defendants' own knowledge of the danger
                                                                portedly distinguish this case from other [**25] thor-
to causeway users, the pleadings do not affirmatively
                                                                oughfares. We are told, for example, that this case in-
negate the existence of an unreasonably dangerous con-
                                                                volves a causeway that curves and ascends, has narrow
dition. We conclude, however, that [**23] the plaintiffs
                                                                shoulders, concrete barriers, and a block of malfunction-
failed to plead that they did not actually know of the
                                                                ing lights that caused "a sudden and unexpected change in
dangerous condition, an element necessary to prove a
                                                                driving conditions."       2000 Tex. App. LEXIS 5560 at
premises-defect claim. Because this pleading defect is one
                                                                *7, S.W.3d        . Although the number of causeways in
for which the plaintiffs should be afforded an opportunity
                                                                this State are relatively few, the remaining factors, alone
to amend, we affirm the court of appeals' judgment re-
                                                                or in combination, describe highways and byways in
versing the trial court's dismissal for lack of jurisdiction
                                                                every county and city throughout the State.
and remanding the case to the trial court.
                                                                     Public roads are generally constructed, owned, and
    Harriet O'Neill
                                                                maintained by governmental entities. For that reason,
    Justice                                                     those entities are potential defendants in nearly every
                                                                automotive accident case. In many cases, competent at-
CONCUR BY: WALLACE B. JEFFERSON; XAVIER                         torneys can argue plausibly that the circumstances in their
RODRIGUEZ                                                       client's case are at least as unique as the circumstances
                                                                here. Because the Court's opinion does not identify any
CONCUR                                                          limiting principle, accidents on roads with defective il-
                                                                lumination, curves or hills, or with concrete barriers or
    JUSTICE JEFFERSON, joined by JUSTICE OWEN,
                                                                narrow shoulders, will be sure to inspire litigation in
concurring in the judgment.
                                                                which County of Cameron will become the standard re-
     The Court holds that the unique characteristics of the     buttal to jurisdictional pleas.
causeway constitute an "unreasonably dangerous condi-
                                                                     The installation of roadway lighting is a discretionary
tion" for which governmental entities may be liable under
                                                                decision that governmental agencies [**26] balance
the Texas Tort Claims Act. But the Court never articulates
                                                                along with other resource-allocation decisions. No statute
a principle to identify in future cases the characteristics
                                                                requires that governmental entities provide roadway
that will give rise to a cause of action within the terms of
                                                                lighting. And no statute requires governmental entities to
the Act. In this area of governmental immunity, the
                                                                warn of absent lighting or changed conditions of roadway
Court's "I know it when I see it" analysis exacts too great a
                                                                lighting. The Legislature has entrusted these matters to
price. The resulting uncertainty from the Court's lack of
                                                                governmental discretion. But beginning today, govern-
guidance will, I fear, inundate courts with claims against
                                                                mental entities must exercise this discretion at their peril.
state and local governments for what amounts to discre-
tionary decisions involving [**24] the design and illu-              After today, governmental entities will balance the
mination of Texas roadways. In my view, this uncertainty        decision to illuminate roadways against the real possibil-
is unwarranted because darkness is not an unreasonably          ity that those lights, once installed, might fail and thrust
dangerous condition. Thus, I would hold that the re-            drivers into "sudden darkness" at night. They will weigh
                                                                                                                       Page 7
                                         80 S.W.3d 549, *; 2002 Tex. LEXIS 58, **;
                                                    45 Tex. Sup. J. 680

the social utility of additional lighting against the very real   when the pleadings [**29] do not allege enough juris-
threat that scarce resources will be spent defending claims       dictional facts. Texas Ass'n of Bus. v. Texas Air Control
involving accidents where some segment of those lights            Bd., 852 S.W.2d 440, 446 (Tex. 1993). While it may be
has malfunctioned. Assuming those entities are risk               unlikely that the respondents will be able to plead suffi-
averse, the prudent course may well be to adopt a con-            cient jurisdictional facts, they should be allowed that
servative stance and reduce or eliminate highway-lighting         opportunity. For this reason only, I concur in the Court's
initiatives. However, this Court should not impose that           judgment.
Hobson's choice on governmental entities.
                                                                      WALLACE B. JEFFERSON
     More than two decades ago, in Jezek v. City of Mid-
                                                                      JUSTICE
land, 605 S.W.2d 544 (Tex. 1980), this Court recognized
the [**27] obvious dangers in imposing a similar duty                 JUSTICE RODRIGUEZ, concurring.
on counties. We stated: "It would be a rigorous burden
                                                                       The plaintiffs acknowledge that the governmental
indeed for a rural county in a state such as Texas to police
                                                                  defendants were not required by any law to illuminate the
and remove vegetation from roads when they cause visual
                                                                  causeway. Their initial decision to illuminate the highway
obstruction." Id. at 547. But today, instead of reaffirming
what we said in Jezek, the Court attempts to distinguish          was a discretionary act. CIV. PRAC. & REM. CODE §
this case because "the condition alleged here is not simply       101.056. The question then arises: after a governmental
                                                                  unit decides to install streetlights, does it have a duty to
a naturally occurring one that causes a visual obstruction,
                                                                  ensure that the lights work properly?
but rather a malfunctioning block of artificial lighting that
the defendants failed to maintain . . . ." 2000 Tex. App.              The Court decides, and I agree, that the plaintiffs'
LEXIS 5560 at *7, __ S.W.3d __. I am not persuaded by             pleadings and the evidence in this case are sufficient to
the Court's distinction. Darkness is certainly naturally          raise a premises defect claim. "If a claim arises from a
occurring and a governmental entity's failed attempts to          premise defect, the governmental unit owes to the
protect against the dangers posed by darkness do not              claimant only the duty that a private person owes to a
create an unreasonably dangerous condition. At some               licensee on private property . . . ." Id. § 101.022(a). We
point along every highway, streetlights end, plunging             have previously stated in City of Grapevine v. Roberts,
drivers into darkness. And requiring governmental enti-           946 S.W.2d 841, 40 Tex. Sup. Ct. J. 623 (Tex. 1997),
ties to shield drivers from every transition from light to        [**30] that:
dark along a roadway would be a heavy burden indeed.
                                                                       if the condition was an ordinary premise defect, the
       [*561] Today's decision is even more alarming              [governmental unit] owed [the plaintiff] the same duty
because, under the Court's analysis the ultimate question -       that a private landowner owes a licensee. Generally, the
whether the roadway is "unreasonably dangerous" [**28]            duty a landowner owes a licensee is not to injure the li-
- is answered not only by the existence of malfunctioning         censee through willful, wanton, or grossly negligent
lights, but also by the extent to which the roadway has           conduct. An exception to the general rule is that if the
hills or curves, barriers or narrow shoulders. Because            landowner has knowledge of a dangerous condition and
these roadway design decisions are discretionary, they            the licensee does not, the landowner has a duty either to
should not be used to aid in establishing liability. State v.     warn the licensee or to make the condition reasonably
Rodriguez, 985 S.W.2d 83, 85, 42 Tex. Sup. Ct. J. 318             safe.
(Tex. 1999) ("Design of any public work, such as a
roadway, is a discretionary function involving many pol-          Id. at 843 (citations omitted). I agree that the govern-
icy decisions, and the governmental entity responsible            mental units knew that the lights were not working
may not be sued for such decisions."). While I do not             properly. I also agree that Brown should be afforded the
believe the Court intends to impose liability for discre-         opportunity to replead regarding whether he did not ac-
tionary acts, the absence of any principled basis for lim-        tually know about the allegedly dangerous condition.
iting the scope of the Court's opinion is deeply trouble-
some and will undoubtedly jeopardize discretionary                     I write separately, however, to state that I join in the
road-design decisions.                                            judgment because our current law mandates this result. I
                                                                  share, however, the concerns expressed by JUSTICE
     Some areas of the law permit case-by-case devel-             HECHT that the "burden on the governments of Texas
opment, leaving it to later courts to discern any emerging        will be felt" by this opinion. It should be noted that the
pattern. But in my view, it is unnecessary in this area of        Texas Department of Transportation reports that there are
the law. Darkness, however characterized, cannot con-             approximately 79,297 "centerline" [*562] miles of
stitute an unreasonably dangerous condition. The harm to          roads and highways [**31] maintained by the State. 1 In
our jurisprudence of so holding is simply too great. We           addition, there are 142,170 miles of county roads in
generally allow litigants to amend to cure pleading defects       Texas. 2
                                                                                                                       Page 8
                                        80 S.W.3d 549, *; 2002 Tex. LEXIS 58, **;
                                                   45 Tex. Sup. J. 680

                                                                illumination, and the State has no duty to light the great
       1 Pocket Facts, Texas Department of Trans-               outdoors." Id. 3
       portation (March 2002).
       2 Id.                                                            3    Indeed, in Jezek v. City of Midland, 605
                                                                        S.W.2d 544 (Tex. 1980), this Court similarly rec-
     Whether to install lights in the first instance is an
                                                                        ognized that counties did not have a duty to clear
exercise of the government's discretion. But once having
                                                                        or warn of vegetation that obstructed a driver's
done so, the maintenance of such a lighting system is
                                                                        vision. We stated: "It would be a rigorous burden
ministerial and does not afford immunity from liability.
                                                                        indeed for a rural county in a state such as Texas to
This leads to the absurd result that when a governmental
                                                                        police and remove vegetation from roads when
unit builds new roads or streets it should decide not to
                                                                        they cause visual obstruction." Id. at 547.
light them.
                                                                      [**34] The Second Court of Appeals was correct.
     The Court's opinion is limited to deciding whether a
                                                                There is no duty to light "the vast areas of Texas" and the
plea to the jurisdiction was properly granted, and it does
                                                                300,000 plus miles of highways, roads, and streets in this
not subject the governmental defendants to any liability.
                                                                State. Ironically, the Court's opinion today [*563]
Upon remand, Brown will still need to cure his pleading
                                                                provides no incentive for governmental units to increase
defect and establish causation. The problem that exists,
                                                                public safety in that regard. I defer to the Legislature to act
however, is that numerous other governmental defendants
                                                                upon the County's public policy arguments regarding the
will now incur substantial litigation costs ascertaining
                                                                financial burden that may be placed on counties to main-
when bulbs in exterior light fixtures burned out, what
                                                                tain all exterior lighting.
caused the light bulbs to burn out, and whether [**32]
the bulbs have been burned out for so long that the gov-            XAVIER RODRIGUEZ
ernmental entity should have discovered that fact and
                                                                    JUSTICE
replaced them. Plaintiffs will second guess (1) when
government employees should have arrived to do the
                                                                DISSENT BY: Nathan L. Hecht
necessary repairs, (2) whether the governmental em-
ployees should have erected temporary signs, and (3) how
                                                                DISSENT
many employees should have been dispatched to work on
the lights. See City of Baytown v. Peoples, 9 S.W.3d 391            JUSTICE HECHT, dissenting.
(Tex. App.-Houston [14th Dist.] 1999, no pet.).
                                                                     Assume for me, if you will, that all roadways that are
     In Tarrant County Water Control & Improvement              dark at night are unreasonably dangerous. This is hard, I
District No. 1 v. Crossland, 781 S.W.2d 427 (Tex.               know, since almost all of the roadways in the world are
App.--Ft. Worth 1989, writ denied), the plaintiffs were         dark at night, and for that reason most cars are equipped
fatally injured in a nighttime boating accident. There is a     with headlamps. But assume that darkness at night is
bridge in the portion of the reservoir where they were          unreasonably dangerous so that we can take that issue off
killed. A boat must slow down to sit lower in the water in      the table. (As an aside, I should point out that sunshine can
order to go safely under the bridge because of the amount       also make a roadway unreasonably dangerous because it
of clearance between the water and the underside of the         gets in your eyes; but that is not this case, and the Court
bridge. Id. at 430. The plaintiffs were killed when their       wisely reserves that issue for, as it were, another day.)
heads struck the underside of the bridge. Id. The plaintiffs'   Before a governmental entity in Texas can be liable for an
estates argued that the bridge and reservoir areas should       unreasonably dangerous [**35] condition in a roadway,
have been lighted and that warning signs should [**33]          there must be proof either that the condition was a "special
have been provided. In reversing a jury award of over $         defect" -- like an excavation or obstruction 1 -- or that the
1.2 million, the court of appeals noted that the plaintiffs     plaintiff did not know of the condition. 2 Since nighttime
did not point to any specific act or omission other than the    darkness is nothing like an excavation or obstruction,
lack of lights at the bridge. Id. at 432. The Second Court      Texas law leaves a plaintiff but one avenue (if you will) of
of Appeals noted that "the decedents faced the most             recovery for damages caused by the relatively regular
common and obvious danger known to man, darkness."              going down of the sun, and that is to prove that he could
Id. at 435. The Second Court of Appeals further observed        not see that it was dark.
"why [should] the bridge . . . be considered more dan-
gerous than any other unlighted recreational area. With                 1      TEX. CIV. PRAC. & REM. CODE §
4,790 square miles of inland water and more than 200                    101.022(b); State Dep't of Highways. & Pub.
major reservoirs, Texas ranks second behind Minnesota                   Transp. v. Payne, 838 S.W.2d 235, 238 (Tex.
for the most inland water among the continental states . . .            1992).
. In summary, vast areas of Texas are devoid of artificial              2 Payne, 838 S.W.2d at 237.
                                                                                                                   Page 9
                                       80 S.W.3d 549, *; 2002 Tex. LEXIS 58, **;
                                                  45 Tex. Sup. J. 680

      Now one might say: well, that's impossible; any fool            5    Ante at    .
driving along can tell by looking whether a roadway is
                                                                     I must say that I cannot quite grasp the Court's point
light or dark. But the Supreme Court of Texas is not any
                                                               here. The conditions of the unlighted causeway may have
fool; it has an easy answer for such skepticism when "the
                                                               made it unreasonably dangerous, but we have already
dangerous condition alleged is not merely 'darkness' but a
                                                               assumed (against all common sense) that every unlighted
failed block of artificial lighting that caused [**36] a
                                                               roadway is unreasonably dangerous, even a straight, wide,
sudden, unexpected and significant transition from light
                                                               flat, low one. The issue is not how narrow or curvy or high
to darkness." 3 Mind you, no one claims in this case that he
                                                               a roadway is, or how many lanes it has or how wide its
was driving along and the roadway lighting suddenly went
                                                               shoulder is; the issue is whether a driver can see that it's
off. The lights had been off for awhile, long enough for
                                                               dark or not. Dark, narrow roadways look just as dark as
Cameron County to know about it; if that were not true,
                                                               dark, wide roadways. Widening roads, or straightening
the County would not be liable for the darkness for an-
                                                               them up, or leveling them off, or giving them shoulders
other reason, and that is that it did not know the lights
                                                               does not lighten them up very much.
were out. 4 But Cameron County knew the lights were out
on a section of the Queen Isabella Causeway for the same            Like any driver on any unlighted roadway in the
reason that Nolan Brown and Hector Martinez and anyone         world, Brown should have known when he came upon the
else driving along, or anyone else who just looked, knew       dark part [**39] of the causeway that if he stopped for
it: because it was dark there. So when the Court says the      some reason, a driver coming along behind him might
darkness was "sudden", it means nothing more than that         plough into him, and Martinez should have known that if
the causeway was lighted for a stretch, and then for a         he outran his headlights, he might hit something. But,
stretch it wasn't. By saying that the darkness was "unex-      again, none of this has anything to do with whether a
pected", I suppose the Court means that Brown and Mar-         driver coming up on a dark road can see that it's dark,
tinez had not anticipated as they were driving along that      which determines whether the plaintiffs can possibly win
the lights might be out. But when they came upon the           this case.
darkness, they surely must have thought to themselves,
                                                                     So is there any point to this part of the Court's dis-
"Hmmm, the highway's dark here," just as if they had
come to the end of any lighted roadway. So however             cussion? No. Then why is it in the opinion? I can't say.
unexpected the darkness [**37] may have been, it was           Wholly apart from everything that's been said so far, "the
                                                               relevant inquiry," the Court says, is "whether the lighting
still plain as day, so to speak. And when the Court says the
                                                               failure was open and obvious to motorists entering the
"transition from light to darkness" was "significant", I
                                                               causeway, because that is the point at which they could
confess I haven't a clue what it means. The distinction
                                                               choose to avoid the condition or otherwise protect them-
between darkness that is "significant" and plain old in-
significant darkness is lost on me.                            selves." 6 Now, at last, we're onto something. This at least
                                                               makes sense. All the plaintiffs must prove in this case is
                                                               that when Brown entered the causeway, he could not see
       3    Ante at    (emphasis added).
                                                               far enough ahead to know that some of the lights were out.
       4    Payne, 838 S.W.2d at 237.
                                                               He has not pleaded this, the Court says, but he should be
     It seems obvious that any driver moving down the          allowed to amend. Well, I for one am strongly in favor of
road can see whether it is dark [*564] no matter how           a reasonable opportunity to amend. I do not favor waiver
"sudden, unexpected and significant" that darkness is, so I    of valid claims [**40] and defenses because of the in-
don't quite see what difference any of this makes to           advertent mistakes inevitable for even the ablest counsel.
whether the plaintiff can prove that he did not know that      But there's no point in having the plaintiffs amend their
an obviously dark roadway was dark. Either he could see        pleadings if they're still going to lose as a matter of law.
the road was dark or he couldn't, and how is it possible       Amendment is futile unless, if they allege that Brown did
that he couldn't and be licensed to drive? It look lighted     not know when he entered the causeway that some of it
but it really wasn't? Well, the Court says, it was the con-    was not lighted, they can prevail. Is that allegation, if
dition of the causeway that made all the difference.           proved, sufficient to make the County liable for the
                                                               darkness? Yes, says the Court. Well, then, the County
     The causeway is narrow, curves, and rises high above
                                                               should just pay up. Unless it can prove that Brown had
the bay. A cement median barrier separates [**38] the
                                                               supervision (including x-ray vision to see through the
two travel lanes in each direction and prevents drivers
                                                               bridge) or was clairvoyant, it can't possibly escape liabil-
from turning back once embarking upon the bridge. Only
                                                               ity, because no one but Superman and Nostradamus could
a relatively narrow shoulder beside the traffic lanes is
                                                               [*565] possibly have known, entering the causeway, that
available to accommodate vehicles in emergency situa-
                                                               the lights were out ahead. (I assume, as we all must, that
tions. 5
                                                               Brown hadn't been over the causeway enough at night to
                                                               know that sometimes the lights were out, and that even if
                                                                                                                        Page 10
                                          80 S.W.3d 549, *; 2002 Tex. LEXIS 58, **;
                                                     45 Tex. Sup. J. 680

he had, he had every reasonable expectation that the lights
would have been fixed since his last crossing.)                            7     Ante at   .
                                                                        And if that's what the Court thinks, why not just say
        6    Ante at     .
                                                                   so? Why not just say: Look, if you choose to light a
      [**41] To put the Court's holding as plainly as              roadway, you must maintain the lighting or face liability
possible: Had the causeway been wider, flatter, or                 for accidents that happen in areas of darkness. Two rea-
straighter, and had it had wider shoulders, Brown could            sons, I suppose. One, such a rule of liability could move
either have looked down the road and seen that it was dark         governments not to light roadways at all rather than face
in one spot and then turned back, or pulled over, or               liability for inevitable lighting failures, thereby placing
somehow stayed in the light (even though he did not know           the traveling public in greater danger. And two, the rule
he needed to because he did not know he was about to               cannot take into account that lighting must end some-
wreck his truck on the concrete barrier in the median), but        where, and why the effect of that darkness on motorists is
he could do none of those things; and even though Brown            any different from failed lighting is inexplicable.
saw the darkness when he came upon it, it was sudden,
                                                                        It may be, however -- one cannot always tell for sure
unexpected, and significant, and besides, he did not know
                                                                   -- that the Court does not really [*566] mean what it
of the darkness when he entered the causeway; so there-
                                                                   says. Indeed, in another case decided today, Rocor In-
fore the County is liable. Logic does not flow through this
                                                                   ternational, Inc. v. National [**44] Union Fire In-
like a quiet stream, I know, but I am trying to restate the
                                                                   surance Co., 8 the Court discloses that it did not really
Court's position as accurately as I can. Even if this rule,
                                                                   mean what it said in American Physicians Insurance
bizarre as it is, were correct, I am at a loss to understand
                                                                   Exchange v. Garcia. 9 So it does happen, much too often,
its application to this case. What difference could it pos-
                                                                   and it may be that this case is just another "restricted
sibly have made to Brown had he known when he entered
                                                                   railroad ticket, good for this day and train only." 10 While
the causeway that part of it was unlit? He never thought he
                                                                   we can't say that all highways should be lighted, or even
was going to wreck his truck, in the darkness or the light.
                                                                   that existing lighting should be repaired, maybe the
No reasonable driver could possibly have thought, well, if
                                                                   plaintiffs in this undeniably tragic case will get something
part of this [**42] causeway is dark and I wreck my
                                                                   in settlement. This occasional propensity of the Court to
vehicle there, others may not be able to see me, so I'll
                                                                   try to help out a particularly sympathetic litigant without
cross if it's lit, but if it's not, I'm staying on the mainland.
                                                                   destroying the law emerged in an oral argument not long
     "The relevant inquiry" posited by the Court raises the        ago. Professor Laurence H. Tribe, arguing a case in this
precise concern expressed by the County as well as amici           Court, was actually asked, "Can't we just have a rule for
curiae, the Texas Municipal League, the Texas City At-             this case alone without implicating other, similar cases?"
torneys Association, and the Texas Municipal League                "Not and be a court," he replied, more than a little sur-
Intergovernmental Risk Pool, which is, as the Court rec-           prised. If the Court's "relevant inquiry" is for real, then the
ognizes, that "allowing the plaintiffs' claims to proceed          law of premises liability has been changed fairly signifi-
will effectively require governmental entities to either           cantly -- like light to dark. The burden on the governments
light every stretch of public roadway or remove all                of Texas will be felt, and we should just say so. If not, then
lighting, because any unexpected illumination change               we have not acted like a court.
might constitute a premise defect for which they may be
held liable." 7 The Court never dismisses this concern                    8         2002 Tex. LEXIS 60, S.W.3d      (Tex.
because, truth to tell, it's valid. How often will it happen              2002).
that a driver enters a lighted portion of a roadway without         [**45]
being able to see a dark spot ahead? Lots. And what dif-                  9 876 S.W.2d 842 (Tex. 1994).
ference does it make whether lights are out or whether the                10 Smith v. Allwright, 321 U.S. 649, 669, 88 L.
lighted portion has just ended? Most drivers still won't                  Ed. 987, 64 S. Ct. 757 (1944) (Roberts, J., dis-
know, when they start out, where the darkness is up ahead.                senting).
So if the Court means what it says today, and "the relevant
                                                                       Either way, I respectfully dissent.
inquiry" is what a driver can [**43] see when he first
enters a lighted roadway, then the governments of Texas                Nathan L. Hecht
simply need to redo their budgets or raise taxes or both to
cover the costs of extra lighting and litigation like this.            Justice
                                                                                                                   Page 1




                 Gerald E. Eberts, Appellant v. Businesspeople Personnel Services, Inc., Appellee

                                                        No. 20573

                              COURT OF APPEALS OF TEXAS, Fifth District, Dallas

                                     620 S.W.2d 861; 1981 Tex. App. LEXIS 4027


                                                     August 6, 1981

PRIOR HISTORY:          [**1]       From A District Court     not within the scope of the pleadings. Consequently, any
of Collin County, Texas                                       error in overruling the special exceptions is waived.
                                                              Banner Dairies v. Geers, 292 S.W.2d 169, 171 (Tex. Civ.
                                                              App. -- El Paso 1956, writ dism'd); Pounds v. Jenkins, 157
COUNSEL: For Appellant: Mr. James R. Caton -                  S.W.2d 173, 176 (Tex. Civ. App. -- Texarkana 1941, no
McKinney, Texas. For Appellee: Mr. Jerry W. Mills -           writ).
Dallas, Texas.
                                                              2. Injunctive Relief
JUDGES: Clarence A. Guittard, Chief Justice.
                                                                   Defendant urges that there is no evidence, or insuf-
                                                              ficient evidence, to show that injunctive relief is necessary
OPINION BY: GUITTARD
                                                              for the protection of plaintiff's business and goodwill. Our
                                                              review of the record reveals evidence sufficient to support
OPINION
                                                              the trial court's findings in this respect. The court found
      [*862] Businesspeople Personnel Services, Inc.,         that plaintiff had trained defendant as a job counselor in
sued its former employee, Gerald E. Eberts, to restrain       providing placement and counselling services; that de-
him from competing in violation of restrictive covenants      fendant had established and maintained substantial
in his employment contract and also for liquidated dam-       goodwill for plaintiff between himself and plaintiff's
ages. The trial court, sitting without a jury, granted the    clients and prospective clients; that defendant had access
injunction and awarded recovery of damages in an amount       to confidential business information, including lists of
less than that stipulated in the contract. Defendant Eberts   clients and business methods; that defendant [**3] re-
appeals. We affirm the injunction and modify the              signed his employment with plaintiff and began an em-
judgment by denying recovery of damages.                      ployment agency business with his wife; that he adver-
                                                              tised the services of such agency and contacted various
1. Special Exceptions                                         employers who were previous or prospective customers of
                                                              plaintiff; that defendant had declared his intention to
     Defendant complains of the court's action in over-
                                                              continue such competitive activities before he was re-
ruling his special exceptions because the petition was
                                                              strained by the court; and that plaintiff's goodwill and its
factually insufficient to allege a cause of action. The
                                                              relationship with its clients had been damaged. These
special exceptions, however, fail to point out that the
                                                              findings support the court's conclusions that defendant's
petition is insufficient to allege grounds for injunctive
                                                              actions constitute a material breach of his employment
relief. They complain, rather, that various allegations of
                                                              agreement and that the injunction prayed for was rea-
the petition are conclusions of the pleader and are too
                                                              sonably necessary to protect plaintiff's goodwill from
vague and general to give defendant fair notice. De-
                                                              further competitive activities by defendant and safeguard
fendant [**2] does not show in what manner the gener-
                                                              plaintiff's confidential business information. Conse-
ality of the pleadings deprived him of a reasonable op-
                                                              quently, we hold that there is sufficient evidence to sup-
portunity to defend. He made no objection to plaintiff's
                                                              port the injunctive relief granted.
evidence on the ground that it came as a surprise or was
                                                                                                                        Page 2
                                   620 S.W.2d 861, *; 1981 Tex. App. LEXIS 4027, **


     Defendant further contends that the contract was           amount. The only testimony concerning damages was by
unenforceable because of wrongful conduct by plaintiff.         plaintiff's president, who testified that he was unable to
Although defendant alleged certain breaches of the em-          state the amount of any damages from defendant's breach
ployment contract, the court made no finding of fact as to      of the contract other than expenses of litigation, including
that issue, and defendant made no request for additional        attorney's fees and loss of time by himself and other em-
findings as authorized by rule 298 of the Texas Rules of        ployees. There was no estimate of the amount of com-
[**4] Civil Procedure. Consequently, this defense was           missions lost because of defendant's competition in the
waived. Elliott v. Bowden, 564 S.W.2d 825, 828 (Tex. Civ.       period between the termination of his employment with
App. -- Corpus Christi 1978, writ ref'd n.r.e.); Micrea, Inc.   plaintiff on February 15, 1980, until he was restrained
v. Eureka Life Insurance Co. of America, 534 S.W.2d 348,        from further competition on March 4, 1980. The trial
357 (Tex. Civ. App. -- Fort Worth 1976, writ ref'd n.r.e.).     court found that plaintiff has expended $ 5,000 for attor-
                                                                ney's fees and expenses of suit. This record contains
     Defendant complains that the injunction in the terms
                                                                neither pleading nor proof supporting recovery of $ 7,500
of the contract is overbroad and is unenforceable for want
                                                                as either a statutory or a contractual attorney's fee. Ex-
of specificity. We cannot agree. The injunction re-
                                                                penses of litigation are not recoverable as damages unless
strains defendant from engaging in the business of a pri-
                                                                expressly provided by statute or contract. Hammonds v.
vate employment agency or agent within a one-hundred
                                                                Hammonds, 158 Tex. 516, 313 S.W.2d 603, 605 (1958);
mile radius from the Dallas County Courthouse until
                                                                Wm. Cameron & Co., Inc. v. American Surety Co. of New
[*863] February 15, 1982, and from assisting in the
                                                                York, 55 [**7] S.W.2d 1032, 1035 (Tex. Comm'n App.
finding of employees for employers, or employment for
                                                                1932, opinion adopted). This rule applies to a litigant's
employees for a commission or fee, within that area for
                                                                loss of time. Phillips v. Latham, 523 S.W.2d 19, 27 (Tex.
that period. The injunction further restrains defendant
                                                                Civ. App. -- Dallas 1975, writ ref'd n.r.e.).
from disclosing plaintiff's confidential records, business
methods, and names of its customers and clients. This                Neither is plaintiff entitled to recovery of the full $
decree conforms to the terms of the contract and we find        10,000 as the liquidated damages stipulated in the con-
from the record that it meets the test of reasonableness as     tract. Plaintiff argues that the liquidated damages provi-
to time and space established by Weatherford Oil Tool           sion is enforceable because the amount stipulated is
Co. v. Campbell, 161 Tex. 310, 340 S.W.2d 950, 951              payable in lieu of actual damages that are difficult to
(1960). Consequently, [**5] it is valid and enforceable.        ascertain. This argument is inconsistent with the peti-
Gonzales v. Norris of Houston, Inc., 575 S.W.2d 110, 113        tion, which alleges and prays for both actual and liqui-
(Tex. Civ. App. -- Houston [14th Dist.] 1978, writ ref'd        dated damages. If this inconsistency is ignored, we must
n.r.e.); Integrated Interiors, Inc. v. Snyder, 565 S.W.2d       consider whether the provision for $ 10,000 liquidated
350, 352 (Tex. Civ. App. -- Fort Worth 1978, writ ref'd         damages is a reasonable forecast of just compensation for
n.r.e.). Defendant has not suggested any manner in              the harm expected as a result of a breach; otherwise the
which it should be reformed so as to limit its scope in any     provision is an unenforceable penalty. Stewart v. Basey,
other respect. Consequently, we need not consider               150 Tex. 666, 245 S.W.2d 484, 486 (1952); RESTATE-
whether such a reformation would be proper.                     MENT OF CONTRACTS, § 339 (1932).
                                                                    The provision in question is as follows:
3. Damages
     Finally, defendant urges that the trial court erred in               First Party and Second Party agree that
awarding "liquidated damages" of $ 7,500 because the                   the actual damages to First Party resulting
evidence is insufficient to meet plaintiff's burden of proof           from any breach of this non-compete
as to reasonableness. Plaintiff makes no attempt to justify            agreement by Second Party will be and are
the award of $ 7,500 as based on evidence of actual                    uncertain, intangible [**8] and not read-
damages, but presents a counterpoint urging that it is                 ily or accurately ascertainable; that a fair
entitled to recover the $ 10,000 liquidated damages stip-              [*864] and reasonable estimate of the
ulated in the contract. We conclude that the trial court's             damages to First Party that will result
award of $ 7,500, which it characterized as "liquidated                therefrom under the circumstances is Ten
damages," cannot be supported either as actual damages                 Thousand Dollars ($ 10,000.00); and the
or as liquidated damages, and that the $ 10,000 payment                parties desiring to dispense with the high
stipulated is an unenforceable penalty in view of the spe-             costs to each of litigating the issue of ac-
cific enforcement of the contract [**6] by injunction.                 tual damages; it is, therefore, agreed that in
                                                                       the event Second Party shall breach the
    The award of $ 7,500 cannot be supported as actual
                                                                       above non-compete covenant, he (she)
damages because, as defendant contends, the evidence
                                                                       shall pay to First Party the sum of Ten
does not establish any basis for the recovery of that
                                                                                                                   Page 3
                                   620 S.W.2d 861, *; 1981 Tex. App. LEXIS 4027, **


       Thousand Dollars ($ 10,000.00) as liqui-                 tract. Wirth & Hamid Fair Booking, Inc. v. Wirth, 265
       dated damages which shall be in addition                 N.Y. 214, 192 N.E. 297, 300-01 (1934); 5A CORBIN,
       to (and not in lieu of) First Party's right to           CONTRACTS, § 1071, at 401 (1964); see McMurray v.
       specific performance of such covenant by                 Faust, 224 Iowa 50, 276 N.W. 95, 100 (1937); Heatwole v.
       Second Party and the right to pursue same                Gorrell 35 Kan. 692, 12 P. 135, 138-39 (1886). The in-
       in a court of equity (injunctive relief).                consistency of these remedies is similar to that recognized
                                                                by this court [**11] in Robert G. Beneke & Co. v. Cole,
                                                                550 S.W.2d 321, 322 (Tex. Civ. App. -- Dallas 1977 no
                                                                writ), in which we held that liquidated damages could not
     In support of the reasonableness of this provision,
                                                                be recovered in addition to actual damages, notwith-
plaintiff argues that the trial court found that the average
                                                                standing a provision in the contract purporting to author-
fee earned by plaintiff was about $ 3,000 per placement.
                                                                ize such a recovery.
Plaintiff insists: "It is not unreasonable to estimate that
within a two-year period at least [four fees] from such              Plaintiff relies on Mayhall v. Proskowetz, 537 S.W.2d
placements ($ 12,000) would be lost due to the competi-         320 (Tex. Civ. App. -- Austin 1976, writ ref'd n.r.e.) as
tion of an ex-employee." This argument assumes that             supporting its contention that a provision for liquidated
defendant would not be restrained by injunction during          damages for competition by a former employee is en-
the two-year period. Actually, [**9] defendant was              forceable. In that case, however, there was no claim for
free to compete less than three weeks, and there is no          injunction; thus liquidated damages were not, as here,
evidence that plaintiff has lost any business because of        recovered in addition to injunctive relief. Rather, the
defendant's competition within that period or that de-          contract provided for a liquidated sum of $ 5,000 because
fendant violated the injunction after the restraining order     of the difficulty of proving [*865] damages, and that
was issued. If enforceable, the contract would exact a          amount was presumably fixed in lieu of all other com-
payment of $ 10,000 for any breach of the restrictive           pensation as satisfaction for a breach that might continue
covenant, whether the breach continues for only one day         for the entire three-year period. Consequently, we do not
or for two years, and would authorize an injunction en-         regard Mayhall as contrary to our holding in the present
forcing the restriction for any portion of the period re-       case.
maining. Under these circumstances the $ 10,000 cannot
                                                                     Plaintiff also argues in support of the reasonableness
be considered a genuine pre-estimate of the harm to be
                                                                of the liquidated damage provision that the amount stip-
suffered by any single breach. 5A CORBIN, CON-
                                                                ulated is based on anticipated expenses of litigation
TRACTS, § 1071, at 401 (1964). Consequently, it falls
                                                                [**12] rather than loss of business and goodwill from
within the condemnation of Stewart v. Basey, supra, and
                                                                defendant's breach. Plaintiff's president testified that he
other Texas decisions holding that a stipulation for a
                                                                thought $ 10,000 was reasonable because of time already
liquidated damages should be treated as an unenforceable
                                                                lost and attorney's fee already incurred, and that he chose
penalty if the contract contains several matters of different
                                                                the $ 10,000 figure because he knew that attorney's fees
degrees of importance and the sum stipulated is payable
                                                                were expensive and that litigation would cause loss of
for the breach of any, even the least. Accord: Krenek v.
                                                                time for him and other personnel involved. If the liqui-
Wang Laboratories, Inc., 583 S.W.2d 454 (Tex. Civ. App.
                                                                dated damage provision is based on an estimate of the
-- Waco 1979, no writ); Servisco v. Tramco, Inc., 568
                                                                attorney's fee, it does not conform to the requirement in
S.W.2d [**10] 434, 437 (Tex. Civ. App. -- Texarkana
                                                                Stewart, supra at 487, that the damages be difficult of
1978, writ ref'd n.r.e.).
                                                                accurate estimation, because attorney's fees are routinely
     The present contract may be enforceable if it is re-       proved and recovered when authorized by contract or by
garded as giving plaintiff an option to elect between in-       statute. Regardless of whether a recovery of an attor-
junctive relief and liquidated damages. Also, if actual         ney's fee would have been proper in this case if based on
damages are proved, plaintiff may be entitled to damages        proper pleading and proof, which the present record does
for a breach that occurred before the suit was filed as well    not show, we hold that an estimate of the attorney's fee
as to an injunction restraining subsequent breaches.            and other expenses anticipated in enforcing a contract
Payment of damages, however, constitutes satisfaction for       does not support the reasonableness of a provision for
any injury that may be caused by the breach, whereas an         liquidated damages.
injunction has the effect of a decree of specific perfor-
                                                                     With respect to the injunction, the judgment is af-
mance restraining any breach that would otherwise cause
                                                                firmed, and with respect to the recovery of damages, the
damage. Therefore, if the court grants an injunction
                                                                judgment is reversed and judgment is rendered that
preventing the breach from continuing and becoming
                                                                plaintiff [**13] take nothing. Costs are divided equal-
total, it should not at the same time give judgment for the
                                                                ly.
full amount of liquidated damages specified in the con-
                                                                                                                     Page 1
                                   366 S.W.3d 216, *; 2012 Tex. App. LEXIS 1217, **




                  FARMERS INSURANCE EXCHANGE AND ALLSTATE COUNTY MUTUAL
                    INSURANCE COMPANY, Appellants v. JUAN RODRIGUEZ, Appellee

                                                   NO. 14-10-00995-CV

                   COURT OF APPEALS OF TEXAS, FOURTEENTH DISTRICT, HOUSTON

                                       366 S.W.3d 216; 2012 Tex. App. LEXIS 1217


                                             February 16, 2012, Opinion Filed

SUBSEQUENT HISTORY: Petition for review denied                  guez, denial of Farmers' plea to the jurisdiction, and entry
by Rodriguez v. Farmers Ins. Exch. & Allstate County            of declaratory judgment finding coverage under the
Mut. Ins. Co., 2013 Tex. LEXIS 306 (Tex., Apr. 19, 2013)        Farmers insurance policy. In three issues, Farmers con-
                                                                tends the trial court lacked subject matter jurisdiction over
PRIOR HISTORY: [**1]                                            Rodriguez's claim against Farmers, the homeowner's
  On Appeal from the 125th District Court, Harris               policy issued by Farmers does not provide liability cov-
County, Texas. Trial Court Cause No. 2008-33641.                erage for Woodling, and Rodriguez filed an impermissible
                                                                direct action against Farmers without satisfying condi-
                                                                tions precedent in Woodling's insurance policy. We hold
JUDGES: Panel consists of Justices Frost, Seymore, and          the trial court erred by granting summary and declaratory
Jamison.                                                        judgments against Farmers and denying Farmers' plea to
                                                                the jurisdiction because Rodriguez's claim against Farm-
OPINION BY: Martha Hill Jamison                                 ers was not ripe when the court made its rulings. We
                                                                therefore reverse and render judgment dismissing Ro-
OPINION                                                         driguez's claims against Farmers for lack of subject matter
                                                                jurisdiction.
       [*219] Appellee Juan Rodriguez was injured while
helping his neighbor Michael Woodling remove a deer                   Allstate appeals the trial court's summary judgment
stand from Woodling's trailer. Rodriguez sued Woodling          in favor of Rodriguez against Allstate and declaratory
for negligence and, in the same case, Rodriguez's auto-         judgment finding coverage under the UIM policy. In four
mobile insurer, appellant Allstate County Mutual Insur-         issues, Allstate contends its policy does not cover Ro-
ance Company, seeking coverage under an unin-                   driguez's injury but the Farmers policy does. We hold the
sured/underinsured motorist (UIM) policy. Rodriguez             UIM provisions in Rodriguez's [**3] automobile policy
later amended his petition to add Woodling's insurer,           provide coverage for his injury. We therefore affirm the
appellant Farmers Insurance Exchange, seeking liability         trial court's summary judgment and declaratory judgment
coverage for Woodling under his homeowner's policy. In          against Allstate.
a pre-trial partial summary judgment, the court declared
the claims were covered by both insurance policies. At          Undisputed Factual Background
trial, the jury found no negligence on the part of Rodri-
                                                                     The following facts are undisputed. Using a trailer
guez, found that Woodling was negligent, and found that
                                                                hitched to his pickup truck, [*220] Woodling1 trans-
Woodling's negligence caused Rodriguez's damages. The
                                                                ported a deer stand from his deer lease to his residence. He
primary issues on appeal pertain to the trial court's subject
                                                                pulled into his driveway and attempted to remove the deer
matter jurisdiction over the claims against Farmers and
                                                                stand from the trailer. He pushed the deer stand out of the
interpretation of standard form language in the Allstate
                                                                trailer until the legs on the stand touched the driveway. He
automobile policy.
                                                                left the stand resting at a 30-degree angle against the
   Farmers appeals the trial court's grant of [**2]             trailer. He then attached a come-along2 to a fence post and
summary judgment against Farmers in favor of Rodri-             to the stand and attempted to raise the stand upright. Re-
                                                                                                                      Page 2
                                    366 S.W.3d 216, *; 2012 Tex. App. LEXIS 1217, **


alizing he could not accomplish the task alone, he re-           uninsured motor vehicle so that the Allstate policy did not
quested assistance from his neighbor, Rodriguez.                 apply. The trial court granted Rodriguez's motion and
                                                                 denied motions filed by Allstate and Farmers. In a com-
        1 Woodling is not a party to this appeal.                bined plea to the jurisdiction and motion to vacate the
        2 A come-along is a tool used for moving heavy           court's order granting partial summary judgment, Farmers
        loads or for tightening wire. COLLINS ENGLISH            reasserted its jurisdictional arguments [*221] before
        DICTIONARY (2003 ed.).                                   trial of the underlying personal injury [**6] claim. The
                                                                 court denied the combined motion.
     Rodriguez and Woodling decided to lift the stand
manually by walking forward out of the trailer and onto
                                                                        3 The record does not show whether the trial
the driveway. They began in the trailer, each using both
                                                                        court ruled on that motion.
hands to push the stand upward. Then they stepped onto
the driveway and took "one or two" more steps. [**4]                  Before trial, Allstate, while contesting coverage un-
When the stand was no longer touching the trailer,               der its policy, stipulated to be bound by the jury's findings
Woodling realized it was too heavy and yelled, "Juan, I          on negligence and damages. The jury found Woodling
can't hold it. Jump." Woodling then jumped away, leaving         100% negligent and awarded damages to Rodriguez to-
Rodriguez alone to hold the stand, which weighed ap-             taling $233,123.71. Rodriguez subsequently filed a mo-
proximately 350 pounds. The stand fell, and Rodriguez            tion for summary judgment against Allstate, seeking a
was injured.                                                     declaration that his injuries were covered under the All-
                                                                 state policy, which the trial court granted. After reducing
     The liability provisions of the Farmers homeowners
                                                                 the jury award based on the amount of Rodriguez's in-
policy contain the following exclusion for bodily injury
                                                                 curred medical expenses, the trial court entered judgment
claims: "arising out of the ownership, maintenance, op-
                                                                 awarding Rodriguez $211,618.42, plus interest and costs,
eration, use, loading or unloading of . . . trailers [or]
                                                                 and declaring that Rodriguez's injuries were covered
semi-trailers" except for "trailers or semi-trailers while
                                                                 under both the Farmers and Allstate policies.
not being towed by or carried on a motor vehicle."
     Rodriguez's Allstate automobile policy included UIM         Standards of Review
coverage for damages Rodriguez was "legally entitled to
recover from the owner . . . of an uninsured [or underin-        Traditional Summary Judgment.
sured] motor vehicle [including any type of trailer] be-
                                                                      To prevail on a traditional Rule 166a(c) sum-
cause of bodily injury sustained by [Rodriguez and]
                                                                 mary-judgment motion, a movant must prove that there is
caused by an accident." Under the Allstate policy, the
                                                                 no genuine issue regarding any material fact and that it is
uninsured or underinsured owner's liability must "arise
                                                                 entitled to judgment as a matter of law. See Tex. R. Civ. P.
out of the ownership, maintenance or use of the uninsured
                                                                 166a(c); Little v. Tex. Dep't of Criminal Justice, 148
motor vehicle." (Emphasis added.)
                                                                 S.W.3d 374, 381 (Tex. 2004). A plaintiff moving for a
                                                                 traditional [**7] summary judgment must conclusively
Procedural History
                                                                 prove all essential elements of its claim. See
     Rodriguez filed suit against Woodling and Allstate on       Rhone-Poulenc, Inc. v. Steel, 997 S.W.2d 217, 223 (Tex.
June 2, 2008, asserting a negligence claim against [**5]         1999).
Woodling and a claim against Allstate for UIM coverage.
                                                                      A defendant may prevail by traditional summary
Rodriguez amended his petition on September 16, 2008,
                                                                 judgment if it conclusively negates at least one essential
adding Farmers as a defendant and seeking declarations
                                                                 element of a plaintiff's cause of action. See IHS Cedars
that the exclusion from liability coverage in the Farmers
                                                                 Treatment Ctr. of DeSoto, Tex., Inc. v. Mason, 143 S.W.3d
policy did not apply or, alternatively, that Rodriguez's
                                                                 794, 798 (Tex. 2004). A movant seeking traditional
damages arose from the use of a trailer covered by the
                                                                 summary judgment on an affirmative defense has the
Allstate policy.
                                                                 initial burden of establishing entitlement to judgment as a
     Farmers filed a motion to sever, contending Rodri-          matter of law by conclusively establishing each element
guez's joinder of Farmers was improper.3 Rodriguez               of his affirmative defense. See Chau v. Riddle, 254 S.W.3d
moved for partial summary judgment against Farmers,              453, 455 (Tex. 2008); see also Tex. R. Civ. P. 166a(b)-(c).
seeking a declaration that Farmers had a contractual ob-         A matter is conclusively established if reasonable people
ligation to indemnify Woodling. Farmers moved for                could not differ as to the conclusion to be drawn from the
summary judgment based on improper joinder, lack of              evidence. See City of Keller v. Wilson, 168 S.W.3d 802,
ripeness, and applicability of its "trailers or semi-trailers"   816 (Tex. 2005).
exclusion. Allstate moved for summary judgment, as-
serting that the accident did not arise out of the use of an
                                                                                                                     Page 3
                                  366 S.W.3d 216, *; 2012 Tex. App. LEXIS 1217, **


     If the movant meets its burden, the burden then shifts   solved the declaratory judgment issues by ruling on mo-
to the nonmovant to raise a genuine issue of material fact    tions for summary judgment, we review the propriety of
precluding summary judgment. See Centeq Realty, Inc. v.       the trial court's grant of the declaratory judgments under
Siegler, 899 S.W.2d 195, 197 (Tex. 1995). The evidence        the [**10] same standards applicable for review of
raises a genuine issue of fact if reasonable and              summary judgments. English, 174 S.W.3d at 370.
fair-minded jurors could differ in [**8] their conclusions    Therefore, we must determine whether the trial court
in light of all of the summary-judgment evidence. Good-       properly granted Rodriguez's declaratory judgment re-
year Tire & Rubber Co. v. Mayes, 236 S.W.3d 754, 755          quests and, if not, enter the judgment which should have
(Tex. 2007).                                                  been entered by the trial court. Id.
     On appeal, we review de novo a trial court's summary
                                                              Jurisdiction over Claim against Farmers
judgment ruling. See Mann Frankfort Stein & Lipp Ad-
visors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009).         In its third issue, Farmers contends Rodriguez lacked
In our review, we consider all the evidence in the light      standing to sue Farmers and Rodriguez's claim against
most favorable to the nonmovant, crediting evidence           Farmers was not ripe, depriving the trial court of sub-
favorable to the nonmovant if reasonable jurors could, and    ject-matter jurisdiction. We agree with Farmers that Ro-
disregarding contrary evidence unless reasonable jurors       driguez's claim was not ripe.5
could not. See Mack Trucks, Inc. v. Tamez, 206 S.W.3d
572, 582 (Tex. 2006). When, as here, the parties file                 5 Accordingly, we do not reach the other issues
competing motions for summary judgment and the trial                  presented by Farmers regarding whether Rodri-
court grants one motion and denies the other, this court              guez's injury was covered by the Farmers policy,
should review both parties' summary-judgment evidence                 whether Rodriguez filed an impermissible direct
and determine all questions presented. Valence Operating              action against Farmers without first satisfying
Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005); English              conditions precedent in the policy, or whether
v. B.G.P. Int'l, Inc., 174 S.W.3d 366, 370 (Tex.                      Rodriguez had standing to bring his claim against
App.--Houston [14th Dist.] 2005, no pet.).                            Farmers. We likewise do not reach two of All-
                                                                      state's issues asserting that Rodriguez's injuries are
Subject-matter jurisdiction.                                          covered under the Farmers policy (issues three and
                                                                      four).
     The absence of subject-matter jurisdiction may be
raised by a plea to the [*222] jurisdiction or another             Ripeness is a threshold issue that implicates sub-
procedural vehicle such as a motion for summary judg-         ject-matter jurisdiction. Robinson v. Parker, 353 S.W.3d
ment. Bland Indep. Sch. Dist. v. Blue, 34 S.W.3d 547, 554     753, 755 (Tex. 2011). In evaluating [**11] ripeness,
(Tex. 2000).4 [**9] When a plea to the jurisdiction           courts consider "whether, at the time a lawsuit is filed, the
challenges jurisdictional facts, as here, we consider the     facts are sufficiently developed 'so that an injury has
evidence submitted by the parties. Stinson v. Ins. Co. of     occurred or is likely to occur, rather than being contingent
Penn., 286 S.W.3d 77, 83 (Tex. App.--Houston [14th            or remote.'" Id. (emphasis in orig.) (citation omitted).
Dist.] 2009, pet. denied). The standard of review for a       Although a claim is not required to be ripe at the time of
jurisdictional plea based on evidence generally mirrors       filing, if a party cannot demonstrate a reasonable likeli-
that of a traditional motion for summary judgment. Id.        hood that the claim will soon ripen, the case must be
                                                              dismissed. Id. A case is not ripe when resolution depends
       4 Thus, it was appropriate for Farmers to assert       on contingent or hypothetical facts, or upon events that
       in its summary-judgment motion that the trial          have not yet come to pass. Id. at 756 (citing Waco Indep.
       court lacked subject-matter jurisdiction. See Blue,    Sch. Dist. v. Gibson, 22 S.W.3d 849, 852 (Tex. 2000)).
       34 S.W.3d at 554. Farmers subsequently filed a         "[T]he essence of the ripeness doctrine is to avoid prem-
       plea to the jurisdiction on the same jurisdictional    ature adjudication . . . [and] to hold otherwise would be
       grounds.                                               the essence of an advisory opinion, advising what the law
                                                              would be on a hypothetical set of facts." Id. (citing Pat-
Declaratory judgment.                                         terson v. Planned Parenthood of Houston and Se. Tex.,
                                                              971 S.W.2d 439, 444 (Tex. 1998)) (second alteration in
     In reviewing a declaratory judgment, we refer to the
                                                              original).
procedure for resolution of the issue at trial to determine
the applicable standard of review on appeal. Tex. Civ.              [*223] A tort claimant has no direct claim against
Prac. & Rem. Code § 37.010; English, 174 S.W.3d at 370;       the tortfeasor's liability insurer until the insured tortfeasor
see also Gen. Agents Ins. Co. of Am. v. El Naggar, 340        is adjudged liable to the tort claimant.6 Angus Chem. Co.
S.W.3d 552, 557 (Tex. App.--Houston [14th Dist.] 2011,        v. IMC Fertilizer, Inc., 939 S.W.2d 138, 138 (Tex. 1997)
pet. denied). Here, because the trial court implicitly re-    [**12] (per curiam); State Farm Cnty. Mut. Ins. Co. of
                                                                                                                     Page 4
                                   366 S.W.3d 216, *; 2012 Tex. App. LEXIS 1217, **


Tex. v. Ollis, 768 S.W.2d 722, 723 (Tex. 1989) (per                In Firemen's Insurance Co. v. Burch, the Supreme
curiam); Great Am. Ins. Co. v. Murray, 437 S.W.2d 264,         Court of Texas held that there can be no justiciable con-
265 (Tex. 1969). A party injured by the insured is a           troversy regarding the insurer's duty to indemnify before a
third-party beneficiary of a liability insurance policy, but   judgment has been rendered against an insured. 442
he cannot enforce the policy directly against the insurer      S.W.2d 331, 332-34 (Tex. 1968). The supreme court has
until it has been established, by final judgment or agree-     recognized a limited exception to this rule that applies
ment, that the insured has a legal obligation to pay dam-      "when the insurer has no duty to defend and the same
ages to the injured party. Ollis, 768 S.W.2d at 723. It is     reasons that negate the duty to defend likewise negate any
undisputed that when the trial court granted Rodriguez         possibility the insurer will ever have a duty to indemnify."
summary judgment against Farmers, Woodling's obliga-           Farmers Tex. Cnty. Mut. Ins. Co. v. Griffin, 955 S.W.2d
tion to pay damages to Rodriguez had not been estab-           81, 84 (Tex. 1997) (emphasis in original); see also D.R.
lished by final judgment or by agreement. Therefore,           Horton-Tex., Ltd. v. Markel Int'l Ins. Co., 300 S.W.3d 740,
Rodriguez's claim against Farmer's was not ripe when the       744 (Tex. 2009).
trial court granted summary judgment. See Certain Un-
                                                                    Rodriguez sued Farmers seeking payment based on
derwriters at Lloyds, London v. Four J's Cmty. Living
                                                               Farmers' purported duty to indemnify Woodling. While
Ctr., Inc., No. H-11-0713, 2011 U.S. Dist. LEXIS 138687,
                                                               generally acknowledging that a third party may not
2011 WL 6026689, at *1-2 (S.D. Tex. Dec. 2, 2011)
                                                               [*224] sue an insurance company for payment under its
(holding that, under Texas law, tort plaintiff did not yet
                                                               policy without a judgment against the insured, Rodriguez
have claim under tort defendant's insurance policy be-
                                                               argues the exception recognized in Griffin should be ap-
cause final judgment had not yet been rendered upon jury
                                                               plied here because "undisputed [**15] facts pertaining
verdict in plaintiff's favor); Robinson, 353 S.W.3d at
                                                               to the duty to indemnify . . . were included in the summary
755-56 (holding that declaratory-judgment            [**13]
                                                               judgment record [and] are consistent with the factual
claims were not yet ripe because there was no showing
                                                               record at trial and the fact-finder's disposition of the per-
that claimants had suffered a concrete injury); Gibson, 22
                                                               sonal injury lawsuit." We find no merit in this argument.
S.W.3d at 853 (noting that to allow premature adjudica-
tion of contingent situations would "eschew the ripeness            The holding in Griffin pertained to an underlying tort
doctrine" and "create an impermissible advisory opin-          suit for injuries sustained in a drive-by shooting. D.R.
ion.").                                                        Horton-Tex., Ltd., 300 S.W.3d at 744-45 (citing Griffin,
                                                               955 S.W.2d at 84). The policy in that case excluded cov-
       6 This principle applies where the insurance            erage for intentional torts. Griffin, 955 S.W.2d at 83. The
       policy contains a so-called "no action" provision.      Griffin court thus concluded no "conceivable set of facts"
       See Struna v. Concord Ins. Servs., Inc., 11 S.W.3d      could be developed in the underlying case that would
       355, 359 (Tex. App.--Houston [1st Dist.] 2000, no       transform the intentional shooting into an auto accident
       pet.). Section I, ¶ 11 of the Farmers policy is a "no   covered by the policy. D.R. Horton-Tex., Ltd., 300 S.W.3d
       action" provision.                                      at 745. The court held that the duty to indemnify may be
                                                               adjudicated before judgment is entered on the claim
     Though a claim is not required to be ripe at the time
                                                               against the insured, when the facts negate both the duty to
of filing, if a party cannot demonstrate a reasonable like-
                                                               defend and the duty to indemnify.8 Griffin, 955 S.W.2d at
lihood that the claim will soon ripen, the case must be
                                                               84. Here, the duty to defend is not at issue.9 More im-
dismissed. See Robinson, 353 S.W.3d at 755. The record
                                                               portantly, even though the parties do not dispute the un-
does not reflect any agreement establishing Woodling's
                                                               derlying accident facts, the jury was required to decide
obligation to pay Rodriguez damages.7 Therefore, Ro-
                                                               and apportion liability before judgment could be [**16]
driguez cannot demonstrate a reasonable likelihood that
                                                               entered. Thus, when the lawsuit was filed, coverage of
his claims against Farmers will soon ripen in the case
                                                               Rodriguez's injury under the Farmers policy was contin-
under review, and these claims must be dismissed for lack
                                                               gent on the jury's future liability finding, if any, including
of subject-matter jurisdiction. See id.
                                                               apportionment between Woodling and Rodriguez. The
                                                               Griffin exception is inapplicable. See D.R. Horton-Tex.,
       7     Rodriguez cannot obtain a final judgment
                                                               Ltd., 300 S.W.3d at 743-45 (distinguishing Griffin); Bur-
       against Woodling until Rodriguez's claim against
                                                               lington Northern and Santa Fe Ry. Co. v. Nat'l Union Fire
       Farmers is adjudicated [**14] because Farmers
                                                               Ins. Co. of Pittsburgh, Pa., 334 S.W.3d 217, 219-20 (Tex.
       and Woodling are both parties. But Rodriguez's
                                                               2011) (same). We hold that Rodriguez's claims against
       claim is not ripe and cannot be adjudicated until
                                                               Farmers were not ripe and that the trial court lacked ju-
       after Rodriguez obtains a final judgment against
                                                               risdiction to grant summary judgment against Farmers
       Woodling.
                                                               declaring coverage under the Farmers policy. The trial
                                                               court erred in denying Farmers' plea to the jurisdiction,
                                                                                                                  Page 5
                                   366 S.W.3d 216, *; 2012 Tex. App. LEXIS 1217, **


and the proper remedy is to reverse the trial court's           when those terms are not specifically included in the
judgment as to Rodriguez's claims against Farmers and           policy. See, e.g., Emcasco Ins. Co. v. Am. Int'l Specialty
render judgment dismissing these claims for lack of sub-        Lines Ins. Co., 438 F.3d 519, 525 (5th Cir. 2006); Pan-
ject matter jurisdiction.                                       handle Steel Prods. Co. v. Fidelity Union Cas. Co., 23
                                                                S.W.2d 799, 801 (Tex. Civ. App.--Fort Worth 1929, no
       8 The duty to indemnify requires payment of all          writ) (holding injury of passerby that occurred after iron
       covered claims and judgments against an insured,         beam was unloaded from truck and was being carried
       whereas the duty to defend requires tender of a          across sidewalk was result of use [**19] of truck). The
       defense in any lawsuit brought against the insured       parties have not cited, and research has not revealed, any
       that seeks damages for an event potentially cov-         Texas cases construing UIM policies that have held the
       ered by the policy. D.R. Horton-Tex., Ltd., 300          term "use" without a "loading and unloading" clause ex-
       S.W.3d at 743. [**17] An insurer's duty to de-           cludes coverage for loading and unloading.
       fend is justiciable before the entry of judgment on
                                                                     Allstate cites Liberty Mutual Insurance Co. v.
       a claim against the insured. See English, 174
                                                                American Employers Insurance Co., 556 S.W.2d 242
       S.W.3d at 371.
                                                                (Tex. 1977) for the proposition that the inclusion of a
       9 Rodriguez's injury, moreover, did not arise
                                                                "loading and unloading" endorsement in an insurance
       from an intentional tort.
                                                                policy expands coverage from the coverage afforded by
    We sustain Farmers' third issue.                            the phrase "ownership, maintenance, or use." Id. at 244.
                                                                But the court in Liberty Mutual did not construe UIM
Coverage of Rodriguez's Injury by the Allstate Policy           coverage or the "ownership, maintenance, or use" clause.11
                                                                It analyzed whether injured workers were "borrowers" of
     In two issues, Allstate argues the trial court erred by
                                                                the automobile to determine if they were insured persons
denying its summary judgment motion against Rodriguez,
                                                                under the policy.12 Id. Liberty Mutual does not hold that
granting summary judgment in favor of Rodriguez, and
                                                                the "use" of a vehicle may never include "loading and
declaring that UIM language in his automobile policy
                                                                unloading" merely because the policy does not include
provide coverage for his injury. In reference to the "use"
                                                                those terms. See id. Moreover, the intent to exclude cov-
exclusion, Allstate contends that "loading and unloading"
                                                                erage must be expressed in clear and unambiguous
a trailer is not use as contemplated under the Allstate
                                                                [*226] language. Nat'l Union Fire Ins. Co. of Pittsburgh,
policy, and even if it were, there is no coverage because
                                                                Pa. v. Hudson Energy Co., 811 S.W.2d 552, 555 (Tex.
Rodriguez's injury did not "arise out of" the use of the
                                                                1991). If Allstate intended to exclude loading and un-
trailer. We are not persuaded by these arguments.
                                                                loading [**20] from the scope of coverage, then it was
     The Allstate policy specifies that liability of the        incumbent upon it to expressly and clearly state the ex-
owner of an uninsured or underinsured vehicle "must arise       clusion in the policy. See Nat'l Auto. & Cas. Ins. Co. v.
out of the ownership, [*225] maintenance, or use of the         Glens Falls Ins. Co., 493 S.W.2d 909, 911-12 (Tex. Civ.
uninsured motor vehicle."10 (Emphasis added.) The term          App.--Tyler 1973, no writ) (holding clause expressly
"use" is not defined in the policy. Allstate urges us to hold   excluding "loading and unloading" of vehicle was effec-
that "loading and unloading" is excluded because the            tive). Having failed to do so, Allstate may not now com-
"use" clause omits these activities [**18] as a matter of       plain.13 See Nat'l Union Fire Ins. Co., 811 S.W.2d at 555.
law. We decline to do so.
                                                                       11 The commercial policy in Liberty Mutual
       10 The policy defines "uninsured motor vehi-                    included "loading and unloading."
       cle" to include underinsured motor vehicles.                    12     Liberty Mutual involved competing auto-
                                                                       mobile and general liability policies. Id. at 243.
     Automobile insurers in Texas are required to provide              The automobile policy excluded nonemployees of
UIM coverage in all policies. The quoted language from                 the insured unless they were "borrowers" of vehi-
the Allstate policy mirrors statutory requirements. See
                                                                       cles owned by the insured. Id. A "borrower" was
Tex. Ins. Code § 1952.101(a). The purpose of UIM cov-
                                                                       defined by the court as "someone who has, with
erage is to protect conscientious drivers from financial
                                                                       permission of the owner, temporary possession
loss caused by irresponsible parties, and courts liberally
                                                                       and use of the property of another for his own
construe the UIM statutes. Tex. Farm Bureau Mut. Ins.                  purposes." Id. at 244. Before the addition of the
Co. v. Sturrock, 146 S.W.3d 123, 128 (Tex. 2004);                      loading and unloading endorsement to the stand-
Stracener v. United Servs. Auto. Ass'n, 777 S.W.2d 378,
                                                                       ard automobile liability policy, neither the auto-
382 (Tex. 1989). Texas state and federal courts applying
                                                                       mobile policy nor the standard liability policy de-
Texas law have concluded that automobile liability poli-
                                                                       fined which insurer had liability coverage for in-
cies may cover loading and unloading of a vehicle even
                                                                       juries sustained upon the premises of one who was
                                                                                                                      Page 6
                                  366 S.W.3d 216, *; 2012 Tex. App. LEXIS 1217, **


       insured under a general liability [**21] policy                 the natural territorial limits of an automo-
       during the loading and unloading of a vehicle not               bile, and the actual use must not have
       owned or hired by the general liability insured. Id.            terminated; (3) the automobile must not
       The court concluded the policy exclusion for                    merely contribute to cause the condition
       persons who were unloaders but not "borrowers"                  which produces the injury, but must itself
       of the vehicle was intended to limit the insurer's              produce the injury.15
       liability for injuries of nonemployees who were
       not borrowers of the vehicle. Id. at 245. By con-
       trast, the Allstate policy covers injuries to Rodri-    Id. at 157.16
       guez caused by the owner or operator of an unin-
       sured or underinsured motor vehicle, including                  14     See 6B JOHN A. APPLEMAN, INSURANCE
       "trailer[s] of any type." It does not expressly limit           LAW AND PRACTICE § 4317, at 367-69 (Buckley
       Allstate's liability based on whether an injured                ed. 1979); 8A COUCH ON INSURANCE 3d § 119:37,
       party is a "borrower" of a vehicle.                             at 119-56 (2005).
       13 Allstate also cites an unreported federal dis-               15 The Lindsey court noted this is not an "ab-
       trict court's opinion that held a "use" clause                  solute test," but the factors are helpful in focusing
       (without "loading and unloading" language)                      the analysis. 997 S.W.2d at 157-58; see also
       would not cover injuries sustained by a patient                 Mid-Continent Cas. Co., 323 S.W.3d at 155 n.4.
       who travelled in an ambulance to the hospital. See              The test is only a conceptual framework to analyze
       St. Paul Fire & Marine Ins. Co. v. Am. Int'l Sur-               the inclusion or exclusion at issue. Mid-Continent
       plus Lines Ins. Co., No. 3:95-CV-0790-D, 1997                   Cas. Co., 323 S.W.3d at 155 n.4
       U.S. Dist. LEXIS 4956, 1997 WL 160192, at *3-4                  16 The court acknowledged that the third factor
       (N.D. Tex. Mar. 31, 1997). The court held that "the             may be difficult to define because it is not always
       acts of providing emergency medical care and of                 clear how the vehicle, as opposed to other things,
       carrying a person from some location to an am-                  contributed to an accident. Lindsey, 997 S.W.2d at
       bulance are . . . a necessary incident to the opera-            157; see also Mid-Continent Cas. Co..323 S.W.3d
       tion of an ambulance service, [**22] but are not                at 156.
       fairly described as the use of an ambulance." 1997
                                                                    Using the factors elucidated in Lindsey as a frame-
       U.S. Dist. LEXIS 4956, [WL] at *3. The inclusion
                                                               work, and [**24] taking into consideration the broad
       of a loading and unloading clause would not alter
                                                               definition of "use" recognized in Texas jurisprudence, we
       the court's reasoning or result.
                                                               conclude that Rodriguez's injury resulted from use of the
     Allstate further argues that Rodriguez's injuries did     trailer as a matter of law.
not "arise out of" any use of the trailer. We disagree.
                                                                     [*227] Inherent nature. It is in the inherent nature
Texas courts broadly define "use" of a motor vehicle in
                                                               of a trailer that it will be used to haul and tow materials.
the context of insurance policies. Mid-Continent Cas. Co.
                                                               Cf. Mid-Continent Cas. Co., 323 S.W.3d at 155 ("[I]t is in
v. Global Enercom Mgmt., Inc., 323 S.W.3d 151, 156
                                                               the inherent nature of a 2000 Ford F-250 Super Duty
(Tex. 2010). It is a "general catchall . . . , designed and
                                                               pickup truck on a cell tower job site that it will be used to
construed to include all proper uses of the vehicle." Lyons
                                                               haul and tow materials."); Panhandle Steel Prods. Co., 23
v. State Farm Lloyds & Nat'l Cas. Co., 41 S.W.3d 201,
                                                               S.W.2d at 801 (holding, when delivery of material was
205 (Tex. App.--Houston [14th Dist.] 2001, pet. denied)
                                                               main purpose of haul, "loading and unloading were as
(citing State Farm Mut. Auto. Ins. Co. v. Pan Am. Ins. Co.,
                                                               necessary to accomplish that purpose as was the driving of
437 S.W.2d 542, 545 (Tex. 1969)). "Use" means "to put
                                                               the truck from plaintiff's place of business to the point of
into action or service; to employ for or apply to a given
                                                               delivery"). That process includes not only the immediate
purpose." Id. (citing LeLeaux v. Hamshire-Fannett I.S.D.,
                                                               action of loading and unloading materials from the trailer
835 S.W.2d 49, 51 (Tex. 1992)). In Mid--Century Ins. Co.
                                                               but also moving them from their starting point to their
of Tex. v. Lindsey, 997 S.W.2d 153 (Tex. 1999), the court
                                                               destination.17 See Liberty Mut. Ins. Co., 556 S.W.2d at
employed the following factors suggested in two insur-
                                                               244; Travelers Ins. Co. v. Emp'r's Cas. Co., 380 S.W.2d
ance treatises14 to help determine when a motor vehicle
                                                               610, 612 (Tex. 1964); Panhandle Steel Prods. Co., 23
has been in "use" under a similar UIM insuring provision:
                                                               S.W.2d at 801. Using a trailer in this manner is "not an
                                                               unexpected or unnatural use of the vehicle." See
          For an injury to fall [**23] within the
                                                               Mid-Continent Cas. Co., 323 S.W.3d at 155 [**25]
       "use" coverage of an automobile policy (1)
                                                               (citing Lindsey, 997 S.W.2d at 158); Commercial Stand-
       the accident must have arisen out of the
                                                               ard Ins. Co., 455 S.W.2d at 717.
       inherent nature of the automobile, as such;
       (2) the accident must have arisen within
                                                                                                                     Page 7
                                   366 S.W.3d 216, *; 2012 Tex. App. LEXIS 1217, **


       17 Here, the parties do not dispute that the deer              "[u]ninsured motor vehicle" "a land motor vehicle
       stand did not reach its final destination.                     or trailer of any type." (Emphasis added.) Thus,
                                                                      the same principles apply here.
     Natural territorial limits. The accident was within the
"natural territorial limits" of the trailer, even though           Cause. The third factor is whether the vehicle pro-
Woodling and Rodriguez had taken a few steps out of the        duced the injury. Lindsey, 997 S.W.2d at 157. The Su-
trailer. In Mid-Continent Casualty Company and Lindsey,        preme Court of Texas has stated that the causation inquiry
this factor was satisfied even though both accidents oc-       in this context involves "but for" causation.
curred outside the insured vehicles. See Mid-Continent         Mid-Continent Cas. Co., 323 S.W.3d at 156. A but for
Cas. Co., 323 S.W.3d at 155 (holding injuries sustained        cause is "one without which the event would not have
when rope that was anchored on one end to the truck            occurred." Transcon. Ins. Co. v. Crump, 330 S.W.3d 211,
broke arose from use of truck); Lindsey, 997 S.W.2d at         223 (Tex. 2010).
160 (holding injury arose out of use of truck when child
                                                                    Rodriguez's accident would not have occurred if
entered through sliding rear window and accidentally
                                                               Rodriguez had not been assisting Woodling in unloading
discharged loaded shotgun mounted over rear window,
                                                               the deer stand from the trailer. See Mid-Continent Cas.
injuring person in nearby vehicle, because child did not
                                                               Co., 323 S.W.3d at 156 (holding rope would not have
stray from purpose of entering truck by playing with gun
                                                               broken causing injuries if truck had not been used to hoist
or trying to shoot it).
                                                               [**28] headache ball). The accident did not merely hap-
     The Supreme Court has adopted the complete opera-         pen near the trailer: Woodling and Rodriguez could not
tion doctrine, which defines the terms "loading and un-        have accomplished the same result without the presence
loading" in the context of an insurance policy. "'[L]oading    of the trailer, and, as we have noted, the use of a trailer
and unloading' embraces not only the immediate trans-          includes unloading materials. See id.; Panhandle Steel
ference of the [**26] goods to or from the vehicle, but        Prods. Co., 23 S.W.2d at 802.19 The trial court properly
also the complete operation of transporting the goods          found the "use" clause in Allstate's policy covered Ro-
between the vehicle and the place from or to which they        driguez's injury.
are being delivered." Liberty Mut. Ins. Co., 556 S.W.2d at
244; Travelers Ins. Co., 380 S.W.2d at 612.18 Any activi-             19
ties involved in moving the goods to their final physical
destination are themselves included in the term "unload-                         [S]ince the act of unloading was
ing" and thus qualify as a use of the vehicle for insurance                   one of the natural and necessary
purposes. See Travelers Ins. Co., 380 S.W.2d at 613-14.                       steps to the undertaking to deliver
The court noted, "[w]hen a vehicle is being unloaded it is                    the [truck's contents], and followed
being used to the same extent as if it were being driven,                     in natural sequence the use of the
and the person doing the unloading is entitled to the same                    truck to that end, which use was
protection as the owner or operator." Id. at 614; see also                    specifically contemplated and
Commercial [*228] Standard Ins. Co. v. Am. Gen. Ins.                          covered by the policy, we believe
Co., 455 S.W.2d 714, 716-17 (Tex. 1970) (quoting Trav-                        that the conclusion is unavoidable
elers Ins. Co.). We conclude under these circumstances                        that the use of the truck was the
that Woodling and Rodriguez were using the trailer when                       primary and efficient cause of the
the accident occurred.                                                        injury, even though it should not be
                                                                              held to be the proximate cause.
       18 The cited cases that apply the complete op-
       eration doctrine involved third party claims arising
       from liability provisions of standard automobile               Panhandle Steel Prods. Co., 23 S.W.2d at 802.
       insurance policies, whereas this case involves a
                                                                    This case is not controlled by the cases cited by All-
       liability claim arising under a UIM provision.
                                                               state in support of its argument that the accident was not
       Liberty [**27] Mutual and Travelers Insurance
                                                               caused by the use of a trailer as such. The cases cited by
       Company, however, both construe language in
                                                               Allstate regarding UIM policies involved intentional
       standard automobile policies that is identical to the
                                                               shootings from one vehicle into another that were held to
       language in the Allstate UIM provision providing
                                                               be incidental to the use of [**29] the vehicles. See, e.g.,
       coverage for injuries "aris[ing] out of the owner-
                                                               State Farm Mut. Auto. Ins. Co. v. Whitehead, 988 S.W.2d
       ship, maintenance, or use" of the insured vehicle.
                                                               744, 745 (Tex. 1999); Collier v. Emp'rs Nat'l Ins. Co., 861
       See Liberty Mut. Ins. Co., 556 S.W.2d at 243 n.1;
                                                               S.W.2d 286, 289 (Tex. App.--Houston [14th Dist.] 1993,
       Travelers Ins. Co., 380 S.W.2d at 612. The UIM
                                                               writ denied). Here, as we have held, Rodriguez was in-
       policy, moreover, expressly covers as an
                                                               jured while he was unloading the trailer--which was a
                                                                                                                    Page 8
                                   366 S.W.3d 216, *; 2012 Tex. App. LEXIS 1217, **


proper use--so his injury was not merely incidental to the     door frame. 835 S.W.2d at 51. The court held that the
use of the trailer.                                            injury did not arise from the use of the bus because the
                                                               driver was not aboard when the injury occurred--in other
     National Union Fire Insurance Co. v. Merchants
                                                               words, the injury did not arise from the school district's or
Fast Motor Lines, Inc., 939 S.W.2d 139 (Tex. 1997) in-
                                                               its driver's operation or use of the bus--and immunity was
volved a duty to defend. An insurer's duty to defend is
                                                               not waived. Id. at 52. Brown v. Houston Independent
determined from the four corners of the pleadings and the
                                                               School District, 123 S.W.3d 618 (Tex. App.--Houston
language of the insurance policy. Id. at 141. In such cases,
                                                               [14th Dist.] 2003, pet. denied), involved an officer who
if the petition does not allege facts within the scope of
                                                               pulled over a woman in his patrol car and sexually as-
coverage, the insurer is not required to defend a suit
                                                               saulted her in her own vehicle. Id. at 619. Thus, the assault
against its insured. Id. The petition in National Union
                                                               did not occur in the patrol car, but in a vehicle which was
alleged only that a driver was operating the insured's truck
                                                               not operated by the officer. Id. at 622; see also
when he negligently discharged a firearm injuring the
                                                               Mid-Continent Cas. Co., 323 S.W.3d at 156. Here, by
plaintiff. Id. at 142. The insurance policy only covered
                                                               contrast, the use of the vehicle covered by the Allstate
claims where the injury was caused by an accident re-
                                                               policy was not similarly limited to a particular user.
sulting from the use of a covered auto. Id. Accordingly,
                                                               Moreover, Rodriguez's injury arose from using the trailer
the allegations did not give rise to a duty to defend by the
                                                               as a trailer while he was unloading it. See Mid-Continent
insurer. Id.; see also Mid-Continent Cas. Co., 323 S.W.3d
                                                               Cas. Co., 323 S.W.3d at 155; Lindsey, 997 S.W.2d at 160.
at 156. [**30] Here, we are not dealing with the duty to
defend; thus, the same pleading standard does not apply.20
                                                                      21    Waivers of sovereign immunity must be
                                                                      construed narrowly. LeLeaux, 835 S.W.2d at 51.
       20 Lindsey, by contrast to National Union, was
       not a duty-to-defend case, but involved an action           We hold [**32] that the trial court did not err by
       to recover UIM benefits, as in this case. See 997       rendering summary judgment against Allstate in favor of
       S.W.2d at 154. Thus, the allegations in the petition    Rodriguez and by declaring that Woodling's liability arose
       were not at issue. The plaintiff proved the vehicle     from the use of the trailer. We overrule Allstate's first and
       was in use at the time of the accident because the      second issues.
       child's "sole purpose was to gain entry into the
       truck" through the back window and he did not           Conclusion
       stray from that purpose. Lindsey, 997 S.W.2d at
                                                                    We hold that Rodriguez's claims against Farmers
       158. He did not play with the gun or try to shoot it.
                                                               were not ripe and thus the trial court did not have juris-
       Id.; see also Mid-Continent Cas. Co., 323 S.W.3d
                                                               diction to enter a judgment against Farmers. Therefore, as
       at 154-55.
                                                               to the claims against Farmers, we reverse the trial court's
      [*229] The other two cases cited by Allstate were        judgment and render judgment that these claims be dis-
not insurance coverage cases, but instead involved claims      missed for lack of subject-matter jurisdiction.
under the Texas Torts Claims Act (TTCA). The TTCA
                                                                    We further hold that the trial court did not err by en-
waives governmental immunity for "property damage,
                                                               tering summary judgment and declaratory judgment in
personal injury, or death aris[ing] from the operation or
                                                               favor of Rodriguez against Allstate. We affirm that por-
use of a motor driven vehicle." 21 LeLeaux, 835 S.W.2d at
                                                               tion of the declaratory judgment finding Woodling's lia-
51 (citing Tex. Civ. Prac. & Rem. Code § 101.021(1)(A)).
                                                               bility arose from "use" of the trailer and finding coverage
The required "operation or use" under the TTCA is by the
                                                               over Rodriguez's injury under the Allstate policy.
governmental employee. Id. LeLeaux involved a school
bus that was not in operation when a student jumped up             /s/ Martha Hill Jamison
from [**31] where she had been sitting in the open rear
doorway of the empty school bus and hit her head on the            Justice
                                                                                                              Page 1
                                     426 S.W.3d 59, *; 2014 Tex. LEXIS 272, **;
                                                57 Tex. Sup. J. 325




               FPL ENERGY, LLC, FPL ENERGY PECOS WIND I, L.P., FPL ENERGY PECOS
               WIND II, L.P., AND INDIAN MESA WIND FARM, L.P., PETITIONERS, v. TXU
                PORTFOLIO MANAGEMENT COMPANY, L.P. N/K/A LUMINANT ENERGY
                                    COMPANY, LLC, RESPONDENT

                                                     NO. 11-0050

                                          SUPREME COURT OF TEXAS

                              426 S.W.3d 59; 2014 Tex. LEXIS 272; 57 Tex. Sup. J. 325

                                            October 15, 2012, Argued
                                         March 21, 2014, Opinion Delivered

SUBSEQUENT HISTORY:               Released for Publica-     OPINION
tion May 2, 2014.
                                                                 [*60] JUSTICE GREEN delivered the opinion of the
                                                            Court.
PRIOR HISTORY: [**1]
   ON PETITION FOR REVIEW FROM THE COURT                         In this contract interpretation case, TXU Portfolio
OF APPEALS FOR THE FIFTH DISTRICT OF TEXAS.                 Management Company, L.P. (TXUPM) contracted to
TXU Portfolio Mgmt. Co., L.P. v. FPL Energy, LLC, 328       receive electricity and renewable energy credits (RECs)
S.W.3d 580, 2010 Tex. App. LEXIS 5905 (Tex. App. Dal-       from wind farms owned by FPL Energy, LLC. FPL failed
las, 2010)                                                  to provide the required [**2] electricity and RECs.
                                                            TXUPM sued FPL for breach of contract; FPL counter-
                                                            claimed, arguing TXUPM failed to provide FPL with
COUNSEL: For American Wind Energy Company LLC,              sufficient transmission [*61] capacity. The trial court
Amicus Curiae: Gene Grace, AWEA, Washington, DC.            granted two partial summary judgments. First, it issued a
                                                            declaratory judgment that the contracts required TXUPM
For REC Stakeholders, Amicus Curiae: Pamela Stanton         to provide transmission capacity. Second, it declared the
Baron, Attorney at Law, Austin TX.                          contracts' liquidated damages provisions unenforceable.
                                                            The remaining issues were tried to a jury, and the trial
For FPL Energy, LLC, Petitioner: Allen Ryan Paulsen,        court entered take-nothing judgments for both parties.
Anne McGowan Johnson, Ben L. Mesches, Nina Cortell,         Both parties appealed. The court of appeals reversed both
Haynes & Boone, L.L.P., Dallas TX; Jeffrey M. Tillotson,    summary judgment rulings. 328 S.W.3d 580, 591 (Tex.
John D. Volney, Lynn Tillotson Pinker & Cox, L.L.P.,        App.--Dallas 2010, pet. granted).
Dallas TX.
                                                                 We address the following issues: (1) did TXUPM
                                                            owe FPL a contractual duty to provide adequate trans-
For TXU Portfolio Management Company, L.P., Re-
                                                            mission capacity to FPL; (2) if FPL breached and
spondent: Daniel Lee Gus, James W. Walker, Walker
Sewell LLP, Dallas TX; James C. Ho, Gibson Dunn &           TXUPM did not, do the liquidated damages provisions
Crutcher LLP, Dallas TX; Lawrence J.C. VanDyke, Of-         apply to energy and RECs or only to RECs; and (3) are the
                                                            liquidated damages provisions in these contracts en-
fice of the Attorney General, Solicitor General's Office,
                                                            forceable? We affirm the court of appeals' holding that
Austin TX.
                                                            TXUPM owed no contractual duty to provide transmis-
JUDGES: JUSTICE GREEN delivered the opinion of the          sion capacity. However, we hold the liquidated damages
Court.                                                      provisions apply only to RECs and are unenforceable as a
                                                            penalty. Accordingly, [**3] we reverse the court of
                                                            appeals' judgment in part and remand the case to the court
OPINION BY: Paul W. Green
                                                            of appeals to determine damages.
                                                                                                                    Page 2
                                       426 S.W.3d 59, *; 2014 Tex. LEXIS 272, **;
                                                  57 Tex. Sup. J. 325

I. Factual and Procedural Background                                For approximately four years, FPL failed to produce
                                                               the agreed upon electricity and RECs. TXUPM filed suit
     In Texas, the electric industry consists of three main
                                                               seeking damages for FPL's breach of the contracts. FPL
components: power generation, power transmission, and
                                                               counterclaimed, arguing that it could not meet its obliga-
power distribution. Electric producers own and operate
                                                               tions because of congestion on the ERCOT grid. When
generating facilities. The Electric Reliability Council of
                                                               the grid lacks capacity to transmit all energy produced in
Texas, Inc. (ERCOT), with few exceptions, manages the
                                                               an area, ERCOT issues curtailment orders instructing
transmission of electricity through an interconnected
                                                               certain facilities to cease production. FPL claims it re-
network--or grid--of transmission lines. Finally, retail
                                                               ceived curtailment orders from ERCOT which, along with
electric providers distribute electricity directly to con-
                                                               an unexpected lack of wind in the area, caused it to pro-
sumers.
                                                               duce less energy than promised. FPL blamed the conges-
     In 1999, the Legislature created ambitious goals for      tion and resulting curtailment orders on TXUPM, insist-
renewable energy in Texas. See Act of May 27, 1999, 76th       ing that TXUPM bore responsibility to ensure transmis-
Leg., R.S., ch. 405, § 39, sec. 39.904, 1999 Tex. Gen.         sion capacity for all energy FPL could produce.
Laws 2543, 2598-99. The Legislature charged the Public
                                                                    Both parties filed motions for partial summary
Utility Commission of Texas (PUC) with establishing
                                                               judgment. Each [**6] sought declaratory judgment to
minimum renewable energy production requirements for
                                                               clarify the portions of the contracts relating to transmis-
all Texas electric providers. TEX. UTIL. CODE §
                                                               sion capacity and liquidated damages. The trial court
39.904(c)(1). The Legislature also tasked the PUC with
                                                               issued several rulings. First, the court declared that the
establishing a REC trading program. Id. § 39.904(b). A
                                                               contracts unambiguously required TXUPM to provide all
REC reflects one megawatt hour (MWh) "of renewable
                                                               transmission services, including transmission capacity, to
energy that is physically metered and verified in Texas."
                                                               FPL. Second, the court determined that the liquidated
16 TEX. ADMIN. CODE § 25.173(c)(13). [**4] Electric
                                                               damages provisions in the contracts were not enforceable,
producers thus simultaneously create both electricity from
                                                               and thus void, because a liquidated damages amount of
renewable sources and the corresponding RECs, yet
                                                               $50 per REC was not a realistic forecast of damages.
producers may choose to sell the two separately. Id. §
25.173(d). The REC trading program allows electric                  Consistent with these rulings, the trial court's in-
providers unable to satisfy the minimum renewable en-          structions to the jury indicated that TXUPM was required
ergy requirements to purchase and hold RECs "in lieu of        to provide transmission capacity and that the liquidated
capacity from renewable energy technologies." TEX. UTIL.       damages were unenforceable. The jury found that
CODE § 39.904(b); see 16 TEX. ADMIN. CODE §                    TXUPM should receive $8.9 million in compensatory
25.173(d)(2).                                                  damages for FPL's failure to deliver renewable energy, yet
                                                               the jury determined that TXUPM secured cover for the
     TXU Electric, a retail electric provider (and a dif-
                                                               missing electricity by acquiring substitute electricity. The
ferent entity than TXUPM), solicited proposals from
                                                               jury also found that TXUPM owed no compensatory
renewable energy producers to meet the new renewable
                                                               damages to FPL for TXUPM's alleged failure to ensure
energy production requirements. In 2000, TXU Electric
                                                               transmission capacity. The trial court entered judgment on
entered agreements with two wind farm subsidiaries of
                                                               the jury's verdict, ordering that (1) FPL take nothing on its
FPL: Pecos Wind I, L.P. and Pecos Wind II, L.P. Also in
                                                               claims; and [**7] (2) TXUPM take nothing, despite the
2000, FPL acquired a third party's rights to a similar
                                                               jury's damage award, because TXUPM covered.
contract with TXU Electric for Indian Mesa Wind Farm,
L.P. Under the contracts, FPL sells TXU Electric RECs               The court of appeals affirmed the take-nothing
and the renewable electric energy used to produce those        judgment for the damages claims but reversed and ren-
credits. TXU Electric assigned the contracts to TXUPM, a       dered judgment on the issues related to declaratory relief.
power marketer and, importantly, not a retail electric         328 S.W.3d at 591. The court held that the contracts did
provider. The contracts with Pecos Wind I and II are           not require TXUPM to provide the necessary transmission
identical. The Indian Mesa contract largely contains           capacity. Id. at 587. As to liquidated damages, the court of
[**5] the same provisions, but, as [*62] explained             appeals held that the provisions were enforceable because
below, the parties point to relevant differences in support    damages were difficult to estimate, the $50 rate was a
of their claimed intent at the time of contracting. Two        reasonable estimate of just compensation, and FPL could
provisions of these contracts give rise to this dispute: one   not meet its burden to show that the $50 rate was dis-
provision governing TXUPM's transmission responsibil-          proportionate to TXUPM's actual damages. Id. at 587-90.
ities and one providing for liquidated damages in the
                                                                    We granted FPL's petition for review and address the
event that FPL fails to meet certain production require-
                                                               three issues before us--whether TXUPM was responsible
ments.
                                                               for ensuring transmission capacity, whether the liquidated
                                                                                                                 Page 3
                                       426 S.W.3d 59, *; 2014 Tex. LEXIS 272, **;
                                                  57 Tex. Sup. J. 325

damages provisions apply to failure to deliver electricity,           from the Renewable Resource Facility
and whether the liquidated damages provisions are en-                 throughout the Contract Term ("Required
forceable. 55 Tex. Sup. Ct. J. 320 (Feb. 17, 2012).                   Transmission Services").

II. Contract Interpretation
                                                               Section 1.02(a) of the contracts defines "Net Energy" as
     Before deciding the enforceability of the liquidated
                                                               "the amount [**10] of electric energy in MWh produced
damages provisions, we must resolve two matters of
                                                               by the Renewable Resource Facility and delivered to the
contract interpretation [*63] --TXUPM's responsibility
                                                               Connecting Entity." (emphasis added). Under section
for transmission [**8] capacity and the scope of the
                                                               2.02, a Connecting Entity owns any "transmission or
liquidated damages provisions. Our analysis begins with
                                                               distribution system with which the Renewable Resource
the legal question of the contracts' ambiguity. See Dynegy
                                                               Facility is interconnected." The Connecting Entity serves
Midstream Servs., Ltd. P'ship v. Apache Corp., 294
                                                               as the "Delivery Point."
S.W.3d 164, 168 (Tex. 2009). If we can give a clear and
definite legal meaning to a contract, it is not ambiguous as         FPL urges a broad view of TXUPM's responsibility
a matter of law. Gilbert Tex. Constr., L.P. v. Underwriters    for transmission services. FPL contends that TXUPM's
at Lloyd's London, 327 S.W.3d 118, 133 (Tex. 2010). An         obligation to provide transmission services "without lim-
ambiguous contract, however, has a doubtful or uncertain       itation" encompasses the capacity to deliver electricity
meaning or is reasonably susceptible to multiple inter-        from the Renewable Resource Facility (i.e. FPL) to the
pretations; we will not find ambiguity simply because the      load (i.e. TXUPM's customer base). In support, FPL ar-
parties disagree over a contract's meaning. Dynegy Mid-        gues that Net Energy can refer only to a quantity and has
stream Servs., 294 S.W.3d at 168. Our primary concern in       no bearing on how and when delivery occurs. FPL further
contract interpretation is to "ascertain the true intentions   argues that the more specific language, "from the Re-
of the parties as expressed in the instrument." Coker v.       newable Resource Facility," should trump Net Energy,
Coker, 650 S.W.2d 391, 393 (Tex. 1983). We consider the        which is defined elsewhere in the contracts. See Forbau v.
entire writing to harmonize and effectuate all provisions      Aetna Life Ins. Co., 876 S.W.2d 132, 133-34 (Tex. 1994)
such that none are rendered meaningless. Id. Further, we       (stating the rule that, in contract interpretation, a more
"construe contracts from a utilitarian standpoint bearing in   specific provision will control over a general [*64]
mind the particular business activity sought to be served."    statement). FPL points to congestion beyond the Delivery
Frost Nat'l Bank v. L & F Distribs., Ltd., 165 S.W.3d 310,     Point, explaining that as electricity is generated [**11]
312 (Tex. 2005) (per curiam) [**9] (quoting Reilly v.          and delivered virtually simultaneously, it cannot stop and
Rangers Mgmt., Inc., 727 S.W.2d 527, 530 (Tex. 1987)).         wait at the Delivery Point for congestion to clear. In a
                                                               compelling visual, FPL suggests that the transmission
A. Transmission Capacity                                       towers might burn down if FPL generated and sent elec-
                                                               tricity without an available, guaranteed path to the con-
     We first consider whether the contracts require
                                                               sumer. FPL complains that TXUPM caused the grid
TXUPM to provide adequate transmission capacity to
                                                               congestion and thus prompted the resulting curtailment
FPL. The trial court and the court of appeals found section
                                                               orders.1
2.03 unambiguous, a finding the parties do not challenge.
328 S.W.3d at 584-85. We may, nonetheless, declare a
                                                                      1 The record shows that FPL earlier claimed
contract ambiguous, see J.M. Davidson, Inc. v. Webster,
                                                                      that TXUPM: (1) prioritized its own fossil
128 S.W.3d 223, 231 (Tex. 2003), but we hold that section
                                                                      fuel-derived energy; (2) knowingly overstated to
2.03, when construed in light of the entire contracts, has a
                                                                      ERCOT its intention to transmit fossil fuel energy,
definite legal meaning and, thus, is unambiguous. See
                                                                      resulting in curtailment orders for wind-produced
Gilbert Tex. Constr., 327 S.W.3d at 133.
                                                                      energy; and (3) exercised its authority as a "Qual-
     Section 2.03(a) of the contracts, entitled "Transmis-            ified Scheduling Entity," whose responsibility is
sion," reads as follows:                                              to report anticipated electricity generation to
                                                                      ERCOT, to influence ERCOT's schedule for en-
          TXU Electric shall provide, by pur-                         ergy transmission on the grid. FPL's briefs, how-
       chasing or arranging for, all services, in-                    ever, do not pursue these arguments. FPL peti-
       cluding without limitation Transmission                        tioned this Court to review the meaning of the
       Services, Ancillary Services, any control                      contracts as to TXUPM's obligations to provide
       area services, line losses except for line                     transmission services, not TXUPM's alleged role
       losses on [FPL's] side of the Delivery                         in creating congestion. Thus, we will not consider
       Point, and transaction fees, necessary to                      these arguments. See Guitar Holding Co., L.P. v.
       deliver Net Energy to TXU Electric's load                      Hudspeth Cnty. Underground Water Conserva-
                                                                                                                    Page 4
                                       426 S.W.3d 59, *; 2014 Tex. LEXIS 272, **;
                                                  57 Tex. Sup. J. 325

       tion Dist. No. 1, 263 S.W.3d 910, 918 (Tex. 2008)        mission service providers. See 16 TEX. ADMIN. CODE §
       [**12] (holding issues waived if not presented in        25.5(143), (144). As between the original contracting
       the petition for review or in the briefs).               parties, the contracts required a separate agreement to
                                                                address interconnection if TXU Electric was the con-
     TXUPM interprets the contracts as placing the risk of
                                                                necting entity; the parties do not suggest any such
transmission system incapacity on FPL. TXUPM notes
                                                                agreement exists. Between TXUPM and FPL, no such
that the contracts identify "lack of transmission capacity"
                                                                agreement can exist because TXUPM, as a power mar-
as an "Uncontrollable Force" outside the reasonable con-
                                                                keter, cannot own transmission systems. See id. §
trol of the parties. If capacity is beyond the control of the
                                                                25.5(83) (defining "power marketer" to exclude owners of
parties, TXUPM questions, how then can TXUPM bear
                                                                transmission systems). The contracts obligate FPL to
responsibility for failure to provide capacity? Section 4.05
                                                                secure interconnection with a Connecting Entity, or
of the contracts reinforces this point by making clear that
                                                                transmission service provider, which under the PUC rules
FPL must pay liquidated damages for failure to supply
                                                                cannot be TXUPM. See id. § 25.5(83), (143). Reading
RECs even if the failure was the result of inadequate
                                                                sections 2.02 and 2.03 together, FPL must make all in-
transmission capacity. Finally, TXUPM argues that the
                                                                terconnection arrangements so that electricity can reach
contracts' definition of Net Energy binds this Court; in-
                                                                the Delivery Point, and TXUPM must ensure that facili-
corporating Net Energy, as defined, into section 2.03
                                                                ties [**15] exist beyond the Delivery Point to allow for
means that TXUPM owes a duty to provide transmission
                                                                delivery to consumers. These provisions do not speak to
services only after the Delivery Point. Under TXUPM's
                                                                the situation here, where both parties claim to meet their
interpretation, if FPL could not deliver electricity because
                                                                responsibilities but congestion on the grid inhibits energy
of congestion, FPL bore the risk and, thus, must bear the
                                                                generation and delivery.
consequences. We agree with TXUPM's interpretation.
                                                                     Given these facts, then, we must consider which party
      We begin by recognizing the apparent textual con-
                                                                is responsible for congestion beyond the Delivery Point.
flict. Read in isolation, section 2.03 contains language
                                                                While FPL blames grid congestion on TXUPM, we be-
supportive [**13] of either a broad or narrow interpre-
                                                                lieve the contracts recognize such congestion as beyond
tation of TXUPM's transmission service responsibilities.
                                                                both parties' control. Section 6.02(a) of the contracts ad-
"[F]rom the Renewable Resource Facility" implies that
                                                                dresses "Uncontrollable Force," including "[e]vents or
TXUPM would have to secure transmission capacity so
                                                                circumstances that are outside of a Party's reasonable
FPL could deliver electricity. But the use of the term Net
                                                                control," which "may include . . . lack of transmission
Energy, which exists only upon FPL's delivery to the
                                                                capacity or availability." The contracts mention trans-
Connecting Entity, suggests that TXUPM bears respon-
                                                                mission capacity only in this section. Congestion and
sibility only if the grid possesses capacity for TXUPM to
                                                                curtailment issues, which affect transmission capacity and
deliver any generated electricity.
                                                                availability, must fall within this provision. Section
     We cannot interpret a contract to ignore clearly de-       6.02(b) goes on to excuse a party from performance in the
fined terms, see Frost Nat'l Bank, 165 S.W.3d at 313, and,      event of an Uncontrollable Force if certain criteria are
thus, we must accord Net Energy its due meaning. The            met; there is no dispute that FPL did not meet those cri-
contracts assigned TXUPM responsibility only for                teria.
transmission services required to deliver Net Energy, and
                                                                      Section 4.05, entitled "Effect of Outages and Un-
Net Energy represents the amount of energy produced by
                                                                controllable Force," outlines the general rule that payment
FPL and delivered to the Connecting Entity. TXUPM's
                                                                and other [**16] calculations in sections 4.01-.10 are
responsibility for transmissions services, then, begins
                                                                not impacted by Uncontrollable Force. The exception to
once FPL-generated electricity reaches the Connecting
                                                                this rule, discussed below, applies to reduce the Annual
Entity on the grid--the Delivery Point. The contracts' use
                                                                Quantity of RECs that FPL must produce for TXUPM
of the phrase "from the Renewable Resource Facility" is
                                                                only when PUC substantive rules would excuse the
simply a designation of where the energy originated. It
                                                                shortfall. The exception does not excuse FPL from its
does not alter the definition of Net Energy provided in
                                                                obligation to deliver electricity. In essence, the contracts
section 1.02 or in other sections [**14] throughout the
                                                                allocate the risk of curtailment and congestion to FPL by
contracts.
                                                                clearly establishing that such events affect contract obli-
      [*65] The placement of section 2.03 in the context        gations only in certain instances not found here. We must
of all interconnection requirements reinforces this con-        respect and enforce this assignment of risk. See Gym-N-I
clusion. Section 2.02 requires FPL to "make all arrange-        Playgrounds, Inc. v. Snider, 220 S.W.3d 905, 912 (Tex.
ments . . . necessary to interconnect . . . with a transmis-    2007) ("Freedom of contract allows parties to bargain for
sion or distribution system," i.e. the Connecting Entity.       mutually agreeable terms and allocate risks as they see
Transmission systems are owned and operated by trans-           fit.").
                                                                                                                       Page 5
                                        426 S.W.3d 59, *; 2014 Tex. LEXIS 272, **;
                                                   57 Tex. Sup. J. 325

     To summarize, the contracts obligate FPL to inter-                Rate. The Deficiency Payment is intended
connect with a Connecting Entity, which cannot be                      to be liquidated damages and not a penalty.
TXUPM. TXUPM bears responsibility for providing
transmission services from the Delivery Point at the
Connecting Entity. To the extent that lack of transmission      Vastly simplified, a Net Deficiency occurs when FPL fails
capacity impairs electricity generation at the wind farms,      to meets its "Annual Quantity" REC quota, even taking
the contracts provide that such lack of capacity is an          into account past overproduction.
Uncontrollable Force and FPL, therefore, bears the risk.
                                                                     Section 4.04(f) [**19] sets the Deficiency Rate as
      We [**17] note that this analysis does not fail be-       follows:
cause of the unique nature of electricity, [*66] despite
FPL's assertions. Admittedly, electricity generation,                     The initial Deficiency Rate is $50 per
transmission, and distribution occur almost simultane-                 MWh, based upon the $50 per MWh
ously. But even if electricity moves too fast to pinpoint its          number in [PUC] Substantive Rule §
physical location, the parties certainly can conceptualize             25.173. If the $50 per MWh in that Rule is
its location for the purpose of creating energy contracts              amended, then the Deficiency Rate is au-
like the ones in question today. Several contractual pro-              tomatically adjusted to the amended
visions make this clear: section 2.03(a) assigns FPL re-               number stated in that Rule. If [PUC] Sub-
sponsibility for any loss of electricity on its side of the            stantive Rule §25.173 is amended or re-
Delivery Point; and section 3.01(b) makes FPL responsi-                pealed without replacement so that the $50
ble for maintenance and operational compliance with                    number is no longer in the [PUC] Sub-
ERCOT guidelines for facilities up to the Delivery Point.              stantive Rules, then the Deficiency Rate is
This conceptualization of electricity's location pervades              $50. To the extent that the [PUC] deter-
the contracts, and the parties assigned different responsi-            mines the annual average market value of
bilities and liabilities based upon that understanding.                RECs applicable to [TXUPM] for a year,
                                                                       then the Deficiency Rate for that year will
     Here, ERCOT issued curtailment orders, effectively
                                                                       be the lesser of (i) the $50 per MWh (as it
constraining energy generation, rather than energy
                                                                       may be later amended), and (ii) twice the
transmission. FPL was therefore prevented from gener-
                                                                       annual average market value of RECs ap-
ating electricity and meeting its contractual obligations.
                                                                       plicable to [TXUPM] as determined by the
Although ERCOT made final curtailment decisions, that
                                                                       [PUC] . . . . For a year for which there is a
does not mean that neither party bore the risk in [**18]
                                                                       Deficiency Payment due, [TXUPM] shall
the event of congestion and curtailment.
                                                                       make reasonable efforts to obtain a de-
     We hold that the contracts did not require TXUPM to               termination of the annual average market
provide transmission capacity for FPL but rather allocated             value of RECs by the [PUC], but nothing
risk of inadequate transmission capacity to FPL.                       in this Section or in this Agreement obli-
                                                                       gates [TXUPM] to turn in fewer RECs
B. Liquidated Damages                                                  than are required of [*67] it by the
                                                                       [PUC] program administrator in order to
     We next consider the breadth of the liquidated dam-               obtain such a determination.
ages provision in section 4.04. The court of appeals did
not address the ambiguity of the section, and neither party
argues the provision is ambiguous. We conclude that the
provisions are unambiguous because we may discern a                  TXUPM argues that the contracts [**20] cover both
definite legal meaning by construing the provisions in          energy and RECs, and, therefore, the liquidated damages
light of each contract as a whole. See Gilbert Tex. Constr.,    clauses must apply to both. TXUPM reads subsections (d)
L.P. v. Underwriters at Lloyd's London, 327 S.W.3d 118,         and (f) in the context of contract Article IV (sections
133 (Tex. 2010).                                                4.01-.10), entitled "Payment, Records, and Billings."
                                                                According to TXUPM, because FPL simultaneously
    The provisions state in relevant part:
                                                                produces RECs and energy, the parties simply use RECs
                                                                as a counting mechanism for both, rather than a term
            If there is a Net Deficiency for a year . .         limited strictly to RECs. In support, TXUPM references
       . . [FPL] shall pay [TXUPM] a Deficiency                 section 4.02, which provides the contracts' payment
       Payment equal to the product of (i) the
                                                                terms, whereby TXUPM must pay FPL a unified price for
       difference in MWh between (a) the Net
                                                                an Annual Quantity of MWhs of Renewable Energy
       Deficiency, and (b) the MWh of Trans-
                                                                comprised of both energy and RECs. Sections 4.03 and
       ferred RECs, times (ii) the Deficiency
                                                                                                                      Page 6
                                        426 S.W.3d 59, *; 2014 Tex. LEXIS 272, **;
                                                   57 Tex. Sup. J. 325

4.04(a)-(c) outline a quarterly and annual reconciliation             Where the parties intended to address both energy
process to smooth any discrepancies based on the differ-         and RECs, the contracts do [*68] so. In section 4.02,
ences between continuous production of electricity and           the payments are based [**23] on "all RECs and Net
the quarterly issuance of RECs. Section 4.04(d), the ar-         Energy produced by [FPL]." Section 4.03 contains ex-
gument goes, necessarily incorporates the language used          plicit references to section 4.02 and the payments under
in the other sections. That section states: "[FPL] may elect     section 4.02. The liquidated damages provisions, in con-
to obtain and transfer RECs to [TXUPM] that were not             trast, provide no such reference. We will not, as TXUPM
produced at the Renewable Resource Facility to com-              urges, selectively import terms from other provisions to
pletely or partially offset the Net Deficiency . . . not to      compensate for the absence of the term "energy"; rather,
exceed the sum of (i) 20% of the Annual Quantity,                we conclude that the omission was intentional and delib-
[**21] and (ii) the Uncontrollable Force Deficiency for          erate. See Tenneco Inc. v. Enter. Prods. Co., 925 S.W.2d
that year." Thus, TXUPM argues, Section 4.04(d) as a             640, 646 (Tex. 1996) ("We have long held that courts will
whole must refer to the Annual Quantity of both energy           not rewrite agreements to insert provisions parties could
and RECs.                                                        have included or to imply restraints for which they have
                                                                 not bargained.").
      In response, FPL points to the absence of "Net En-
ergy" or "Renewable Energy" anywhere in the liquidated                This interpretation does not conflict with, or render
damages provisions and highlights several clauses con-           meaningless, any other provision of the contracts. To the
sistent with an exclusive focus on RECs. First, section          contrary, other provisions recognize that RECs often
4.04(d), quoted above, contains a mechanism for FPL to           receive differential treatment. Section 3.03(b) provides
deliver RECs from another source if FPL cannot produce           that if TXUPM cannot take delivery of electricity, FPL
the RECs at its own facilities. That provision deals only        may sell electricity to the Connecting Entity, but must
with RECs, and not electricity. Second, the Deficiency           then sell the REC so produced to TXUPM. Section
Rate is tied to the PUC's substantive rules on REC penal-        4.04(d) allows FPL to cover REC deficiencies with RECs
ties. 24 Tex. Reg. 9142 (1999), adopted 25 Tex. Reg. 82          from other sources. These distinctions make sense be-
(2000), amended by 32 Tex. Reg. 5165 (2007), proposed            cause an electricity provider may readily obtain RECs on
32 Tex. Reg. 487 (former 16 TEX. ADMIN. CODE §                   [**24] the open market, whereas it is more difficult for
25.173(o)) (Pub. Util. Comm'n of Tex.). The PUC rules            providers to arrange for substitute electricity to meet their
impose penalties for failure to retire sufficient RECs, not      commitments.
for failure to deliver electricity. Id. Third, the Indian Mesa
                                                                      Support for differential treatment of RECs also flows
contract more clearly limits the liquidated damages pro-
                                                                 from the regulatory scheme incorporated by reference into
vision to RECs by eliminating the entire provision in the
                                                                 the contracts. Section 4.04(f) incorporates a Deficiency
event that RECs cease to exist. For the reasons below, we
                                                                 Rate from the PUC rules, then found in Texas Adminis-
hold that the liquidated damages clauses [**22] apply
                                                                 trative Code Title 16, section 25.173. 24 Tex. Reg. 9142
only to RECs.
                                                                 (1999), adopted 25 Tex. Reg. 82 (2000), amended by 32
     At the outset, we note that sophisticated parties have      Tex. Reg. 5165 (2007), proposed 32 Tex. Reg. 487
broad latitude in defining the terms of their business re-       (former 16 TEX. ADMIN. CODE § 25.173(o)) (Pub. Util.
lationship. See Forest Oil Corp. v. McAllen, 268 S.W.3d          Comm'n of Tex.). Section 25.173, at the time of con-
51, 58 (Tex. 2008) (articulating the principle that Texas        tracting, assignment, and breach, contained a mechanism
courts should uphold contracts "negotiated at arm's length       for excusing REC deficiencies due to events "beyond
by 'knowledgeable and sophisticated business players'            [the] reasonable control of the provider." Id. Such events
represented by 'highly competent and able legal counsel'"        included lack of transmission capacity or curtailment
(quoting Schlumberger Tech. Corp. v. Swanson, 959                orders from ERCOT. See id. (former 16 TEX. ADMIN.
S.W.2d 171, 180 (Tex. 1997)). We must construe contracts         CODE § 25.173(o)(4), (5)). The contracts incorporate this
by the language contained in the document, with a mind to        mechanism through section 4.05, which reduces the An-
Texas's strong public policy favoring preservation of the        nual Quantity to the extent that Administrative Code
freedom to contract. El Paso Field Servs., L.P. v. MasTec        section 25.173 excused penalties for REC deficiencies. In
N. Am., Inc., 389 S.W.3d 802, 811-12 (Tex. 2012); see also       sum, the contracts reduce FPL's REC obligations when
Cross Timbers Oil Co. v. Exxon Corp., 22 S.W.3d 24, 26           the PUC provides an excuse for the deficiency.
(Tex. App.--Amarillo 2000, no pet.) ("In short, the parties
                                                                      The [**25] very inclusion of the Deficiency Rate,
strike the deal they choose to strike and, thus, voluntarily
                                                                 which reflects the actual penalty TXUPM would have to
bind themselves in the manner they choose."). Therefore,
                                                                 pay for a REC deficiency, suggests the liquidated dam-
the lack of reference to electricity or energy in the liqui-
                                                                 ages clause was intended to compensate only for REC
dated damages provisions is critical.
                                                                 deficiencies. To underscore this point, we note that when
                                                                 the parties entered the contracts, TXU Electric was sub-
                                                                                                                        Page 7
                                        426 S.W.3d 59, *; 2014 Tex. LEXIS 272, **;
                                                   57 Tex. Sup. J. 325

ject to regulatory penalties for REC deficiencies. See id.       REC. We hold that the liquidated damages provisions
(former 16 TEX. ADMIN. CODE § 25.173(c)(1)). If FPL              apply only to REC deficiencies.
failed to deliver both electricity and RECs, and TXU
Electric consequently could not meet its REC require-            III. Enforceability of Liquidated Damages
ments, the PUC would assess a penalty against TXU
                                                                      We next consider the enforceability of the liquidated
Electric. The liquidated damages clause would yield $50
                                                                 damages provisions when applied only to RECs. FPL
per REC, or the equivalent of the regulatory penalty. This
                                                                 contends that the provisions impose an unenforceable
would compensate TXU Electric for the undelivered
                                                                 penalty when applied to compensate only for REC defi-
REC, but what about the undelivered electricity? Liqui-
                                                                 ciencies. Although TXUPM argues primarily that the
dated damages would provide no compensation to TXU
                                                                 provisions reasonably forecast damages for electricity and
Electric for FPL's failure to deliver electricity. This belies
                                                                 RECs--a position foreclosed [**28] by our holding in
TXUPM's assertion that the provisions were intended to
                                                                 this case--TXUPM's arguments regarding the difficulty of
compensate for both RECs and electricity. We conclude
                                                                 estimation of REC-based damages and the reasonableness
that the liquidated damages clauses compensate for REC
                                                                 of the forecast of damages still resonate. Because the
deficiencies and leave common law remedies available
                                                                 liquidated damages provisions fail our test for enforcea-
for electricity deficiencies.
                                                                 bility, however, we hold the provisions unenforceable.
      [*69] The Indian Mesa contract further solidifies
                                                                      The basic principle underlying contract damages is
[**26] our interpretation. Section 10.02 of the Indian
                                                                 compensation for losses sustained and no more; thus, we
Mesa contract provides that "if RECs cease to exist, then
                                                                 will not enforce punitive contractual damages provisions.
Section 4.03 and Section 4.04 of this Agreement will be
                                                                 See Stewart v. Basey, 150 Tex. 666, 245 S.W.2d 484, 486
automatically deleted." This section preserves the
                                                                 (Tex. 1952). In Phillips v. Phillips, we acknowledged this
agreement as an electricity-only contract if RECs disap-
                                                                 principle and restated the two indispensable findings a
pear. Because the liquidated damages provision becomes
                                                                 court must make to enforce contractual damages provi-
a nullity without RECs, we must conclude that the provi-
                                                                 sions: (1) "the harm caused by the breach is incapable or
sion is intended to compensate only for REC deficiencies.
                                                                 difficult of estimation," and (2) "the amount of liquidated
To do otherwise would render the provision meaningless,
                                                                 damages called for is a reasonable forecast of just com-
and this we cannot do. See Coker, 650 S.W.2d at 393.
                                                                 pensation." 820 S.W.2d 785, 788 (Tex. 1991) (citing Rio
     Limiting the liquidated damages provisions to their         Grande Valley Sugar Growers, Inc. v. Campesi, 592
plain language also has the benefit of advancing stability       S.W.2d 340, 342 n.2 (Tex. 1979)). We evaluate both
in the renewable energy marketplace, including the vital         prongs of [*70] this test from the perspective of the
role of RECs. Under the legislative scheme, RECs and             parties at the time of contracting.2 In Phillips we recog-
energy are "unbundled." TEX. UTIL. CODE § 39.904(b);             nized that, under this test, a liquidated damages provision
ERCOT Nodal Protocols § 14.3.2(1) (January 1, 2013).             may be unreasonable "because [**29] the actual dam-
Electric providers may either generate their own renewa-         ages incurred were much less than the amount contracted
ble energy or purchase RECs on the open market. 16 TEX.          for." 820 S.W.2d at 788. A defendant making this asser-
ADMIN. CODE § 25.173(d), (l). Though FPL and TXUPM               tion may be required to prove the amount of actual dam-
chose to contract for both in this case, we should not allow     ages before a court can classify such a provision as an
that fact to cloud our analysis. As amici curiae REC             unenforceable penalty. Id. While the question may require
stakeholders have pointed out, a contrary holding could          a court to resolve certain factual issues first, ultimately the
[**27] impede the REC market, which facilitates re-              enforceability of a liquidated damages provision presents
newable energy development by allowing prospective               a question of law for the court to decide. Id.
electric producers to secure a guaranteed long-term rev-
enue stream. Yet if, as TXUPM urges, "REC" does not                      2 Polimera v. Chemtex Envtl. Lab., Inc., No.
mean only REC, substantial uncertainty may arise re-                     09-10-00361-CV, 2011 Tex. App. LEXIS 3886, at
garding the desirability of such investments, the meaning                *12 (Tex. App.--Beaumont May 19, 2011, no pet.)
of existing contracts, the negotiation of future contracts,              (mem. op.); Baker v. Int'l Record Syndicate, Inc.,
and the ease of regulatory compliance. We are loath to                   812 S.W.2d 53, 55 (Tex. App.--Dallas 1991, no
interfere with a functioning market when the language of                 writ); Mayfield v. Hicks, 575 S.W.2d 571, 576
the contracts does not so require.                                       (Tex. Civ. App.--Dallas 1978, writ ref'd n.r.e.);
                                                                         Muller v. Light, 538 S.W.2d 487, 488 (Tex. Civ.
    The plain language of the liquidated damages provi-
                                                                         App.--Austin 1976, writ ref'd n.r.e.); Schepps v.
sions, the differential treatment of RECs and electricity in
                                                                         Am. Dist. Tele. Co. of Tex., 286 S.W.2d 684, 690
the contracts, and the separate provisions of the Indian
                                                                         (Tex. Civ. App.--Dallas 1955, no writ); Zucht v.
Mesa contract all support a limited interpretation of a
                                                                         Stewart Title Guar. Co., 207 S.W.2d 414, 418
                                                                                                                   Page 8
                                      426 S.W.3d 59, *; 2014 Tex. LEXIS 272, **;
                                                 57 Tex. Sup. J. 325

       (Tex. Civ. App.--San Antonio 1947, writ dism'd);       plication only if TXUPM were actually assessed a pen-
       accord RESTATEMENT (SECOND) OF CONTRACTS §             alty.
       356 cmt. b (1981) (identifying the time of making
                                                                   We view the reasonableness of the forecast from the
       a contract as the moment to evaluate [**30] the
                                                              time of contracting. E.g., Mayfield v. Hicks, 575 S.W.2d
       reasonableness of a liquidated damages clause).
                                                              571, 576 (Tex. Civ. App.--Dallas 1978, writ ref'd n.r.e.);
                                                              accord RESTATEMENT (SECOND) OF CONTRACTS § 356 cmt.
A. Difficulty of Estimating Damages
                                                              b (1981) (identifying the time of making a contract as the
     We first consider the difficulty of estimating damages   moment to measure the reasonableness of anticipated
at the time of contracting. TXUPM emphasizes the un-          loss). We are not persuaded, as FPL urges, to attach a
certainty of the market for RECs. FPL counters that all       "penalty" label merely because the liquidated damages
parties knew a REC marketplace would soon exist and           clause derives from a "penalty" scheme; that does not,
provide transparent pricing by the time the obligations       standing alone, make it a penalty. Stewart, 245 S.W.2d at
under the contracts became due. We agree with TXUPM           486 ("[T]he courts will not be bound by the language of
that damages for RECs were difficult to estimate at the       the parties.").
time of contracting.
                                                                   Although the initial per-REC deficiency rate is $50,
     The implementing legislation for the REC scheme          the contracts also provide:
passed in 1999, Act of May 27, 1999, 76th Leg., R.S., ch.
405, § 39, sec. 39.904, 1999 Tex. Gen. Laws 2543,                        To the extent that the [PUC] determines
2598-99, but at the time of contract formation in 2000, the          the annual average market value of RECs
market for RECs did not yet exist. The nature of FPL's               applicable to [TXUPM] for a year, then the
obligation compounded the difficulty. The contracts re-              Deficiency Rate for that year will be the
quired FPL to deliver an annual quantity of RECs.                    lesser of (i) the $50 per MWh (as it may be
TXUPM could not identify the specific time, and thus the             later amended), and (ii) twice the annual
spot price in the REC market, in order to calculate the              average market value of RECs applicable
damage for any specific REC deficiency. Even if the                  to [TXUPM] as determined by the [PUC].
contracts anticipate a healthy marketplace for RECs, the
uncertain success of a novel legislative scheme surely
poses a challenge to predicting damages. Indeed, as ex-       The contracts thus anticipate that the amount [**33] of
plained previously, [**31] the Indian Mesa contract           damages may be tied to market value, rather than an ar-
foresaw the potential disappearance of the REC scheme         bitrary number. Further, section 4.05 of the contracts
and provided for continuation of the contract in the event    anticipates that the PUC substantive rules will affect the
of the scheme's demise. The uncertain marketplace for         REC requirements:
RECs suffices to meet the "difficulty of estimation" prong               The exception . . . is that the Annual
of the contractual damages test.                                      Quantity for a year is decreased to the ex-
                                                                      tent that [TXUPM] is excused from paying
B. Reasonableness of Damage Forecast                                  a penalty by reason of any event under
                                                                      Section 25.173(o)(4) and (5) of the [PUC]
     We next turn to the second prong, the reasonableness
                                                                      Substantive Rules that adversely affected
of the forecast of damages. FPL argues that the liquidated
                                                                      production of RECs by the Renewable
damages provisions, which derive directly from the reg-
                                                                      Resource Facility in that year.
ulatory penalty scheme, impose the maximum penalty in
all situations. FPL points to an ameliorative provision in
the penalty regulations that excuses REC deficiencies due
                                                              As discussed above, former PUC rules, then found in Title
to lack of transmission capacity or the actions of a gov-
                                                              16, Section 25.173 of the Texas Administrative Code,
ernmental authority, such as an ERCOT curtailment. See
                                                              excused REC deficiencies due to lack of transmission
24 Tex. Reg. 9142 (1999), adopted 25 Tex. Reg. 82
                                                              capacity or curtailment orders. 24 Tex. Reg. 9142 (1999),
(2000), amended by 32 Tex. Reg. 5165 (2007), proposed
                                                              adopted 25 Tex. Reg. 82 (2000), amended by 32 Tex. Reg.
32 Tex. Reg. 487 (former 16 TEX. ADMIN. CODE §
                                                              5165 (2007), proposed 32 Tex. Reg. 487 (former 16 TEX.
25.173(o)) (Pub. Util. Comm'n of Tex.). Many of
                                                              ADMIN. CODE§ 25.173(o)) (Pub. Util. Comm'n of Tex.).
TXUPM's counter-arguments are inextricably tied to
                                                              The contracts therefore contemplate that REC obligations
contractual damages provisions [*71] based on RECs
                                                              of the parties, and the resulting damages, are a product of
and electricity, and we need not acknowledge those ar-
                                                              and intertwined with the regulatory scheme. The liqui-
guments here. TXUPM does assert, however, that the
                                                              dated damages provisions attempt to integrate these ame-
liquidated damages provisions were [**32] not intended
as indemnity clauses and therefore are not limited to ap-
                                                                                                                  Page 9
                                       426 S.W.3d 59, *; 2014 Tex. LEXIS 272, **;
                                                  57 Tex. Sup. J. 325

liorative processes, and thus, on their face, reasonably       damages equal only $6,160,000. To reach damages of $29
forecast damages.                                              million on a 220,000 REC deficiency would require an
                                                               effective deficiency rate of $132 per REC. The disparity
     Yet the facts of [**34] this case demonstrate the
                                                               grows if we consider that TXUPM also avoided the con-
chasm between the liquidated damages provisions as
                                                               tract price of $24 per MWh of Renewable Energy--which
written and the result of the provisions under the court of
                                                               includes a REC and a MWh of electricity. Although only a
appeals' judgment. First, the number of deficient RECs
                                                               portion of the $24 is attributable to the REC not pur-
varies significantly between TXUPM's assertion and what
                                                               chased, it nonetheless would further diminish TXUPM's
the regulatory scheme would indicate. FPL had a collec-
                                                               actual damages. In Phillips, we recognized that a liqui-
tive deficiency of 580,000 RECs, yet 62% (or about
                                                               dated damages provision may be unreasonable in light of
360,000) were not produced because of transmission
                                                               actual damages. 820 S.W.2d at 788. The burden of prov-
congestion and associated ERCOT curtailment orders,
                                                               ing unreasonableness falls to FPL. See id. The court of
which are excused by the PUC rules. Id. TXU Electric
                                                               appeals held that FPL failed to meet this burden, yet the
was subject to PUC penalties for REC deficiencies at the
                                                               court's evaluation was based on evidence of damages for
time of contract formation. Id. (former 16 TEX. ADMIN.
                                                               electricity and RECs. 328 S.W.3d at 589-90. Our holding
CODE § 25.173(c)(1)). Upon assignment to TXUPM, a
                                                               on the scope of the liquidated damages clauses limits our
power marketer, no party was subject to PUC penalties.
                                                               consideration to damages for REC deficiencies. The evi-
See 16 TEX. ADMIN. CODE § 25.5(83) (defining power
                                                               dence reviewed in this opinion demonstrates [**37] that
marketer as an wholesaler seller of electricity who does
                                                               FPL has met its burden.
not own generation, transmission, or distribution facilities
in Texas, which would exclude TXUPM from REC pen-                   Phillips did not create a broad power to retroactively
alties). This change in relationship did [*72] not un-         invalidate liquidated damages provisions that appear
dermine each contract, but it fundamentally changed the        reasonable as written. See 820 S.W.2d at 788. Nor do we
basis for the liquidated damages provisions. Those pro-        create such a power here. But when there is an un-
visions presuppose that TXU Electric or its successors         bridgeable discrepancy between liquidated damages pro-
would respond to potential penalties for REC [**35]            visions as written and the unfortunate reality in applica-
deficiencies. When those successors have no REC penalty        tion, we cannot enforce such provisions. The forecast of
obligations, they may, as occurred here, fail to secure a      damages was flawed by its reliance on events that did not
regulatory excuse for deficiencies that would obviate any      and perhaps cannot occur--a PUC determination of the
need for the liquidated damages provisions. If the PUC         market value of RECs and a failure to secure a regulatory
could assess a penalty against TXUPM, the penalty would        excuse for curtailment-based REC deficiencies. When the
be based on the 220,000 RECs attributable to lack of           liquidated damages provisions operate with no rational
wind, not congestion.                                          relationship to actual damages, thus rendering the provi-
                                                               sions unreasonable in light of actual damages, they are
     Second, the Deficiency Rate calculation failed to tie
                                                               unenforceable. See id. Because the liquidated damages
the damages to market value as the contracts contemplate.
                                                               provisions operate as a penalty, we hold the provisions
Section 4.04(f) of the contracts allows for a Deficiency
                                                               unenforceable.
Rate of either $50 or twice the annual average market
value of RECs "[t]o the extent that the [PUC] determines
                                                               IV. Conclusion
the annual average market value." The PUC expressly
declined TXUPM's request for such a determination. The              We hold that the contracts do not require TXUPM to
actual market value of a REC during the period in ques-        provide transmission capacity [*73] to FPL, and thus
tion ranged from $4 to $14. The fortuity of a PUC de-          TXUPM did not breach the contracts. FPL may owe
termination thus utterly controls the damages, irrespective    damages for its breach, but the liquidated damages pro-
of the actual market value. For instance, the appropriate      visions in the contracts are unenforceable as a penalty.
amount of damages should fall in the range of $8 to $28        Accordingly, [**38] we reverse in part the judgment of
(twice the average market value), depending on what the        the court of appeals and remand the case to the court of
PUC would have determined as the actual market value of        appeals to determine damages consistent with this opin-
a REC in each year.                                            ion.
     In combination, this creates an unacceptable [**36]           Paul W. Green
disparity. The court of appeals assessed damages at $29
                                                                   Justice
million. If we use the REC deficiency of 220,000 (as
reduced under PUC rules), and the reduced Deficiency               OPINION DELIVERED: March 21, 2013
Rate of $28 (the upper bound of the possible range), actual
                                                                                                                  Page 1




               GARDEN RIDGE, L.P., Appellant v. ADVANCE INTERNATIONAL, INC., AND
                               HERBERT A. FEINBERG, Appellees

                                               NO. 14-11-00624-CV

                  COURT OF APPEALS OF TEXAS, FOURTEENTH DISTRICT, HOUSTON

              403 S.W.3d 432; 2013 Tex. App. LEXIS 4497; 80 U.C.C. Rep. Serv. 2d (Callaghan) 548


                                            April 9, 2013, Opinion Filed

SUBSEQUENT HISTORY: Petition for review denied
                                                                 On appeal, Garden Ridge argues that the trial court
by Garden Ridge, L.P. v. Advance Int'l, Inc., 2014 Tex.
                                                            committed reversible error when it (1) refused to submit a
LEXIS 876 (Tex., Oct. 3, 2014)
                                                            question on prior material breach, (2) improperly in-
                                                            structed the jury on damages, and (3) commented on the
PRIOR HISTORY: [**1]
                                                            weight of the evidence in its instructions on breach of
  On Appeal from the 164th District Court, Harris
                                                            contract. We conclude that the chargeback provisions
County, Texas. Trial Court Cause No. 2009-80706.
                                                            [**2] as applied in this case are unenforceable as a matter
                                                            of law as penalties, and we overrule Garden Ridge's jury
                                                            charge issues. We therefore affirm the trial court's judg-
COUNSEL: For APPELLANT: Leif Alexander Olson,
                                                            ment.
Jared Gregory Leblanc, HOUSTON, TX.
                                                            I. FACTUAL AND PROCEDURAL BACKGROUND
For APPELLEE: Constance H. Pfeiffer, Jeffrey Todd
Bentch, HOUSTON, TX.                                             Garden Ridge is a Houston-based chain of
                                                            housewares and home décor stores. Advance Interna-
JUDGES: Panel consists of Justices Frost, Christopher,      tional, a company owned by Feinberg, is one of Garden
and Jamison. (Frost, J., concurring).                       Ridge's vendors. In 2009, Advance sent Garden Ridge
                                                            quote sheets for lighted inflatable holiday snowmen,
OPINION BY: Tracy Christopher                               which included a color photo of each item and described
                                                            its cost, weight, dimensions, and packaging. The two
OPINION                                                     snowmen on the quote sheets each wore a scarf, held a
                                                            broom that stated "Merry Christmas" on it, and waved;
      [*434] Appellant Garden Ridge, L.P. (Garden
                                                            one stood eight feet tall, and the other stood nine feet tall.
Ridge) sued Advance International, Inc., and Herbert A.
                                                            We refer to this snowman as "waving snowman." Ad-
Feinberg (collectively, Advance) for breach of contract
                                                            vance then sent two sample snowmen1 to Garden Ridge;
and a declaratory judgment that Garden Ridge had
                                                            one of the samples did not match its quote sheet. The
[*435] complied with its contracts with Advance. Ad-
                                                            sample eight-foot snowman wore a Santa-type hat and
vance counterclaimed for breach of contract. The jury
                                                            held a "Merry Christmas" banner. We refer to this
found in favor of Advance. Although Garden Ridge ac-
                                                            snowman as "banner snowman."
cepted two shipments of inflatable snowmen from Ad-
vance, Garden Ridge refused to pay anything for either
                                                                    1   See App. A.
shipment, claiming that one shipment was nonconform-
ing. Garden Ridge based its refusal to pay on chargeback        Garden Ridge sent Advance two purchase orders, one
provisions outlined in the parties' contracts. Advance      for approximately 950 nine-foot waving snowmen (PO
argued that the chargeback provisions are unenforceable     '721), and the other for approximately 3,500 eight-foot
penalties.                                                  waving [**3] snowmen (PO '743), based on the quote
                                                            sheets. Garden Ridge planned to sell each nine-foot
                                                                                                                 Page 2
                                  403 S.W.3d 432, *; 2013 Tex. App. LEXIS 4497, **;
                                        80 U.C.C. Rep. Serv. 2d (Callaghan) 548

waving snowman for $59.99, and each eight-foot waving         snowmen it received from Advance, and further testified
snowman for $39.00. Garden Ridge planned to mark              that Garden Ridge made all the money it would have
down the eight-foot waving snowmen to $20.00 each             made if the snowmen were delivered exactly as ordered.
during its one-day Thanksgiving Shop-a-Thon sale, and it      One of Garden Ridge's buyers, Sheria Cole, admitted she
prepared and had printed an advertising circular promot-      did not know of any dollar amount that Garden Ridge was
ing this special price and picturing the eight-foot waving    harmed by the snowmen shipment and that Garden Ridge
snowman.                                                      had less-than-zero receipt cost for the snowmen. Cole also
                                                              testified that she was unaware of anyone at Garden Ridge
    Five days before Thanksgiving, Garden Ridge real-
                                                              having done any actual-harm calculations from the un-
ized that the eight-foot snowmen that Advance sent were
                                                              authorized substitution of the eight-foot banner snowmen
not waving snowmen, but instead were banner snowmen.
                                                              or any calculations to determine whether Garden Ridge's
The nine-foot snowmen that Advance sent were waving
                                                              chargebacks were reasonably proportional to any actual
snowmen. Garden Ridge decided to honor the $20.00
                                                              harm it suffered. Garden Ridge acknowledges that it did
Shop-a-Thon price on the nine-foot waving snowmen.
                                                              not argue any amount of actual damages other than zero
There were no customer complaints, and both the
                                                              and that the record reflects no actual [**6] damages
eight-foot banner snowmen and the nine-foot waving
                                                              resulting from Advance's noncompliance violations.
snowmen sold well.
                                                                    The trial court granted Advance's motion for directed
     The parties' contracts consist of the purchase orders,
                                                              verdict on Garden Ridge's breach-of-contract claim be-
the vendor cover letter, and the vendor compliance man-
                                                              cause of lack of evidence on damages resulting from
ual. Based on liquidated-damages provisions outlined in
                                                              Advance's noncompliance violations, but did not grant
the vendor compliance manual, Garden Ridge assessed
                                                              Advance's motion for directed verdict on Garden Ridge's
chargebacks against Advance for its alleged noncompli-
                                                              declaratory-judgment claim or Advance's motion for
ance violations. For Advance's "purchase order" viola-
                                                              directed verdict seeking to have Garden Ridge's charge-
tion--by sending the eight-foot [**4] banner snowman
                                                              back provisions declared legally unenforceable as penal-
instead of the waving snowman, Garden Ridge charged
                                                              ties.
back to Advance the entire merchandise cost plus the cost
of freight on PO '743 as a "unauthorized substitution"             The trial court submitted to the jury questions on
chargeback, which totaled [*436] $49,176.00. In addi-         Garden Ridge's declaratory-judgment claim and on Ad-
tion to paying nothing for the eight-foot banner snowmen,     vance's breach-of-contract claim, but refused to submit a
Garden Ridge paid nothing for the nine-foot waving            question on Garden Ridge's prior-material-breach de-
snowman despite the fact that those snowmen complied          fense. On Garden Ridge's declaratory-judgment claim, the
with PO '721. Garden Ridge charged back to Advance the        jury found that Garden Ridge did not comply with the
entire merchandise cost plus the cost of freight on the       terms of the three listed agreements (to purchase the
nine-foot waving snowmen as a "merchant initiated"            eight-foot snowmen, to purchase the nine-foot snowmen,
chargeback, which totaled $29,178.00. Additionally, from      and to purchase other items listed in the "summary of
September through November 2009, Garden Ridge as-             chargebacks" exhibit). On Advance's breach-of-contract
sessed another $13,241.84 in noncompliance chargebacks        claim, the jury found that Garden Ridge failed to comply
to Advance on other merchandise for "ticketing/packing"       with these agreements by failing to pay for the eight-foot
violations involving not marking cartons sequentially or      snowmen, the nine-foot snowmen, and other items listed
otherwise mislabeling them, and for "purchase order"          [**7] in the chargeback exhibit. The jury, in separate
violations involving short or incomplete orders.              findings, awarded Advance damages in the amount of
                                                              $49,176.00 for the eight-foot snowmen, $29,781.00 for
     Advance demanded payment for its snowmen and
                                                              the nine-foot snowmen, and $500.00 for other items listed
other items and staged protests at Garden Ridge's head-
                                                              in the chargeback exhibit. The trial [*437] court ren-
quarters. Thereafter, Garden Ridge sued Advance for
                                                              dered final judgment on the jury's verdict and on a stipu-
breach of contract and a declaratory judgment that Garden
                                                              lation for legal fees.
Ridge had complied with the contracts. Advance coun-
terclaimed for breach [**5] of contract and asserted that          Garden Ridge appeals the trial court's final judgment,
Garden Ridge's claims were barred because the charge-         arguing in three issues that the trial court committed re-
back provisions are unenforceable as penalties. Garden        versible error in its jury charge. First, Garden Ridge
Ridge defended against Advance's counterclaim by as-          contends that the trial court erred in refusing to submit a
serting that Advance breached the contracts first.            jury question on Garden Ridge's affirmative defense of
                                                              prior material breach. Second, Garden Ridge argues that
    At trial, Garden Ridge's divisional merchandise
                                                              the trial court erred by improperly instructing the jury in
manager/vice president Linda Troy admitted that Garden
                                                              the damages question on the reasonableness of Garden
Ridge made approximately $113,000 in profit on the
                                                              Ridge's chargebacks. Third, Garden Ridge complains that
                                                                                                                   Page 3
                                  403 S.W.3d 432, *; 2013 Tex. App. LEXIS 4497, **;
                                        80 U.C.C. Rep. Serv. 2d (Callaghan) 548

the trial court's inclusion of instructions on acceptance             pute that it accepted the snowmen, and there is no
and contract price in the breach-of-contract question were            evidence that its actions fall within section 2.717.
improper comments on the weight of the evidence.                      3 Advance further contends that prior material
                                                                      breach never can be asserted in any UCC case that
II. ANALYSIS                                                          concerns nonconforming goods. See Glenn
                                                                      Thurman, Inc. v. Moore Constr., Inc., 942 S.W.2d
A. Refusal to submit prior-material-breach question                   768, 771-72 (Tex. App.--Tyler 1997, no writ).
                                                                      However, we need not decide this issue to finally
     Garden Ridge concedes that it is not entitled to a jury
                                                                      dispose of this appeal. See TEX. R. APP. P. 47.1.
question on prior material breach if this court determines
that the chargeback [**8] provisions are unenforceable
                                                               a. Determining whether a liquidated-damages provi-
as penalties. Thus, we first proceed to address the legal
                                                               sion constitutes a penalty
question of whether the chargeback provisions are en-
forceable.                                                          Whether a contractual provision is an enforceable
                                                               liquidated-damages [**10] provision [*438] or an
1. Do the chargeback provisions at issue assess liqui-         unenforceable penalty is a question of law for courts to
dated damages or penalties?                                    decide. Phillips v. Phillips, 820 S.W.2d 785, 788 (Tex.
                                                               1991) (citation omitted). The party asserting that a liqui-
     The parties agree that this case is governed by the
                                                               dated-damages clause is a penalty provision bears the
Uniform Commercial Code, as adopted by Texas, which
                                                               burden of pleading and proof. See id. at 789 (citing TEX. R.
applies to transactions involving goods. TEX. BUS. & COM.
                                                               CIV. P. 94).
CODE ANN. § 2.102 (West 2009).2 The parties agree that
section 2.718(a) of the UCC, on liquidation of damages,             "Liquidated damages" ordinarily refers to an ac-
governs the enforceability of the chargeback provisions in     ceptable measure of damages that parties stipulate in
this case. Section 2.718(a) provides:                          advance will be assessed in the event of a contract breach.
                                                               Flores v. Millennium Interests, Ltd., 185 S.W.3d 427, 431
          (a) Damages for breach by either party               (Tex. 2005) (citing Valence Operating Co. v. Dorsett, 164
       may be liquidated in the agreement but                  S.W.3d 656, 664 (Tex. 2005)). "The common law and the
       only at an amount which is reasonable in                Uniform Commercial Code have long recognized a dis-
       the light of the anticipated or actual harm             tinction between liquidated damages and penalties." Id.
       caused by the breach, the difficulties of               (citing TEX. BUS. & COM. CODE § 2.718(a), and Stewart v.
       proof of loss, and the inconvenience or                 Basey, 150 Tex. 666, 245 S.W.2d 484, 485-86 (1952)).
       non-feasibility of otherwise obtaining an               Section 2.718(a) codified the common-law distinction
       adequate remedy. A term fixing unrea-                   between liquidated damages and penalties as part of
       sonably large liquidated damages is void                Texas' adoption of the UCC's article on sales. Id. at 432.
       as a penalty.
                                                                    In Phillips v. Phillips, the Texas Supreme Court re-
                                                               stated the common-law test for determining whether to
                                                               enforce a liquidated-damages provision. 820 S.W.2d at
Id. § 2.718(a). The parties also agree that if the charge-
                                                               788. "In order to [**11] enforce a liquidated damages
back provisions governing Advance's noncompliance
                                                               clause, the court must find: (1) that the harm caused by the
violations at issue are unenforceable as penalties, Garden
                                                               breach is incapable or difficult of estimation, and (2) that
Ridge no longer has any basis to argue that Advance
                                                               the amount of liquidated damages called for is a reason-
committed [**9] any prior material breach.3 But what
                                                               able forecast of just compensation." Id. (citing Rio
the parties do not agree on is the proper analysis by which
                                                               Grande Valley Sugar Growers, Inc. v. Campesi, 592
courts determine the legal question of whether a liqui-
                                                               S.W.2d 340, 342 n.2 (Tex. 1979), and comparing to TEX.
dated-damages provision is unenforceable as a penalty.
                                                               BUS. & COM. CODE § 2.718(a)). The Phillips court ex-
                                                               plained that one way a party can "show that a liquidated
       2 Under the UCC, a buyer can reject, accept, or
                                                               damages provision is unreasonable" is by showing that
       partially accept nonconforming goods. TEX. BUS.
                                                               "the actual damages incurred were much less than the
       & COM. CODE ANN. § 2.601 (West 2009). The
                                                               amount contracted for," which requires the party "to prove
       buyer must pay at the contract rate for goods it
                                                               what those actual damages were." Id. Thus, in such a case,
       accepts. Id. § 2.607(a). A buyer who notifies the
                                                               "factual issues must be resolved before the legal question
       seller of his intention to do so may deduct dam-
                                                               can be decided." Id. Phillips, however, involved no fact
       ages resulting from any breach of the contract
                                                               issues because the contractual provision at issue "by
       from any part of the price still due under that
                                                               which one party agrees to pay the other some multiple of
       contract. Id. § 2.717. Garden Ridge does not dis-
                                                               actual damages for breach of the agreement does not meet
                                                                                                                     Page 4
                                   403 S.W.3d 432, *; 2013 Tex. App. LEXIS 4497, **;
                                         80 U.C.C. Rep. Serv. 2d (Callaghan) 548

either part of the legal test for an enforceable liquidated     Garden Ridge's CFO, Bill Uhrig, testified that the
damages provision." Id. at 789. The Phillips court there-       chargeback schedule was created because actual damages
fore declared the provision at issue--which called for          from noncompliance violations are difficult to calculate,
"liquidated damages ten times the amount [the limited           and that the schedule was based on computations and
[**12] partner] loses as a result of" a breach of               estimations by Garden Ridge's executive and purchasing
trust--unenforceable as a penalty on its face. Id. at 787,      staff.
789.
                                                                     Garden Ridge primarily relies on two cases from the
     The common-law test as described in Phillips closely       Dallas Court of Appeals. See GPA Holding, Inc. v. Baylor
tracks the language of section 2.718(a) of the UCC. The         Health Care Sys., 344 S.W.3d 467 (Tex. App.--Dallas
code allows damages to be liquidated "only at an amount         2011, no pet.); Baker v. Int'l Record Syndicate, Inc., 812
which is reasonable in the light of the anticipated or actual   S.W.2d 53 (Tex. App.--Dallas 1991, no writ). Neither of
harm caused by the breach, the difficulties of proof of         these cases, however, supports Garden Ridge's position
loss, and the inconvenience or non-feasibility of otherwise     that the test is to be conducted solely on an ex ante basis.
obtaining an adequate remedy." TEX. BUS. & COM. CODE
                                                                     In GPA Holding, the appellate court found that GPA,
ANN. § 2.718(a). It further states: "A term fixing unrea-
                                                                a third-party administrator for self-funded health plans,
sonably large liquidated damages is void as a penalty." Id.
                                                                did not meet its burden to establish that a "clause requiring
The first clause of section 2.718(a)--"reasonable in the
                                                                payment of normal billed charges [instead of the original
light of the anticipated or actual harm caused by the
                                                                provider discounted rates] after 45 days" in GPA's hos-
breach"--correlates to "reasonable forecast of just com-
                                                                pital services agreement with Baylor was an unenforcea-
pensation," from the common-law test. See id.; Phillips,
                                                                ble penalty. 344 S.W.3d at 476. GPA did not prove that
820 S.W.2d at 788. The second and third clauses of sec-
                                                                "the harm [**15] from late payment is [not] difficult to
tion 2.718(a)--"the difficulties of proof of loss, and the
                                                                estimate, or that the normal billed charges were an un-
inconvenience or non-feasibility of otherwise obtaining
                                                                reasonable forecast of the loss actually sustained." Id.
an adequate remedy"--correlate to "that the harm caused
                                                                (emphasis added). Nothing in the GPA Holding court's
by the breach is incapable or difficult of estimation," from
                                                                analysis precludes a consideration of reasonableness
the common-law test. See TEX. BUS. & COM. CODE ANN. §
                                                                based on actual damages; and in fact, the court assessed
2.718(a); Phillips, 820 S.W.2d at 788. [**13] Further,
                                                                Baylor's actual damages, i.e., whether the normal billed
the sentence that "[a] term fixing unreasonably large liq-
                                                                charges were a "reasonable amount for the health care
uidated damages is [*439] void as a penalty" under
                                                                services and supplies provided in the charges at issue in
section 2.718(a) correlates to "a liquidated damages pro-
                                                                this case." Id.
vision is unreasonable because the actual damages in-
curred were much less than the amount contracted for."               In Baker, while the appellate court noted that evi-
See TEX. BUS. & COM. CODE ANN. § 2.718(a); Phillips,            dence related to the difficulty of estimation and the rea-
820 S.W.2d at 788. We therefore conclude that the               sonableness of the damages forecast should be viewed as
common-law test as described in Phillips and the UCC            of the time the contract was executed, or the "anticipated
test as outlined in 2.718(a) reflect the same essential         harm" test, the court also expressly stated: "Additionally,
factors and the same type of reasonableness test. Thus,         liquidated damages must not be disproportionate to actual
common-law case law continues to inform our analysis            damages. If the liquidated damages are shown to be dis-
here.                                                           proportionate to the actual damages, then the liquidated
                                                                damages can be declared a penalty . . . ." 812 S.W.2d at 55.
b. Do actual damages matter                                     The Baker court called this the "actual harm" test: "The
                                                                party asserting this defense is required to prove the
     Garden Ridge argues that the test is conducted en-
                                                                amount of the other party's actual damages, if any, to
tirely on an ex ante basis. That is, if, at the time the con-
                                                                show that the actual loss [**16] was not an approxima-
tract is formed, actual damages are difficult to estimate
                                                                tion of the stipulated sum." Id. This "actual harm" test is
and the amount specified in the contract is a reasonable
                                                                entirely consistent with what the Texas [*440] Su-
forecast of just compensation, a liquidated-damages term
                                                                preme Court stated in Phillips, that a party can show
is enforceable. Garden Ridge contends that the test con-
                                                                unreasonableness based on "the actual damages incurred
tains no ex post actual-harm assessment to determine
                                                                [being] much less than the amount contracted for." 820
reasonableness. Thus, according to Garden Ridge, Ad-
                                                                S.W.2d at 788.
vance could only show that the chargeback provisions
were unenforceable as penalties if, ex ante, actual dam-            This court also has recognized that actual harm fac-
ages are easy to estimate [**14] or the liquidated dam-         tors into the test to determine whether a liquidat-
ages are based on an unreasonable forecast. Garden Ridge        ed-damages provision is an enforceable penalty. In Chan
asserts that Advance did not meet its burden because            v. Montebello Development Co., we described the Phillips
                                                                                                               Page 5
                                  403 S.W.3d 432, *; 2013 Tex. App. LEXIS 4497, **;
                                        80 U.C.C. Rep. Serv. 2d (Callaghan) 548

test as follows: "The test for determining whether a pro-     proportionate estimation of Garden Ridge's actual dam-
vision is valid and enforceable as liquidated damages is      ages; therefore, the chargeback provisions are void as
(1) if the damages for the prospective breach of the con-     penalties under the UCC.
tract are difficult to measure; and (2) the stipulated dam-
                                                                   Advance elicited evidence from Garden Ridge em-
ages are a reasonable estimate of actual damages." Chan
                                                              ployees Troy and Cole sufficient to prove that Garden
v. Montebello Dev. Co., No. 14-06-00936-CV, 2008 Tex.
                                                              Ridge suffered no actual damages as a result of Advance's
App. LEXIS 5980, 2008 WL 2986379, at *3 (Tex.
                                                              substitution of the eight-foot banner snowmen. The trial
App.--Houston [14th Dist.] July 31, 2008, pet. denied)
                                                              court also determined that Garden Ridge suffered no
(citing Phillips, 820 S.W.2d at 788). Further, we stated:
                                                              actual damages from any of Advance's noncompliance
                                                              violations when the court directed a verdict against Gar-
          In order to meet this burden, the party
                                                              den Ridge on its breach-of-contract claim; Garden Ridge
       asserting the defense is required to prove
                                                              does not challenge that ruling. And Garden Ridge [*441]
       the amount of the other parties' actual
                                                              itself acknowledges it argued no amount of actual dam-
       damages, if any, to show that the liqui-
                                                              ages other than zero and [**19] the record shows that
       dated damages are not an approximation of
                                                              Garden Ridge suffered no actual damages resulting from
       the stipulated [**17] sum. If the liqui-
                                                              Advance's noncompliance violations.
       dated damages are shown to be dispropor-
       tionate to the actual damages, then the                     Thus, Advance has shown that the chargebacks as-
       liquidated damages must be declared a                  sessed by Garden Ridge for Advance's "unauthorized
       penalty . . . .                                        substitution" and "merchant initiated" noncompliance
                                                              violations--100% of the invoiced merchandise cost plus
                                                              freight for the eight-foot banner snowmen and the
2008 Tex. App. LEXIS 5980, [WL] at *3-4 (citations            nine-foot waving snowmen, for a total of
omitted).                                                     $79,457.00--were unreasonably large when compared to
                                                              Garden Ridge's actual damages of zero. Advance also has
     Most importantly, the UCC reasonableness test ex-
                                                              shown that the additional chargebacks assessed by Garden
plicitly refers to actual harm, providing that one way a
                                                              Ridge for Advance's "short or incomplete order," "carton
liquidated-damages provision can be invalidated is where
                                                              markings," and "cartons not numbered correctly" non-
the stipulated amount proves unreasonable in light of "the
                                                              compliance violations on other merchandise--totaling
anticipated or actual harm caused by the breach." TEX.
                                                              approximately $13,000--were unreasonably large when
BUS. & COM. CODE ANN. § 2.718(a) (emphasis added). In
                                                              compared to Garden Ridge's actual damages of zero.
addition, the UCC expressly provides that "[a] term fixing
                                                              Therefore, as a matter of law, we conclude that, under
unreasonably large liquidated damages is void as a pen-
                                                              these circumstances,4 the chargeback amounts were un-
alty." Id.; see id. cmt. 1. In order to determine whether a
                                                              reasonable, and that the chargeback provisions are unen-
term fixes unreasonably large liquidated damages, it fol-
                                                              forceable as penalties under the UCC because they fixed
lows that courts would need to consider what actual harm,
                                                              unreasonably large liquidated damages. Accordingly, we
if any, was caused by the breach and then compare it to the
                                                              overrule Garden Ridge's first issue.
stipulated amount of liquidated damages.
     Thus, both the common law and the UCC allow for                 4 Advance further argues that the chargeback
courts to determine the reasonableness of a liquidat-                provisions are [**20] unenforceable on their
ed-damages clause by considering whether the defendant               face, as in Phillips. However, while Advance was
has shown that the stipulated amount was "unreasonably               able to prove that Garden Ridge suffered no actual
large" compared to the actual damages. See TEX. BUS. &               damages here, perhaps there may exist circum-
COM. CODE ANN. § 2.718(a); Phillips, 820 S.W.2d at 788.              stances whereby the nature of the unauthorized
                                                                     substitution, short or incomplete order, mismarked
c. [**18] Comparing the amount of the chargebacks                    carton, or other noncompliance issue leading to a
to Garden Ridge's actual damages                                     merchant-initiated chargeback would not result in
                                                                     actual damages of zero and whereby the charge-
     Advance argues that it proved that the harm antici-
                                                                     back amounts when compared to those actual
pated from its alleged noncompliance was not difficult to
                                                                     damages would not be disproportionate.
estimate, that Garden Ridge did not even attempt to de-
termine a chargeback amount that was reasonable in light
                                                              d. Whether the amount of the chargebacks is reason-
of the anticipated or actual harm, and that the liquidated
                                                              able in light of Garden Ridge's anticipated harm
damages Garden Ridge assessed are disproportionate to
its actual damages. We conclude Advance met its burden            Even if the concurring opinion is correct that Ad-
to show that the chargeback amounts constituted a dis-        vance also had to prove the stipulated damages were
                                                                                                                   Page 6
                                  403 S.W.3d 432, *; 2013 Tex. App. LEXIS 4497, **;
                                        80 U.C.C. Rep. Serv. 2d (Callaghan) 548

unreasonable in light of the anticipated harm in order for    reasonably reflect Garden Ridge's anticipated harm for
us to conclude that the chargeback provisions are unrea-      [**23] an unauthorized substitution, where the challenged
sonable under section 2.718(a), we conclude that Ad-          provisions allowed Garden Ridge to charge back 100% of
vance has done so in this case. As explained in subsection    merchandise cost plus freight for any unauthorized sub-
II.A.1.c., Advance has shown that the stipulated amounts      stitution, no matter how slight and no matter if Garden
are     unreasonable     in    light   of    the    actual    Ridge even anticipated incurring any harm.
harm--zero--suffered by Garden Ridge. Further, Advance
has shown that the stipulated amounts are unreasonable in     B. Instruction on damages
light of the harm anticipated by Garden Ridge.
                                                                   Garden Ridge next argues that the trial court com-
     Here, according to the challenged [**21] liquidat-       mitted reversible error by including the following in-
ed-damages provisions, Garden Ridge anticipated at the        struction as part of its question on Advance's damages:
time of contract that an unauthorized substitution of any
type would result in harm of 100% of the cost of the                    The unauthorized substitution provision
merchandise, plus freight. In fact, Garden Ridge's buyer             in the Vendor Compliance Manual is un-
Cole testified that Garden Ridge had the discretion to               reasonable if the actual damages that
assess the full 100% chargeback, even if the only devia-             Garden Ridge incurred were much less
tion in the snowmen had been green versus red buttons.               than the charge-back amount.
Cole further testified that she was not aware of any in-
stance where Garden Ridge had decided not to issue a
chargeback because there was "no harm, no foul" or            During the charge conference, Garden Ridge objected to
where Garden Ridge had exercised its discretion to not        the inclusion of this instruction as improper because
charge back "fully" for an unauthorized substitution.         whether the chargeback provisions constitute penalties
Garden Ridge's CFO Uhrig agreed that a button-color           was a question reserved for the court, not the jury. Garden
substitution would constitute noncompliance, for which        Ridge further objected that the trial court should not in-
Garden Ridge could charge back the full 100% of mer-          clude this instruction because it would permit the jury to
chandise cost. In other words, no matter what the degree      assess damages on a basis that is not permitted in the
of substitution, and no matter whether the substitution is    law--that is, there is no actual-damages component to
even anticipated to result in any harm, Garden Ridge's        whether a liquidated damages provision is unreasonable
unauthorized-substitution rule provides that Garden           and thus constitutes a penalty.5 The trial court overruled
Ridge keeps the merchandise without paying the vendor         Garden [*443] Ridge's objections, [**24] which
any [*442] thing and makes the vendor cover the freight.      properly are preserved for our review. See Thota v. Young,
                                                              366 S.W.3d 678, 689 (Tex. 2012).
      Even though, according to Uhrig, Garden Ridge is
"very [**22] good at estimating our costs," he admitted
                                                                     5 Advance argues that Garden Ridge failed to
that at the time it was developing the chargeback schedule
                                                                     preserve this particular complaint about the al-
Garden Ridge did not perform any actual studies on what
                                                                     legedly ex ante nature of the liquidated-damages
costs it would incur due to vendor noncompliance. Fur-
                                                                     determination. Garden Ridge specifically objected
ther, Uhrig could not explain any specifics on how Garden
                                                                     to the inclusion of this particular instruction. The
Ridge "figure[d] out what the costs are and what would be
                                                                     context of the charge conference also reveals that
appropriate charge-backs." Cole also testified that she was
                                                                     although Garden Ridge requested and the trial
not aware of Garden Ridge having performed any analysis
                                                                     court allowed an instruction paraphrasing the first
as to whether the 100% chargeback amount reasonably
                                                                     sentence of section 2.718(a) to indicate when liq-
approximates the anticipated harm that Garden Ridge
                                                                     uidated damages were reasonable, Garden Ridge
would suffer from an unauthorized substitution. Despite
                                                                     did not agree to the trial court's inclusion of the
this lack of detail regarding the 100% chargeback amount
                                                                     instruction addressing reasonableness with regard
for anticipated harm from vendor violations, Uhrig testi-
                                                                     to "actual damages" because that particular in-
fied that "on average" charging back 100% somehow
                                                                     struction, in contrast with the previous instruction
reflected Garden Ridge's costs for unauthorized substitu-
                                                                     Garden Ridge requested and the court allowed, did
tions. Uhrig further indicated that Garden Ridge's
                                                                     not reflect a "legally permissible" basis for the jury
chargebacks communicate to vendors, "Don't do this";
                                                                     to award damages to Advance. Thus, Garden
and Garden Ridge's CEO, Tim Kibarian, agreed that
                                                                     Ridge sufficiently made the trial court aware of its
chargebacks are the "penalty" if its vendors do not follow
                                                                     complaint that its actual incurred damages should
its rules.
                                                                     not be included in any reasonableness assessment
    We therefore conclude that Advance has proven that               by the jury of whether the chargebacks constituted
Garden Ridge's liquidated-damages provisions do not                  penalties, and the trial court overruled Garden
                                                                                                                        Page 7
                                    403 S.W.3d 432, *; 2013 Tex. App. LEXIS 4497, **;
                                          80 U.C.C. Rep. Serv. 2d (Callaghan) 548

        Ridge's complaint. [**25] See Thota v. Young,                 However, because the instruction concerns whether
        366 S.W.3d 678, 689 (Tex. 2012) ("[T]he proce-           the chargeback provisions are unreasonable and thus
        dural requirements for determining whether a             unenforceable as penalties, which is a legal issue for the
        party has preserved error in the jury charge are         trial court to decide, Phillips, 820 S.W.2d at 788, we
        explained by one basic test: 'whether the party          conclude that the trial court improperly submitted this
        made the trial court aware of the complaint, timely      instruction6 to the jury. The complained-of instruction
        and plainly, and obtained a ruling.'" (quoting State     describes a reasonableness [*444] analysis that the trial
        Dep't of Highways v. Payne, 838 S.W.2d 235, 241          court itself was supposed to conduct--this instruction,
        (Tex. 1992))).                                           despite its proper statement of the law, would not assist
                                                                 the jury. See Thota, 366 S.W.3d at 687. Moreover, alt-
     We review a trial court's decision whether to submit a
                                                                 hough the Phillips court indicated that in some cases the
particular instruction in its charge for abuse of discretion.
                                                                 jury might have to resolve a factual issue before the trial
Id. at 687 (citing In re V.L.K., 24 S.W.3d 338, 341 (Tex.
                                                                 court can decide the ultimate legal question of enforcea-
2000)); City of Houston v. Proler, 373 S.W.3d 748, 760
                                                                 bility, here, no fact issues remained; the trial court already
(Tex. App.--Houston [14th Dist.] 2012, no. pet. h.) (citing
                                                                 had found that [**28] Garden Ridge suffered no
Shupe v. Lingafelter, 192 S.W.3d 577, 579 (Tex. 2006)).
                                                                 breach-of-contract actual damages due to Advance's
The trial court has considerable discretion to determine
                                                                 noncompliance violations when the court directed a ver-
proper jury instructions, and "[i]f an instruction might aid
                                                                 dict against Garden Ridge on that claim. See 820 S.W.2d
the jury in answering the issues presented to them, or if
                                                                 at 788. As a matter of law, these chargebacks were un-
there is any support in the evidence for an instruction, the
                                                                 reasonable and void as penalties; "consequently, [the
instruction is proper." Thota, 366 S.W.3d at 687 (quoting
                                                                 instruction] w[as] surplusage, expressly prohibited by the
La.-Pac. Corp. v. Knighten, 976 S.W.2d 674, 676 (Tex.
                                                                 Texas Supreme Court in Acord v. General Motors Corp.,
1998)). "An instruction is proper if it (1) assists the jury,
                                                                 669 S.W.2d 111, 116 (Tex. 1984)." Bean v. Baxter
(2) accurately states the law, and (3) finds support in the
                                                                 Healthcare Corp., 965 S.W.2d 656, 664 (Tex.
pleadings [**26] and evidence." Id. (citing Columbia
                                                                 App.--Houston [14th Dist.] 1998, no pet.); see also
Rio Grande Healthcare, L.P. v. Hawley, 284 S.W.3d 851,
                                                                 Elloway v. Pate, 238 S.W.3d 882, 896 (Tex.
855-56 (Tex. 2009)). We will not reverse a judgment for a
                                                                 App.--Houston [14th Dist.] 2007, no pet.) (citing Acord,
charge error unless that error was harmful because it
                                                                 669 S.W.2d at 116). The trial thus abused its discretion by
"probably caused the rendition of an improper judgment"
                                                                 unnecessarily instructing the jury on the reasonableness of
or "probably prevented the petitioner from properly pre-
                                                                 Garden Ridge's chargebacks.
senting the case to the appellate courts." Id. (citing TEX. R.
APP. P. 44.1(a) and 61.1); Proler, 373 S.W.3d at 760
                                                                         6 The trial court also improperly submitted the
(citing La.--Pac. Corp., 976 S.W.2d at 676 (Tex. 1998));
                                                                         previous instruction, which Garden Ridge re-
see also Bed, Bath & Beyond, Inc. v. Urista, 211 S.W.3d
                                                                         quested and which essentially tracks the first
753, 757 (Tex. 2006). We examine the entire record to
                                                                         sentence of section 2.718:
determine whether the instruction probably caused an
improper judgment. Thota, 366 S.W.3d at 686-87; Urista,
                                                                                     Parties may agree in a contract
211 S.W.3d at 757.
                                                                                 to damages payable upon a breach
     As discussed above in subsection II.A.1.b, a party can                      if that contractual amount is rea-
prove that a liquidated-damages clause is unenforceable                          sonable in light of the anticipated
and void as a penalty if it shows that the actual damages                        or actual harm caused by the
incurred by the other party are much less than or dispro-                        breach, the difficulties of proof of
portionate to the contracted-for amount. The com-                                loss, and the inconvenience or
plained-of instruction here essentially tracks the language                      non-feasibility [**29] of other-
from Phillips--that a liquidated-damages provision is                            wise obtaining an adequate reme-
unreasonable and unenforceable as a penalty "because the                         dy.
actual damages incurred were much [**27] less than the
amount contracted for." See 820 S.W.2d at 788. Therefore,
the instruction properly stated the "actual harm" portion of             See TEX. BUS. & COM. CODE ANN. § 2.718(a). We
the common-law test. Id.; see also Chan, 2008 Tex. App.                  note that this instruction also properly references
LEXIS 5980, 2008 WL 2986379, at *3. Further, the com-                    "actual harm" as a component of the reasonable-
plained-of instruction correlates to the equivalent portion              ness test.
of the UCC test that "[a] term fixing unreasonably large
                                                                      Our review of the record reveals, however, that this
liquidated damages is void as a penalty." TEX. BUS. CODE
                                                                 abuse of discretion was harmless.7 Including a surplus
ANN. § 2.718(a).
                                                                 instruction on the law is only harmful when it amounts to
                                                                                                                        Page 8
                                    403 S.W.3d 432, *; 2013 Tex. App. LEXIS 4497, **;
                                          80 U.C.C. Rep. Serv. 2d (Callaghan) 548

a comment on the weight of the evidence. Bean, 965               cause the rendition of an improper judgment; and we
S.W.2d at 664 (discussing Acord, 669 S.W.2d at 113,              overrule Garden Ridge's second issue.
116). Although the trial court instructed jurors about a
potential situation where Advance's damages may be               C. Instructions on breach of contract
reduced to essentially nothing--that is, if Garden Ridge's
                                                                      In its final issue, Garden Ridge argues that the trial
chargebacks actually were reasonable and thus enforcea-
                                                                 court's inclusion of the UCC's definition regarding what
ble as a matter of law--including this instruction was not
                                                                 constitutes     the     acceptance   of    goods--section
"reasonably calculated to cause [nor] probably did cause
                                                                 2.606(a)8--and the UCC's provision that the buyer must
prejudicial harm to appellant[]" Garden Ridge. See Acord,
                                                                 pay the contract [**32] rate for goods it accepts--section
669 S.W.2d at 116 (citation omitted). Moreover, by in-
                                                                 2.607(a)9--in its instructions to the jury on Advance's
cluding this instruction, the trial court "did not offer [its]
                                                                 breach-of-contract claim constituted an impermissible
opinion, assume the truth of a material fact, exaggerate,
                                                                 comment on the weight of the evidence. During the
minimize, or withdraw relevant evidence." See Bean, 965
                                                                 charge conference, Garden Ridge objected to the inclu-
S.W.2d at 664. [**30] Therefore, including the surplus
                                                                 sion of these instructions as unnecessary because Garden
instruction did not constitute a comment on the weight of
                                                                 Ridge did not dispute that it accepted the goods. Garden
the evidence.
                                                                 Ridge thus contends that these "surplusage" instructions
                                                                 improperly "nudged" the jury toward Advance's theory of
        7 Garden Ridge insists that we must presume
                                                                 the case. The trial court overruled Garden Ridge's objec-
        harm pursuant to Harris County v. Smith, 96
                                                                 tions, which properly are preserved for our review. See
        S.W.3d 230 (Tex. 2002), and Crown Life Ins. Co.
                                                                 Thota, 366 S.W.3d at 689.
        v. Casteel, 22 S.W.3d 378 (Tex. 2000). The Texas
        Supreme Court, however, has refused to extend
                                                                        8    Section 2.606(a) provides:
        the presumed-harm scenario to instruction error.
        See Thota, 366 S.W.3d at 692-93 (concluding that
                                                                                  (a) Acceptance of goods occurs
        "even assuming the new and independent cause
                                                                                when the buyer
        instruction in this charge constituted error, it does
        not raise a Casteel issue"); Urista, 211 S.W.3d at                           (1) after a reasonable oppor-
        756-57 (declining to extend Casteel's pre-                              tunity to inspect the goods signifies
        sumed-harm analysis to trial court's submission of                      to the seller that the goods are
        an erroneous unavoidable-accident instruction).                         conforming or that he will take or
                                                                                retain them in spite of their
     Nor did including the improper instruction mislead or
                                                                                non-conformity; or
confuse the jury in its determination of damages on Ad-
vance's breach-of-contract claim. Advance presented                                  (2) fails to make an effective
evidence relating to over $92,000 in chargebacks Garden                         rejection (Subsection (a) of Section
Ridge assessed, and evidence that these chargebacks                             2.602), but such acceptance does
reflected what Garden Ridge deducted from Advance's                             not occur until the buyer has had a
merchandise invoices. The jury's answers to what was                            reasonable opportunity to inspect
"the difference between what Garden Ridge agreed to pay                         them; or
and what it actually paid for [the] snowmen" reflect
[**31] that the jury considered the contract rate as what                             (3) does any act inconsistent
                                                                                with the seller's ownership; but if
Garden Ridge agreed to pay for the nine-foot and
                                                                                such act is wrongful as against the
eight-foot snowmen within PO '721 and PO '743, which
                                                                                seller it is an acceptance only if
included collection of freight, and that Garden Ridge
actually paid nothing whatsoever to Advance for these                           ratified by him.
snowmen. Thus, the jury found that for the snowmen
Advance had proven its full amount of damages--that the
                                                                        TEX. BUS. & COM. CODE ANN. § 2.606(a).
differences reflected the exact amounts Garden Ridge
                                                                        9 "The [**33] buyer must pay at the contract
charged [*445] back. The jury's answer to what was
                                                                        rate for any goods accepted." TEX. BUS. & COM.
"the difference between what Garden Ridge agreed to pay
and what it actually paid for other items charged back on               CODE ANN. § 2.607(a).
[Advance's] Exhibit" reflects that the jury considered the            This is a UCC breach-of-contract case in which Ad-
evidence presented on the remaining approximately                vance pleaded, and presented evidence, that Garden Ridge
$13,000 in chargebacks and determined that Advance had           breached by accepting and then not paying the contract
proven damages on $500 of these other chargebacks.               price for the snowmen and other goods at issue. The par-
Therefore, the erroneous instruction did not probably            ties do not dispute that their contracts are governed by the
                                                                                                                     Page 9
                                   403 S.W.3d 432, *; 2013 Tex. App. LEXIS 4497, **;
                                         80 U.C.C. Rep. Serv. 2d (Callaghan) 548

UCC. Section 2.606(a) and section 2.607(a), the sources         provisions based upon a hindsight analysis that the Texas
of the trial court's instructions, are located in the UCC       Legislature never intended.
subchapter concerning "Breach, Repudiation, and Ex-
cuse." Further, both of these instructions properly state the   Text of the Applicable Statute
law. TEX. BUS. & COM. CODE ANN. § 2.606(a) & 2.607(a)
                                                                     Appellant/plaintiff Garden Ridge, L.P. asserts that
(West 2009). These instructions thus are proper because
                                                                the liquidated-damages provisions in its contracts for the
they (1) assisted the jury in answering the breach ques-
                                                                sale of goods with appellee/defendant Advance Interna-
tion, (2) accurately stated the law, and (3) found support
                                                                tional, Inc. are enforceable. Advance maintains that these
in the pleadings and evidence. See Thota, 366 S.W.3d at
                                                                provisions are void as penalties and unenforceable. Both
687 (citing Hawley, 284 S.W.3d at 855-56). We therefore
                                                                sides agree, and the law provides, that this issue is gov-
conclude that the trial court did not abuse its discretion by
                                                                erned by Texas Business and Commerce Code section
submitting the complained-of trial instructions.
                                                                2.718(a), [**35] which provides in its entirety as fol-
                                                                lows:
III. CONCLUSION
     Accordingly, having overruled all of Garden Ridge's                  (a) Damages for breach by either party
issues, we affirm the trial court's judgment.                          may be liquidated in the agreement but
                                                                       only at an amount which is reasonable in
    /s/ Tracy Christopher
                                                                       the light of the anticipated or actual harm
    Justice                                                            caused by the breach, the difficulties of
                                                                       proof of loss, and the inconvenience or
    Panel consists [**34] of Justices Frost, Christopher,
                                                                       non-feasibility of otherwise obtaining an
and Jamison. (Frost, J., concurring).                                  adequate remedy. A term fixing unrea-
                                                                       sonably large liquidated damages is void
 [*446] APPENDIX A
                                                                       as a penalty.


                                                                Tex. Bus. & Comm. Code Ann. § 2.718(a) (West 2013).
                                                                     We review the trial court's interpretation of applica-
                                                                ble statutes de novo. See [*447] Johnson v. City of Fort
                                                                Worth, 774 S.W.2d 653, 655-56 (Tex. 1989). In construing
                                                                a statute, our objective is to determine and give effect to
                                                                the Legislature's intent. See Nat'l Liab. & Fire Ins. Co. v.
                                                                Allen, 15 S.W.3d 525, 527 (Tex. 2000). If possible, we
                                                                must ascertain that intent from the language the Legisla-
                                                                ture used in the statute and not look to extraneous matters
                                                                for an intent the statute does not state. Id. If the meaning
                                                                of the statutory language is unambiguous, we adopt the
                                                                interpretation supported by the plain meaning of the pro-
                                                                vision's words. St. Luke's Episcopal Hosp. v. Agbor, 952
CONCUR BY: Kem Thompson Frost                                   S.W.2d 503, 505 (Tex. 1997). We must not engage in
                                                                [**36] forced or strained construction; instead, we must
CONCUR                                                          yield to the plain sense of the words the Legislature chose.
     In an issue of first impression in this court, the ma-     See id.
jority construes Texas Business and Commerce Code
Section 2.718(a) in a manner that conflicts with the un-        Interpretation of the Statutory Text
ambiguous language of that provision and with opinions               Advance, as the party asserting that the liquidat-
from two sister courts of appeals. By allowing a breaching      ed-damages provisions are penalties, had the burden of
party to show that a liquidated-damages provision is un-        proving that these provisions do not satisfy the applicable
reasonable based only upon a comparison between the             legal standard for an enforceable liquidated-damages
amount of the stipulated damages and the amount of the          provision under Section 2.718(a). Baker v. International
actual damages incurred, the majority exposes liquidat-         Record Syndicate, Inc., 812 S.W.2d 53, 55 (Tex.
ed-damages provisions in sale-of-goods contracts to a           App.--Dallas 1991, no writ). Under the plain meaning of
legal standard that may bar enforcement of many such            Section 2.718(a), it was incumbent upon Advance to
                                                                establish that the amount of damages set by the provisions
                                                                                                                     Page 10
                                    403 S.W.3d 432, *; 2013 Tex. App. LEXIS 4497, **;
                                          80 U.C.C. Rep. Serv. 2d (Callaghan) 548

in question was not reasonable in light of the anticipated        unambiguous meaning of "or" in statute was the disjunc-
harm and the actual harm caused by the breach, the dif-           tive).1 If a [**39] liquidated-damages provision may be
ficulties of proof of loss, and the inconvenience or              reasonable based upon either anticipated harm or actual
non-feasibility of otherwise obtaining an adequate rem-           harm caused by the breach, then Advance, as the party
edy. See Tex. Bus. & Comm. Code Ann. § 2.718(a).                  with the burden of proving the provision is unenforceable,
                                                                  had to establish unreasonableness under both anticipated
     Both Section 2.718(a) and Texas common law pro-
                                                                  harm and actual harm caused by the breach. See Tex. Bus.
vide that a liquidated-damages provision is enforceable as
                                                                  & Comm. Code Ann. § 2.718(a).
long as it is not a penalty. See id.; Phillips v. Phillips, 820
S.W.2d 785, 788 (Tex. 1991) (discussing legal standard
                                                                         1 In cases decided after June 14, 1927, the Su-
under Texas common law). But, to prove that a provision
                                                                         preme Court of Texas's notation of "writ refused"
is a penalty [**37] under Texas common law, a party
                                                                         or "petition refused" denotes that the court of
must prove that (1) the harm caused by the breach is not
                                                                         appeals's opinion is the same as a precedent of the
incapable or difficult of estimation, or (2) that the amount
                                                                         Supreme Court of Texas. See Yancy v. United
of liquidated damages called for is not a reasonable
                                                                         Surgical Partners Int'l, Inc., 236 S.W.3d 778, 786
forecast of just compensation. See Phillips, 820 S.W.2d at
                                                                         n.6 (Tex. 2007).
788. The Supreme Court of Texas has indicated that a
party may prove that the amount of liquidated damages is              The majority concludes that the legal standard under
not a reasonable forecast of just compensation under the          Section 2.718(a) is the same as the legal standard under
common-law test only by showing that the actual dam-              Texas common law and that Advance did not have to
ages incurred were much less than the liquidated-damage           show that the liquidated-damages provision was not rea-
amount. See id.                                                   sonable in light of the anticipated harm. See ante at pp.
                                                                  7-12. This conclusion is contrary to the plain meaning of
     As can be seen by comparing the legal standard under
                                                                  the statutory text, under which the liquidated-damages
Section 2.718(a) and the legal standard under Texas
                                                                  amount may be reasonable based upon either anticipated
common law, the two legal standards are significantly
                                                                  harm or actual harm caused by the breach. See id. The
different. See McFadden v. Fuentes, 790 S.W.2d 736,
                                                                  majority treats the statutory sentence "[a] term fixing
737-38 (Tex. App.--El Paso 1990, no writ) (holding that
                                                                  [**40] unreasonably large liquidated damages is void as a
the legal standard under Section 2.718(a) is different from
                                                                  penalty" as equivalent to the following sentence from
and supersedes the legal standard under Texas common
                                                                  Phillips's articulation of the common law rule: "a liqui-
law in sales-of-goods cases); George E. Henderson, A
                                                                  dated damages provision is unreasonable because the
New Chapter 2 for Texas: Well-Suited or Ill-Fitting? 41
                                                                  actual damages incurred were much less than the amount
TEX. TECH. L. REV. 235, 488-91 (2009) (attaching law
                                                                  contracted for." See ante at p. 9 (considering second sen-
professor's analysis concluding that the legal standard
                                                                  tence from Section 2.718(a) as equivalent to this sentence
under Section 2.718(a) is different from the legal standard
                                                                  from Phillips); Tex. Bus. & Com. Code Ann. § 2.718(a);
[**38] under Texas common law). See also Phillips, 820
                                                                  Phillips, 820 S.W.2d at 788. In the second sentence of
S.W.2d at 788 (reciting the legal standard from Texas
                                                                  Section 2.718(a), the Legislature did not address the legal
common law and then citing Section 2.718(a) with a "Cf."
                                                                  standard by which courts are to determine whether a liq-
signal, indicating that the statute is different from the
                                                                  uidated-damages provision is void as a penalty; that
common law but deals with an analogous subject matter).
                                                                  standard is addressed in the first sentence of Section
     Under Section 2.718(a), Advance had the burden of            2.718(a). See Tex. Bus. & Com. Code Ann. § 2.718(a).
proving that the amount of damages set by the provisions
                                                                       The majority relies upon the Supreme Court of Tex-
in question was not reasonable in the light of both the
                                                                  as's decision in Flores v. Millennium Interests, Ltd. See
anticipated harm and actual harm caused by the breach.
                                                                  185 S.W.3d 427 (Tex. 2005). The Flores court addressed
See Tex. Bus. & Comm. Code Ann. § 2.718(a); Hender-
                                                                  the circumstances under which a seller of real property
son, supra, 41 TEX. TECH. L. REV. at 491 (attaching law
                                                                  under a contract for deed may be liable for the statutory
[*448] professor's analysis concluding that under Sec-
                                                                  "liquidated damages" afforded in Texas Property Code
tion 2.718(a) a liquidated-damages provision is valid if
                                                                  section 5.077(c). See id. at 429-33. In a general discussion
reasonable with respect to either anticipated harm or
                                                                  of the meaning of the term "liquidated damages," [**41]
actual harm caused by the breach). Under the unambig-
                                                                  the Flores court correctly stated that both Texas common
uous meaning of the word "or" in the statute, a liquidat-
                                                                  law and Section 2.718(a) recognize a distinction between
ed-damages provision may be reasonable based upon
                                                                  an enforceable liquidated-damages provision and a void
either anticipated harm or actual harm caused by the
                                                                  penalty. See id. at 431. The Flores court did not state that
breach. See Comdisco, Inc. v. Tarrant County App. Dist.,
                                                                  the legal standards under Section 2.718(a) and the com-
927 S.W.2d 325, 327 (Tex. App.--Fort Worth 1996, writ
                                                                  mon law are the same, nor did the Flores court address the
ref'd) (holding, in Supreme Court of Texas precedent, that
                                                                                                                   Page 11
                                   403 S.W.3d 432, *; 2013 Tex. App. LEXIS 4497, **;
                                         80 U.C.C. Rep. Serv. 2d (Callaghan) 548

legal standard a party must satisfy to show that a liqui-       of liquidated-damages clauses and parties' willingness
dated-damages provision is a penalty under Section              and desire to choose this remedy in transactions involving
2.718(a). See id. at 429-33. The Flores case does not           the sale of goods. See Tex. Bus. & Com. Code Ann. §
support the majority's analysis.                                2.718(a). The Legislature also recognized that in certain
                                                                situations, liquidated-damages provisions should not be
     The majority also relies upon the Supreme Court of
                                                                enforceable, and the Legislature crafted a specific legal
Texas's decision in Phillips. [*449] See 820 S.W.2d at
                                                                standard for making this determination. See id.
788. The Phillips court addressed the legal standard under
Texas common law. See id. Determining the proper legal               When a buyer and a seller agree to a liquidat-
standard under Section 2.718(a) was not before the Phil-        ed-damages provision, both parties have a potential up-
lips court, and the court did not address this issue. See id.   side and a potential downside. The idea is that, even
The Phillips court did not state that the legal standards       though the non-breaching [**44] party's expectation
under Section 2.718(a) and the common law are the same.         damages may be far greater than the amount specified in
See id. Instead, after reciting the legal standard under        the liquidated-damages clause, the non-breaching party's
Texas common law, the Phillips court cited Section              recovery is capped at the amount of specified liquidated
2.718(a) with a "Cf." signal, indicating that the statute is    damages. Under freedom-of-contract principles, courts
different from the common law but deals with an analo-          must honor the parties' agreement unless the stipulated
gous [**42] subject matter. See id. The Phillips court did      amount is shown to be unreasonable under Section
not address the difference between the two legal stand-         2.718(a). See id. Under this standard, as discussed above,
ards, and this difference was not necessary to the dispo-       the party asserting that the provision is void as a penalty
sition of that case. See id. The Phillips case does not         must prove that the stipulated amount is unreasonable
support the majority's analysis regarding the legal stand-      based both on the harm anticipated at the time of con-
ard under Section 2.718(a).                                     tracting and the actual harm caused by the breach. At the
                                                                [*450] time of contracting, unknown factors often make
     The majority further relies upon this court's opinion
                                                                estimation and calculation of potential damages uncer-
in Chan v. Montebello Development Company. See No.
                                                                tain.2 This uncertainty at the time of contracting is often
14-06-00936-CV, 2008 Tex. App. LEXIS 5980, 2008 WL
                                                                what makes the determination of liquidated damages
2986379, at *3-6 (Tex. App.--Houston [14th Dist.] July
                                                                difficult. Hindsight has a way of making estimations that
31, 2008, pet. denied) (mem. op.). The Chan court ad-
                                                                were reasonable at the time seem unreasonable after a
dressed the legal standard under Texas common law. See
                                                                breach. By the time a breach has occurred and the dispute
id. Because the determination of the proper legal standard
                                                                has come to court, the costs and valuations are often easier
under Section 2.718(a) was not before the Chan court, the
                                                                to estimate and, with hindsight, honest estimates made at
court did not address this issue. See id. Nor did the Chan
                                                                the inception of the contract might prove to be too high or
court state that the legal standards under Section 2.718(a)
                                                                too low. [**45] This is part of the risk of doing business
and the common law are the same. See id. The Chan case
                                                                that parties embrace when agreeing to a liquidat-
does not support the majority's analysis regarding the
                                                                ed-damages provision. In evaluating these provisions,
legal standard under Section 2.718(a).
                                                                courts should not lose sight of important principles of
                                                                freedom of contract and must uphold the sanctity of con-
An Unwarranted Hindsight Analysis
                                                                tract unless the liquidated-damages provision is shown to
     Under the legal standard the majority adopts today,        be a penalty under the standard articulated by the Legis-
parties breaching sale-of-goods contracts may avoid en-         lature in Section 2.718(a). See id.
forcement of liquidated-damages provisions based upon a
hindsight analysis. This approach [**43] not only con-                 2 A retail merchant that advertises its products
travenes the statutory text but also undermines important              in mass media has a distinct need for the seller to
freedom-of-contract values that are a cornerstone of                   provide conforming goods because the retail
Texas jurisprudence.                                                   merchant must be able to furnish conforming
                                                                       goods to the public. Patrons who see an adver-
     Texas has a fundamental public policy in favor of a
                                                                       tisement and come to the retail merchant's store
broad freedom of contract. See Nafta Traders, Inc. v.
                                                                       reasonably may expect to be able to purchase the
Quinn, 339 S.W.3d 84, 95 (Tex. 2011) (stating that "[a]s a
                                                                       item advertised. Garden Ridge testified that when
fundamental matter, Texas law recognizes and protects a                the product is not as advertised, the merchant
broad freedom of contract"). Liquidated-damages provi-                 suffers loss of customer goodwill. It may often be
sions in commercial transactions benefit both sides by
                                                                       difficult to estimate the amount of damages from
providing certainty and predictability. By including Sec-
                                                                       the loss of goodwill and patronage accompanying
tion 2-718(a) in Texas's version of the Uniform Com-
                                                                       the breach of a seller who fails to deliver con-
mercial Code, the Texas Legislature recognized the utility
                                                                       forming goods the retail merchant had advertised.
                                                                                                                  Page 12
                                  403 S.W.3d 432, *; 2013 Tex. App. LEXIS 4497, **;
                                        80 U.C.C. Rep. Serv. 2d (Callaghan) 548

     With the legal standard adopted by the majority to-      which this issue has been presented. See Petition for Re-
day, the court fails to honor the Legislature's intent of     view, FPL Energy, LLC v. TXU Portfolio Management
providing leeway [**46] for the parties to have stipu-        Co., No. 11-0050, 2012 Tex. LEXIS 134 (Tex. granted
lated to an amount of liquidated damages that was rea-        Feb. 17, 2012) [**47] . If this issue is not addressed in the
sonable under conditions prevailing at the time of con-       Supreme Court of Texas's opinion in the FPL Energy
tracting but that ends up not measuring damages in a          case, uniformity and predictability in the application of
completely accurate manner in a particular case. Enforc-      Section 2.718(a) would be served by high-court review of
ing liquidated-damages provisions when they accurately        this issue in this case or another.
gauge actual damages and not enforcing them when they
do not deprives the non-breaching party of the remedy it      Conclusion
bargained to receive, contrary to Section 2.718(a). See id.
                                                                  The majority's interpretation of Section 2.718(a) is
                                                              more restrictive than the legal standard provided by the
A Possible Resolution on the Horizon
                                                              Legislature under the plain meaning of that statute. But,
     The Supreme Court of Texas has yet to address the        because no error asserted by Garden Ridge probably
legal standard a party must satisfy to show that a liqui-     caused the rendition of an improper judgment or probably
dated-damages provision is a penalty under Section            prevented Garden Ridge from properly presenting this
2.718(a). With today's opinion from this court, there are     case on appeal, the trial court's judgment should be af-
now three different and conflicting views on this question    firmed. Accordingly, [*451] though I respectfully
from the three intermediate appellate courts that have        decline to join the majority opinion, I concur in the court's
addressed this issue. Compare ante at p. 6-12, with TXU       judgment.
Portfolio Management Co. v. FPL Energy, LLC, 328
                                                                  /s/ Kem Thompson Frost
S.W.3d 580, 587-88 (Tex. App.--Dallas 2010, pet. grant-
ed), and with McFadden, 790 S.W.2d at 737-38. The                 Justice
Supreme Court of Texas has granted review in a case in
                                                                                                                 Page 1




               GPA HOLDING, INC., Appellant v. BAYLOR HEALTH CARE SYSTEM 1, Appel-
                                                 lee

                       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 Rehabilita-
                      tion, 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."

                                                 No. 05-09-00586-CV

                        COURT OF APPEALS OF TEXAS, FIFTH DISTRICT, DALLAS

                                    344 S.W.3d 467; 2011 Tex. App. LEXIS 3713


                                            May 18, 2011, Opinion Filed

SUBSEQUENT HISTORY:               Released for Publica-       OPINION
tion September 13, 2011.
                                                                    [*470] Opinion By Justice Moseley
Rehearing denied by GPA Holding, Inc. v. Baylor Health
Care Sys., 2011 Tex. App. LEXIS 7446 (Tex. App. Dallas,             In this breach of contract case, appellant GPA
Aug. 9, 2011)                                                 Holding, Inc. challenges the trial court's summary judg-
Petition for review denied by, Motion to strike denied by     ment awarding damages to appellee Baylor Health Care
GPA Holding, Inc. v. Baylor Health Care Sys., 2012 Tex.       System based on GPA's obligation to pay certain health
LEXIS 1077 (Tex., Dec. 14, 2012)                              care claims. Because we conclude the trial judge correctly
Petition for review denied by GPA Holding, Inc. v. Baylor     interpreted the three written contracts governing the par-
Health Care Sys., 2013 Tex. LEXIS 171 (Tex., Mar. 1,          ties' relationship, we affirm the trial court's judgment.
2013)
                                                              I. BACKGROUND
PRIOR HISTORY: [**1]
                                                                   Baylor provides health care services to individual
  On Appeal from the 298th Judicial District Court,
                                                              patients. Many of Baylor's patients are members of health
Dallas County, Texas. Trial Court Cause No. 06-00120.
                                                              plans. Baylor has many contracts with health benefit
                                                              entities, including insurance companies and preferred
                                                              provider organizations (PPOs), through which individual
COUNSEL: For APPELLANT: David Michael Walsh,
                                                              patients gain access to Baylor's hospitals and services at
IV, Chamblee & Ryan, P.C., Dallas, TX.
                                                              discounted rates.
For APPELLEE: Ben Taylor, Fulbright & Jaworski                     Private Healthcare Systems, Inc. (PHCS) operates a
L.L.P., Dallas, TX.                                           network of PPOs. PHCS enters into contracts known as
                                                              preferred provider agreements with health care providers
JUDGES: Before Justices Morris, Moseley, and Myers.           (such as Baylor) to negotiate discounts from the providers'
Opinion By Justice Moseley.                                   full charges for health [**2] care services. PHCS also
                                                              enters into contracts known as subscriber services
OPINION BY: JIM MOSELEY                                       agreements with insurance companies, employer health
                                                              plans, managed care organizations, and third-party ad-
                                                                                                                        Page 2
                                   344 S.W.3d 467, *; 2011 Tex. App. LEXIS 3713, **


ministrators, to provide them and their members access to       element of its affirmative defense. See Brownlee v.
health care services at the discounted rates established by     Brownlee, 665 S.W.2d 111, 112 (Tex. 1984). Whether a
the preferred provider agreements.                              contractual provision is an unenforceable penalty and not
                                                                a liquidated damage clause is an affirmative defense. See
     GPA is a third-party administrator; its customers are
                                                                TEX. R. CIV. P. 94; Phillips v. Phillips, 820 S.W.2d 785,
self-funded health plans. Third-party administrators pro-
                                                                789 (Tex. 1991) ("Although penalty is not among the
vide claims handling services and administrative support
                                                                affirmative defenses enumerated in Rule 94, TEX. R. CIV.
to health plans. By contracting with various PPO net-
                                                                P., the listing in that rule is not exclusive. Penalty is, in the
works, such as PHCS, GPA also offers its customers--and
                                                                language of the rule, a 'matter constituting an avoidance or
their members--access to medical services from a network
                                                                affirmative defense' [citations omitted].")
of providers (e.g. Baylor) at discounted rates.
                                                                     The interpretation of an unambiguous contract is a
     Baylor sued GPA for failure to pay for health care
                                                                question of law for the court. MCI Telecomms. Corp. v.
services Baylor provided to members of certain health
                                                                Tex. Utils. Elec. Co., 995 S.W.2d 647, 650-51 (Tex. 1999).
care plans administered by GPA. GPA in turn filed a
                                                                The court's primary concern [**5] in interpreting a
third-party action against PHCS. Both Baylor and GPA
                                                                written contract is to determine the mutual intent of the
moved for summary judgment; Baylor in fact filed several
                                                                parties as manifested in the contract. Coker v. Coker, 650
motions for partial summary judgment. The trial judge
                                                                S.W.2d 391, 393 (Tex. 1983). The parties' intent must be
granted Baylor's motions and denied GPA's motion. The
                                                                taken from the agreement, and the agreement must be
parties then entered into an agreed final judgment and
                                                                enforced as written. Wells Fargo Bank, Minn., N.A. v. N.
severance, by which GPA's third-party claims against
                                                                Cent. Plaza I, L.L.P., 194 S.W.3d 723, 726 (Tex.
PHCS were [**3] severed into a separate cause, and
                                                                App.-Dallas 2006, pet. denied). We favor an interpreta-
final judgment was entered for Baylor. GPA appeals the
                                                                tion that affords some consequences to each part of the
judgment in favor of Baylor. PHCS is not a party to this
                                                                agreement so that none of the provisions will be rendered
appeal.
                                                                meaningless. Coker, 650 S.W.2d at 394. Unless the
                                                                agreement shows that the parties used a term in a technical
II. STANDARD OF REVIEW
                                                                or different sense, we give the terms their plain, ordinary,
     The standards for reviewing summary judgments are          and generally accepted meaning. Heritage Res., Inc. v.
well-established, [*471] and we follow them in re-              NationsBank, 939 S.W.2d 118, 121 (Tex. 1996). Under
viewing this appeal. See Nixon v. Mr. Prop. Mgmt. Co.,          generally accepted principles of contract interpretation,
690 S.W.2d 546, 548-49 (Tex. 1985) (summary judgment            all writings that pertain to the same transaction will be
standards of review). When both parties move for sum-           considered together, even if they were executed at dif-
mary judgment, each party bears the burden of estab-            ferent times and do not expressly refer to one another.
lishing that it is entitled to judgment as a matter of law.     DeWitt Cnty. Elec. Co-op., Inc. v. Parks, 1 S.W.3d 96, 102
City of Garland v. Dallas Morning News, 22 S.W.3d 351,          (Tex. 1999). This rule, however, is a device for ascer-
356 (Tex. 2000). When the trial court grants one motion         taining and giving effect to the intention of the parties and
and denies the other, we review the summary judgment            cannot [**6] be applied arbitrarily. Id.
evidence presented by both parties and determine all
questions presented. Id. The reviewing court should ren-        III. DISCUSSION
der the judgment that the trial court should have rendered
or reverse and remand if neither party has met its sum-         A. The Contracts
mary judgment burden. Id.
                                                                    Baylor relies on three written contracts to establish its
     If a defendant moves for summary judgment on an            claim against GPA. First, Baylor relies on a Subscriber
affirmative defense, it must conclusively establish each        Services Agreement between PHCS and GPA dated April
essential element of the affirmative defense. Selz v.           17, 1998, amended by an Amendment, [*472] As-
Friendly Chevrolet, Ltd., 152 S.W.3d 833, 836 (Tex.             signment, and Assumption of the Subscriber Services
App.--Dallas 2005, no pet.) ("To prevail [**4] on               Agreement with effective dates of September 1, 2002 and
summary judgment, a defendant as movant must either             January 1, 2003. Under the Subscriber Services Agree-
disprove at least one element of each of the plaintiff's        ment, GPA 2 became a subscriber to PHCS's "compre-
theories of recovery or plead and conclusively establish        hensive medical management system." 3 As a subscriber
each essential element of an affirmative defense, thereby       to PHCS's network, GPA could offer its customers access
rebutting the plaintiff's cause of action."). Similarly, if a   to PHCS's network of medical care providers at the dis-
party seeks to avoid summary judgment by way of an              count rates negotiated by PHCS.
affirmative defense, it must come forward with summary
judgment evidence sufficient to raise a fact issue on each
                                                                                                                   Page 3
                                  344 S.W.3d 467, *; 2011 Tex. App. LEXIS 3713, **


       2 The Subscriber Services Agreement was ac-           obligate the "Payor (or its designee) to comply with the
       tually between PHCS and a Texas corporation           duties and obligations of [the HSA], including, but not
       named "Group & Pension Administrators, Inc."          limited to, paying for Covered Services rendered to
       The parties entered into a Rule 11 agreement that     Members in accordance with the provisions of Article IV
       "[f]or purposes of this case, G&P Administrators,     of [the HSA]."
       Inc, and GPA Holding, Inc. agree that they can be
       treated as one entity for the purpose of discovery            4   Except as discussed herein.
       and liability." In accordance with this agreement,
                                                                  Third, Baylor relies on a Subscriber Acknowledg-
       in this opinion we will refer only to GPA.
                                                             ment between GPA and PHCS effective January 1, 2003.
       3 The Subscriber Services Agreement recites its
                                                             The Subscriber Acknowledgment refers to both the Sub-
       purpose:
                                                             scriber Services Agreement and the HSA, reciting that
                                                             GPA and PHCS have entered into the Subscriber Services
                   A. PHCS is in the business of
                                                             Agreement and that PHCS has entered into contracts with
               providing     provider   networks
                                                             health care providers for participation in its network. The
               [**7] and a comprehensive medi-
                                                             Subscriber Acknowledgment requires GPA "to pay or
               cal management system, including
                                                             arrange to pay PHCS Preferred Providers [which would
               utilization review, quality assur-
                                                             include Baylor] in accordance with the PHCS Preferred
               ance, and other cost containment
                                                             Provider Agreement for such Preferred Provider, for the
               related services throughout the
                                                             markets and the networks for which [GPA] has purchased
               United States.
                                                             provider network Services from PHCS." (First brackets
                    B. Plans offered and managed             added.) B. Is GPA a "Payor"?
               by Subscriber [GPA] provide
                                                                  In its first issue, GPA contends the trial court erred in
               health benefits and/or services to
                                                             granting Baylor's motion for summary judgment because
               eligible participants under health
                                                             GPA is not [**9] a "payor" under the HSA. At the out-
               benefit plans.
                                                             set, GPA makes a procedural argument that summary
                    C. Plans offered and managed             judgment was improper because Baylor did not move for
               by Subscriber generally include               summary judgment on this issue. We disagree.
               financial incentives to encourage
                                                                   [*473] Baylor filed four motions for partial sum-
               eligible participants to choose
                                                             mary judgment. In its first motion, Baylor requested that
               treatment from providers who have
                                                             the trial court interpret the three contracts at issue and
               contracted with entities, such as
                                                             "find, as a matter of law, that GPA is bound by the terms
               preferred provider organizations
                                                             and conditions of the HSA with respect to the health care
               and exclusive provider organiza-
                                                             claims at issue in this case, including the requirements of
               tions, who are in the business of
                                                             Section 4.4(a)." In its own motion for summary judgment,
               offering provider discounts and
                                                             GPA argued, "GPA is not a 'Payor' obligated to pay under
               other managed medical benefits.
                                                             the terms of the Baylor/PHCS Agreement," and Baylor
                    D. Subscriber is interested in           filed a summary judgment response again arguing that
               and intent upon becoming a sub-               GPA was bound by the terms of the agreement.
               scriber for services of PHCS, thus
                                                                 The trial court granted Baylor's motion and denied
               availing itself of the PHCS com-
                                                             GPA's, necessarily deciding that GPA was a "Payor"
               prehensive medical management
                                                             bound by the provisions of the HSA, including section
               system.
                                                             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
     Second, Baylor relies on a Hospital Services
                                                             the HSA defines "Payor" very narrowly. It argues the
Agreement (HSA) between Baylor and PHCS dated
                                                             evidence established that GPA's clients--and not it-
January 1, 2002. Under the HSA, Baylor became a "Pre-
                                                             self--were "Payors" [**10] under the HSA. It contends
ferred Provider" in PHCS's network. It agreed to pro-
                                                             that as a third party administrator, it did not actually pay
vide-at discounted rates 4 -health care services ("Covered
                                                             claims but only offered administrative services to facili-
Services") to persons ("Members") covered by "Health
                                                             tate payment of claims by the employer-funded health
Plans" (including PPOs) created or sponsored by a
                                                             plans that were GPA's clients. Because the HSA's pay-
"Payor" (a defined [**8] term in the HSA). As part of the
                                                             ment provisions apply only to "Payors" and GPA is not a
HSA, PHCS warranted that its contracts with each Payor
                                                             Payor, GPA contends it is not responsible to pay for
                                                                                                                    Page 4
                                  344 S.W.3d 467, *; 2011 Tex. App. LEXIS 3713, **


Baylor's services, and thus that the trial court erred in     federal district court, we may consider federal precedent
entering summary judgment in favor of Baylor.                 when it is well-reasoned and helpful. See Davenport v.
                                                              Garcia, 834 S.W.2d 4, 20 (Tex. 1992) ("With a strongly
          The HSA defines a "Payor" as an in-                 independent state judiciary, Texas should borrow from
       surance company, employer health plans,                well-reasoned and persuasive federal procedural and
       Taft-Hartley fund, plan sponsors or other              substantive precedent when this is deemed helpful, but
       similarly situated entities or organizations           should never feel compelled to parrot the federal judici-
       which are obligated (directly or through its           ary.").
       designee) to pay for Covered Services for
                                                                   As here, there were three contracts in Epoch Group: a
       Members in accordance with such Health
                                                              HSA between PHCS and Baylor, a subscriber services
       Plans.
                                                              agreement between PHCS and Epoch, and a payor ac-
                                                              knowledgment between PHCS and Epoch. Epoch Group,
                                                              340 F.Supp. 2d at 752. Discussing its conclusion that the
GPA offered the affidavits of Kathy Enochs, the chief
                                                              three documents constituted a single, unified contract, the
operating officer of GPA, and Madalyn Straughn, the vice
                                                              court reasoned:
president of operations for GPA, to establish that GPA is
not an insurance company, employer health plan,
                                                                         Indeed, all three instruments were re-
Taft-Hartley fund, or plan sponsor. Enochs also testified
                                                                     quired to complete the relationship
that GPA was not a "payor" under the definition in the
                                                                     [**13] between the parties. The Subscriber
contract.
                                                                     Services Agreement, which provided dis-
    GPA does not dispute it is a party to the Subscriber             counts from PHCS to Payors, could not
Services Agreement and the Subscriber Acknowledg-                    operate effectively without PHCS con-
ment. [**11] In fact, Enochs testified GPA could not                 tracting with providers through hospital
access PHCS's preferred providers at a discount without              services agreements. The very foundation
the Subscriber Services Agreement and the Subscriber                 of the discounts offered in [the] Subscriber
Acknowledgment. She testified GPA entered into the                   Services Agreement appears to be the
agreement with PHCS "to market their network to our                  agreements between PHCS and providers
plans that we administer."                                           such as Baylor. Moreover, Payor Ac-
                                                                     knowledgments serve no apparent purpose
     In Exhibit J to the Subscriber Services Agreement,
                                                                     other than to commit Payors to comply
under "Duties of the Subscriber," paragraph 2(b) pro-
                                                                     with the terms and conditions of the pro-
vides, "The Subscriber [i.e. GPA] shall abide by the terms
                                                                     vider agreements.
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
                                                              Id. at 755 (citation omitted).
added.) In the Subscriber Acknowledgment, GPA "agrees
to pay or arrange to pay PHCS Preferred Providers in               GPA distinguishes Epoch Group, arguing the court
accordance with the PHCS Preferred Provider Agreement         did not decide the question whether Epoch was a "payor"
for each such Preferred provider, for the markets and the     under the HSA. Perhaps because Epoch signed a docu-
networks for which Subscriber has purchased provider          ment called "payor acknowledgment" instead of "sub-
network Services from PHCS."                                  scriber acknowledgment," the issue whether Epoch was a
                                                              "payor" for purposes of the agreements was not presented
     The discounts offered to GPA's customers were the
                                                              to the Epoch Group court. Regardless of the titles of the
result of the relationships among the parties to all three
                                                              two agreements, however, their substance was the same:
agreements. If PHCS did not contract with Baylor under
                                                              to commit the payor or subscriber "to comply with the
the HSA, there would be no discount to PHCS's sub-
                                                              terms and conditions of the provider agreements," so that
scribers on the fees for Baylor's services. If GPA did not
                                                              provider discounts set forth in hospital services agree-
in turn contract with [**12] PHCS to take advantage of
                                                              ments could be extended to the subscriber's customers.
the discounts offered in the HSA, those [*474] dis-
                                                              [**14] See id. at 755.
counts would not have been available to GPA's customers.
                                                                   We conclude, as did the trial court, that GPA is bound
     In Baylor University Medical Center v. Epoch Group,
                                                              by the HSA. Reading the three agreements together, GPA
L.C., 340 F. Supp. 2d 749, 755 (N. D. Tex. 2004), similar
                                                              committed to abide by the terms of the HSA and to pay or
contracts were held to "constitute a single, unified con-
                                                              arrange to pay Baylor in accordance with the HSA. Even
tract" requiring a claims supervisor to timely pay Baylor's
                                                              though the summary judgment evidence showed that GPA
clean claims. While we are not bound by a decision of a
                                                              was not an "insurance company, employer health plan[],
                                                                                                                  Page 5
                                   344 S.W.3d 467, *; 2011 Tex. App. LEXIS 3713, **


Taft-Hartley fund, [or] plan sponsor[]," we conclude the           If a court determines that a contract term is a liqui-
evidence (i.e. the three contracts) proves as a matter of     dated damages clause, the court may then determine
law that GPA falls within the contractual definition of       whether the clause is enforceable, or whether it is an
"other similarly situated entities or organizations which     unenforceable penalty. The policy underlying the prohi-
are obligated (directly or through its designee) to pay for   bition against penalties is to ensure that a party to a con-
Covered Services for Members in accordance with such          tract receives "just compensation," that is, "neither more
Health Plans." We overrule GPA's first issue.                 nor less than his actual damages." Phillips, 820 S.W.2d at
                                                              788 (quoting Stewart v. Basey, 150 Tex. 666, 245 S.W.2d
B. "Liquidated Damages" or "Penalty"?                         484, 485-86 (1952)). In order to enforce a liquidated
                                                              damages provision and determine the provision is not a
    The HSA also contains terms regarding payment of
                                                              penalty, "the court must find: (1) that the harm caused by
claims:
                                                              the breach is incapable or difficult of estimation, and (2)
                                                              that the amount of liquidated damages called for is a
          4.4 Claim Processing
                                                              reasonable forecast of just compensation." Phillips, 820
            (a) Payor (or its designee) shall pay all         S.W.2d at 788 (quoting Rio Grande Valley Sugar Grow-
       Clean Claims for Covered Services                      ers, Inc. v. Campesi, 592 S.W.2d 340, 342 n.2 (Tex.
       [*475] within forty-five (45) calendar                 1979)).
       days of receipt of a Clean Claim contain-
                                                                    Baylor argues that section 4.4 is neither a liquidated
       ing the information set out in Section 4.3
                                                              damages provision nor a penalty. Baylor asserts that sec-
       from Hospital in accordance with the ap-
                                                              tion 4.4 "does not fix in advance compensation for GPA's
       plicable reimbursement rates attached on
                                                              failure to perform," but [**17] rather "provides a
       Schedule 1. . . . If Payor (directly or
                                                              two-tiered pricing structure that grants GPA discounts
       through its designee) does not pay within
                                                              (often substantial) if claims are paid within forty-five
       forty-five [**15] (45) days of receipt of a
                                                              days." Baylor further contends that even if section 4.4 is a
       Clean Claim, Payor shall no longer be eli-
                                                              liquidated damages provision, it is enforceable under
       gible for the rates set forth on Schedule 1
                                                              Texas law and is not a penalty because damages are dif-
       and shall be obligated to pay Hospital at
                                                              ficult or impossible to estimate, and Baylor's normal
       Hospital's Normal Billed Charges and
                                                              billed charge is a reasonable forecast of just compensa-
       hospital may elect to terminate this
                                                              tion.
       Agreement . . . .
                                                                   For purposes of this opinion, we will assume without
                                                              deciding that section 4.4(a) of the HSA is a liquidated
In its second issue, GPA contends the trial court erred in    damages provision, and examine whether the clause is
denying its motion for summary judgment because the           also an unenforceable penalty under the factors set forth in
amount of damages awarded against it under this provi-        Phillips.
sion constituted an unenforceable liquidated damages
                                                                   The party asserting that a liquidated damages clause
penalty.
                                                              is an unenforceable penalty (here, GPA) bears the burden
     GPA complains that the above section, by requiring       of proof. Urban Television Network Corp. [*476] v.
payors to pay the hospital's "Normal Billed Charges"          Liquidity Solutions, Ltd., 277 S.W.3d 917, 919 (Tex.
unless the payor pays a Clean Claim within 45 days,           App.-Dallas 2009, no pet.) (citing Murphy v. Cintas
"fixes compensation for breach in advance of the breach,"     Corp., 923 S.W.2d 663, 665-66 (Tex. App.-Tyler 1996,
and is thus an impermissible penalty.                         writ denied)). GPA moved for summary judgment on the
                                                              issue whether section 4.4(a) of the HSA is an unen-
     "The term 'liquidated damages' ordinarily refers to an
                                                              forceable penalty. To obtain summary judgment on the
acceptable measure of damages that parties stipulate in
                                                              affirmative defense of penalty, GPA must prove each
advance will be assessed in the event of a contract
                                                              element of the defense. See Brownlee, 665 S.W.2d at 112;
breach." Flores v. Millenium Interests, Ltd., 185 S.W.3d
                                                              [**18] Selz, 152 S.W.3d at 836; see also Phillips, 820
427, 431 (Tex. 2005); see also Valence Operating Co. v.
                                                              S.W.2d at 789. GPA argues the payment of "Normal
Dorsett, 164 S.W.3d 656, 664 (Tex. 2005) ("[l]iquidated
                                                              Billed Charges" is not a reasonable forecast of just com-
damages clauses fix in advance the compensation to a
                                                              pensation, and the harm caused by late payment is not
party accruing from the failure to perform specified con-
                                                              incapable or difficult of estimation. See Phillips, 820
tractual obligations"). Whether a contract [**16] term is
                                                              S.W.2d at 788. In support of its motion for summary
a liquidated damages clause is a question of law for the
                                                              judgment, GPA offered evidence comparing the dis-
court. Valence Operating Co., 164 S.W.3d at 664.
                                                              counted rates to the hospital's normal billed rates for the
                                                              charges at issue. GPA offered a chart attached to the af-
                                                                                                                     Page 6
                                   344 S.W.3d 467, *; 2011 Tex. App. LEXIS 3713, **


fidavit of Madalyn Straughn that showed the percentage         enforceable penalty, the trial judge did not err in denying
difference between the discounted rate and the normal          GPA's motion for summary judgment on this issue. We
billed charge for each of the charges at issue. GPA notes      overrule GPA's second issue.
"the overwhelming majority of the percentage charges are
33% or more."                                                   [*477] C. Claims arising before 2003
     In response to GPA's motion for summary judgment,              In its third issue, GPA argues the trial judge erred by
Baylor offered evidence regarding the difficulty of esti-      awarding damages for the period of time before GPA
mation and the reasonableness of the charges. Baylor           signed the Subscriber Acknowledgment Form. While
offered the affidavit of Janda Edwards to explain that         GPA admits signing the Subscriber Services Agreement
Baylor's normal billed charge "is the amount Baylor            in 1998, it argues that it did not agree to "pay or arrange to
charges for services and supplies to entities or individuals   pay" until [**21] the 2003 amendments set forth in the
who do not have access to a discount through a contract        Subscriber Acknowledgment. Therefore, GPA argues,
with Baylor." Edwards explained Baylor's normal billed         any claims arising in 2002 or before were included im-
charge "is established by each facility and is [**19]          properly in the trial court's judgment.
based upon an analysis of many factors including the
                                                                    Baylor counters that GPA's obligations were set forth
service provided, the amount of personnel time needed to
                                                               in the Subscriber Services Agreement, including the
provide the service, the amount of capital equipment
                                                               agreement to abide by any agreement between PHCS and
needed to provide the service, the amount of routine
                                                               a hospital, and those obligations did not change in 2003.
equipment needed to provide the service, the overhead,
                                                               Because GPA accepted the benefits of the agreements
and market value." Edwards also testified that Baylor's
                                                               before 2003, Baylor argues, it must also accept the obli-
normal billed charge is a reasonable amount for the health
                                                               gations.
care services and supplies provided in the charges at issue
in this case.                                                       We agree with Baylor that GPA's obligation to abide
                                                               by the HSA did not change in 2003. While the "pay or
     GPA quotes from Edwards's affidavit and argues,
                                                               arrange to pay" language does not appear in the Sub-
"Baylor offered no justification attempting to show how
                                                               scriber Services Agreement, GPA did agree at that time to
the changed billing rate was a reasonable estimate of the
                                                               abide by the provisions of the HSA, and, as noted in
cost associated with payments being untimely." GPA
                                                               Epoch Group, "the very foundation" of the discounts
posits that a "more reasonable" calculation would be "a
                                                               offered to GPA's customers are "the agreements between
$30 service fee and 18% annual interest," and argues, "our
                                                               PHCS and providers such as Baylor." Epoch Group, 340
society routinely deals with late payments by a modest
                                                               F. Supp.2d at 755. The Epoch Group court commented
service fee and interest, and thus Baylor's damages were
                                                               that the payor acknowledgments "serve no apparent pur-
calculable." GPA does not offer evidence to support these
                                                               pose other than to commit Payors to comply with the
arguments, however. The difficulty (or lack of difficulty)
                                                               terms and conditions of the provider agreements." Id. The
in estimation as well as the unreasonableness of the
                                                               contractual relationship among the parties was [**22]
damages estimate were GPA's to prove. Urban Television
                                                               established when GPA signed the Subscriber Services
Network Corp., 277 S.W.3d at 919. General statements
                                                               Agreement and began to take advantage of the discounted
about a "more reasonable" [**20] or "modest" rate are
                                                               rates offered under the HSA. The trial court did not err in
not evidence that the harm from late payment is difficult
                                                               awarding damages for the period of time before GPA
to estimate, or that the normal billed charges were an
                                                               signed the Subscriber Acknowledgment. We overrule
unreasonable forecast of the loss actually sustained. See
                                                               GPA's third issue.
Phillips, 820 S.W.2d at 788. GPA also emphasized that
Baylor itself referred to the normal billed charge as a
                                                               CONCLUSION
"penalty." The substance of the provision controls, how-
ever. See Arthur's Garage, Inc. v. Racal-Chubb Security            We overrule GPA's issues and affirm the trial court's
Systems, Inc., 997 S.W.2d 803, 810 (Tex. App.-Dallas           judgment.
1999, no pet.) (provision entitled "liquidated damages"
                                                                   JIM MOSELEY
was actually a limitation of liability provision, so penalty
analysis was not appropriate). Because GPA did not meet            JUSTICE
its burden of establishing that the clause requiring pay-
ment of normal billed charges after 45 days was an un-
                                                                                                                   Page 1




                Great American Products, Appellant v. Permabond International, a Division of Na-
                                tional Starch and Chemical Company, Appellee

                                                   NO. 03-00-00683-CV

                         COURT OF APPEALS OF TEXAS, THIRD DISTRICT, AUSTIN

                                       94 S.W.3d 675; 2002 Tex. App. LEXIS 7175


                                                 October 10, 2002, Filed

NOTICE:          [**1] PUBLISH                                 contractual, or statutory theories. Although the jury an-
                                                               swered favorably for Great American on certain uncon-
SUBSEQUENT HISTORY:                 Released for Publica-      ditionally submitted issues, the jury also affirmatively
tion February 7, 2003.                                         found that Great American had agreed to be bound by the
                                                               warranty disclaimer and limited remedy provisions con-
PRIOR HISTORY:         FROM THE DISTRICT                       tained in Permabond's invoices. Great American moved
COURT OF COMAL COUNTY, 22ND JUDICIAL                           for judgment, asking the trial court to disregard the jury's
DISTRICT. NO. C98-504A, HONORABLE DON G.                       finding that Great American had agreed to the warranty
HUMBLE, JUDGE PRESIDING.                                       disclaimer and limited remedy provisions. Permabond
                                                               [**2] also moved for judgment, asserting that the jury
DISPOSITION:          Affirmed.                                finding that Great American had agreed to be bound by
                                                               the warranty disclaimer and limited remedy provisions
                                                               rendered immaterial its findings relating to any breach of
COUNSEL: For Appellant: Mr. Thomas H. Crofts, Jr.,             warranty, breach of agreement, damages, and attorney's
Mr. Michael J. Murray, Crofts, Callaway & Jefferson, A         fees. The trial court rendered judgment that Great Amer-
Professional Corporation, San Antonio, TX.                     ican take nothing. After the court denied its motion for
                                                               new trial, Great American appealed. We will affirm the
For Appellee: Mr. Martin L. Mayo - Scott & Mayo, P.C.,         judgment of the district court.
Houston, TX. Mr. Barry Abrams - Abrams, Scott &
                                                                 FACTUAL           AND      PROCEDURAL            BACK-
Bickley LLP, Houston, TX.
                                                               GROUND
JUDGES: Before Chief Justice Aboussie, Justices B. A.               This dispute arises out of the sale of an industrial
Smith and Puryear.                                             adhesive by Permabond to Great American. Great
                                                               American is a wholesale manufacturer and assembler of
OPINION BY: [*676] David Puryear                               various gift items, including glassware affixed with
                                                               pewter emblems. Great American uses industrial adhesive
OPINION                                                        to attach pewter emblems to the glassware. The glassware
                                                               is then placed under an ultraviolet light which cures the
     Appellant Great American Products ("Great Ameri-
                                                               adhesive (UV adhesive), permanently affixing the em-
can") appeals the district court's judgment that Great
                                                               blem. Great American has claimed to use this process, or
American take nothing in its suit against appellee
                                                               one similar to it, successfully for approximately twelve
Permabond International ("Permabond"). Great [*677]
                                                               years prior to the dispute with Permabond.
American sued Permabond on a variety of tort, ex-
tra-contractual, statutory, and contract theories, claiming         Permabond is a division of National Starch and
that Permabond sold defective adhesive which caused            Chemical Company ("National Starch"). National Starch
certain product failures and economic losses. The jury         [**3] makes a variety of industrial products that in turn
failed to find for Great American on any of its tort, extra-   are incorporated into other products. Permabond manu-
                                                                                                                Page 2
                                  94 S.W.3d 675, *; 2002 Tex. App. LEXIS 7175, **


factures and sells various types of UV adhesive, including   ARD QUALITY, AND SUCH REPLACEMENT
the UV adhesive at issue in this case.                       SHALL BE BUYER'S EXCLUSIVE REMEDY.
    Before the events giving rise to this suit, Great             As evidenced by the disclaimer, the invoice provided
American had purchased and used other Permabond ad-          that replacement was the exclusive remedy for noncon-
hesives for several years. In December 1994, Permabond       forming adhesive. 1
suggested that Great American begin purchasing a
Permabond UV adhesive. However, after looking at Great              1     The invoice also stated:
American's operation, Permabond's sales engineer told
                                                                         2. While Seller may from time to time offer
Great American that it did not currently have a suitable
                                                                    recommendations and advice with respect to the
product that would work with Great American's system.
                                                                    use of its products, it is understood that Buyer, in
     In late 1995, Permabond informed Great American                acting on any such recommendation or advice
that it had developed an adhesive suitable for Great                does so entirely at its own risk.
American. According to Great American, Permabond's
                                                                         ....
representatives consistently assured Great American that
changing to Permabond's adhesive would not require                     9. THE GOODS COVERED BY THIS IN-
Great American to substantially modify its existing                 VOICE ARE SOLD EXPRESSLY ON THE
manufacturing process. Permabond delivered the adhe-                CONDITION OF BUYER'S ASSENT THAT
sive for testing. After sampling and testing the Permabond          THESE TERMS OF SALE, INCLUDING THE
adhesive, Great American agreed to purchase it, signing a           EXCLUSION OF WARRANTIES GOVERN
blanket order agreement in March 1996.                              THIS PURCHASE AND SALE. BUYER'S
                                                                    FAILURE TO OBJECT TO THESE TERMS OF
     The blanket order agreement stated in pertinent [**4]
                                                                    SALE WITHIN FIVE DAYS AFTER THE
part that: "All sales are subject to National Starch and
                                                                    DATE OF SELLER'S ACKNOWLEDGMENT &
Chemical Company's standard terms and conditions as set
                                                                    TERMS OF SALE (IF SUCH AN AC-
forth in its invoices." According to Great American,
                                                                    KNOWLEDGMENT WAS MADE TO HIS
Permabond did not explain those terms and conditions,
                                                                    ORDER) OR BUYER'S TAKING DELIVERY
but simply began shipping the adhesive. In response,
                                                                    OF ANY GOODS SUPPLIED HEREUNDER,
Permabond contends that during the course of dealing
                                                                    WHICHEVER IS SOONER, SHALL CONSTI-
with Great American [*678] over the years, it con-
                                                                    TUTE SUCH ASSENT.
sistently communicated the fact that Permabond would
not and could not be responsible for damages that Great           [**6] Great American timely remitted the pay-
American might later claim resulted from the use of          ments charged on each invoice. However, Great Ameri-
Permabond's adhesives. Furthermore, it claims that this      can claims it never expressly accepted the "terms of sale"
limitation was conveyed in each invoice sent with the        on the invoices. Permabond contends the invoice dis-
purchase of a Permabond product and that Great Ameri-        claimer put Great American on notice that Great Ameri-
can never disputed any of the disclaimers it received from   can would have no recourse for relying on the recom-
Permabond.                                                   mendations or advice of Permabond, and Great American
                                                             agreed that its exclusive remedy would be replacement
     With each shipment of its adhesive to Great Ameri-
                                                             adhesive.
can, Permabond sent a two-sided invoice that stated the
quantity and price on the front and set out the "terms of         The parties dispute the extent of the express warranty
sale" on the reverse side. Among the terms was a dis-        made to Great American by Permabond. Great American
claimer of warranty which stated in pertinent part:          contends Permabond expressly warranted that the adhe-
                                                             sive it supplied would be suitable for use in Great Amer-
   1. SELLER HEREBY EXCLUDES ANY AND ALL
                                                             ican's manufacturing process, without substantial modi-
WARRANTIES, GUARANTEES, OR REPRESENTA-
                                                             fication, and would perform satisfactorily if implemented
TIONS WHATSOEVER, EXPRESS OR IMPLIED AND
                                                             into that process. Permabond contends it made only a
EXPRESSLY EXCLUDES ANY AND ALL WAR-
                                                             limited warranty that it would provide Great American
RANTIES AS TO MERCHANTABILITY [**5] OR
                                                             with its standard quality adhesive.
FITNESS FOR A PARTICULAR PURPOSE . . . .
BUYER ASSUMES RISK FOR RESULTS OBTAINED                           The blanket order agreement expired on April 30,
FROM USE OF THESE GOODS WHETHER USED                         1997. Great American continued to purchase adhesive
ALONE OR IN COMBINATION WITH OTHER                           from Permabond but claims that after the blanket order
PRODUCTS. SELLER'S LIABILITY HEREUNDER                       agreement [*679] expired, there was no expression,
SHALL BE LIMITED TO REPLACEMENT OF ANY                       either in Great American's purchase order or in
GOODS WHICH ARE NOT OF SELLER'S STAND-                       Permabond's response, and no other evidence which
                                                                                                                    Page 3
                                   94 S.W.3d 675, *; 2002 Tex. App. LEXIS 7175, **


suggested [**7] the parties had continued to be bound by            When asked in Question No. 3 and Question No. 4
the "terms of sale" set forth in the invoices. Permabond       whether Permabond failed to comply with any warranty
contends that Great American never informed Permabond          and whether this failure was a producing cause of dam-
that it did not consider itself bound by the warranty ex-      ages to Great American, the jury answered affirmatively. 2
clusion and limited remedy provisions set out on each          The questions submitted did not differentiate between
invoice. Permabond also contends that the exclusion of         express and implied warranties. For the breach of [*680]
warranty provisions and limited remedy provisions in the       warranty claim, the jury awarded Great American $
invoices were part of the parties' course of dealing and       70,000 for repair and replacement expenses and $ 250,000
course of performance and were in accord with standard         in lost profits.
industry practices.
                                                                      2     Question No. 3 of the jury charge was "Do
    In July 1997, Things Remembered, a customer of
                                                                      you find that Permabond failed to comply with
Great American, reported that the pewter emblems on its
                                                                      any warranty? You are instructed . . . that 'failed to
glass mugs were falling off. The first failures reported by
                                                                      comply' means any of the following." The ques-
Things Remembered were all produced at an Anchor
                                                                      tion then listed and defined the following warran-
Hocking plant in Ohio, which had been employed to do
                                                                      ties: (1) express warranty; (2) the implied war-
some of Great American's manufacturing while the
                                                                      ranty of merchantability; (3) the implied warranty
company relocated to Texas from Illinois. Great Ameri-
                                                                      of fitness for a particular purpose; and (4) the im-
can claims that the plant had just begun using the
                                                                      plied warranty of good and workmanlike perfor-
Permabond adhesive and had used the lighting system that
                                                                      mance. Question No. 4 of the jury charge was "
was recommended by Permabond to properly cure the
                                                                      Was the failure, if any, of Permabond to comply
adhesive. Subsequently, more problems were noted by
                                                                      with a warranty a producing cause of damages to
Great American in products manufactured at its New
                                                                      GAP?"
Braunfels plant.
                                                                     [**10] In a series of answers to the sub-parts of
    After Great American became aware of problems
                                                               Question No. 7, 3 the jury found that Great American and
with [**8] the UV adhesive, it notified Permabond.
                                                               Permabond had agreed to the following: (A) Permabond
Permabond dispatched representatives to the New
                                                               would provide adhesive suitable for use in Great Ameri-
Braunfels facility to investigate the problem. After run-
                                                               can's manufacturing facility, (B) Permabond would pro-
ning tests on the adhesive, Permabond informed Great
                                                               vide technical service regarding adhesive supplied for use
American that it thought Great American's curing light
                                                               in the Great American process, (C) Great American would
source was inadequate and this was the source of the
                                                               pay Permabond for adhesive it supplied that was suitable
problem. Great American claims that Permabond did not
                                                               for use in Great American's manufacturing facility, and
acknowledge its earlier assurances that its product was
                                                               (D) the parties would be bound by the standard terms and
compatible with Great American's existing manufacturing
                                                               conditions as stated in Permabond's invoices.
process. Furthermore, Great American claims that
Permabond did not explain the Anchor Hocking problems
                                                                      3    Question No. 7 of the jury charge was "Did
which occurred despite Great American's use of
                                                                      the agreement between GAP and Permabond in-
Permabond's preferred fusion-lighting system.
                                                                      clude any of the following terms: (A) Permabond
     After testing the adhesive, Permabond supplied Great             would provide adhesive suitable for use in GAP's
American with an alternative UV adhesive to address the               manufacturing facility, (B) Permabond would
problems that Great American had experienced. Great                   provide technical service regarding adhesive sup-
American used this adhesive for a short period, but                   plied for use in the GAP process, (C) GAP would
eventually returned to the original adhesive it used before           pay Permabond for adhesive it supplied that was
the Permabond product.                                                suitable for use in GAP's manufacturing facility,
                                                                      (D) The parties would be bound by the standard
     Great American filed suit in June 1998. The case was
                                                                      terms and conditions as stated in Permabond's
tried before a jury. The trial court submitted the charge
                                                                      invoices." The jury answered "yes" to each subpart
proposed by Great American which included the follow-
                                                                      of Question No. 7.
ing liability theories: deceptive trade practices, breach of
warranties, [**9] breach of contract, fraud, negligent              [**11] In Question No. 8, 4 which dealt with the
misrepresentation, and negligence. As to the deceptive         breach of contract claim, the jury found Permabond failed
trade practices claims, fraud claims, and negligent mis-       to comply with the terms of the agreement inquired about
representation claims, the jury failed to find Permabond       in Question No. 7. As to the breach of contract claim, the
liable.                                                        jury awarded Great American $ 70,000 for repair and
                                                               replacement expenses and $ 250,000 in lost profits.
                                                                                                                     Page 4
                                    94 S.W.3d 675, *; 2002 Tex. App. LEXIS 7175, **


                                                                     In its second issue, Great American complains that
       4   Question No. 8 of the jury charge was " Did          the trial court erred in not rendering judgment that it re-
       Permabond fail to comply with the agreement?"            cover for breach of express warranty. Great American
                                                                asserts that the jury's affirmative answer to Question No. 3
     Following the return of the jury's verdict, but before
                                                                regarding breach of any warranty necessarily means that
the rendition of judgment, Permabond moved for entry of
                                                                the jury found that Permabond breached an express war-
judgment in its favor asserting that the jury's answer to
                                                                ranty. We disagree.
Question No. 7(D), that the parties were bound by the
terms and conditions set forth in the invoices, negated the          The question regarding breach of warranty submitted
jury's findings relating to the breach of warranty and          to the jury states in pertinent part:
breach of contract claims because the invoices effectively
                                                                    Do [**14] you find that Permabond failed to com-
disclaimed express and implied warranties. Alternatively,
                                                                ply with any warranty?
Permabond requested that the court enter judgment non
obstante veredicto (notwithstanding the verdict). See Tex.          You are instructed in answering this Question that the
R. Civ. P. 301.                                                 term "failed to comply" means any of the following:
     In response, [**12] Great American contended                   . Failing to comply with an express warranty
that the jury's answers required judgment in its favor.
Great American asked the trial court to disregard the jury's        . Implied Warranty of Merchantability
finding that Great American had agreed to be bound by               . Implied Warranty of Fitness for Particular Purpose
the standards and terms stated in Permabond's invoices,
which included the warranty disclaimer and limited                  . Implied Warranty of Good and Workmanlike Per-
remedy provision. It argued that because Permabond had          formance
expressly warranted its goods and services, its attempted           Answer "Yes" or "No."
disclaimer was ineffective.
                                                                     Because of the ambiguous nature of the jury question,
     The trial court rendered judgment that Great Ameri-        one cannot discern whether the jury's affirmative answer
can take nothing. Great American then moved to modify           relates to one or more of the implied warranties or to the
the judgment and alternatively for a new trial, but the         express warranty. Based on the plain meaning of the in-
court denied the motion. In five issues on appeal, Great        struction, an affirmative answer to "any of the following"
American contends that: (1) the trial court erred in ren-       is not a finding of breach of express warranty.
dering judgment that Great American take nothing be-
cause the blanket order agreement had expired at the time            In order to recover for the breach of an express war-
of the breach and a proper construction of the verdict          ranty, a plaintiff must prove: (1) an express affirmation of
entitles Great American to recover damages for both             fact or promise by the seller relating to the goods; (2) that
breach of warranty and breach of contract; (2) even if          such affirmation of fact or promise became a part of the
there were an effective disclaimer of implied warranty,         basis of the bargain; (3) that the plaintiff relied upon said
the trial court erred in not rendering judgment [*681]          affirmation of fact or promise; (4) that the goods failed to
that Great American recover for breach of express war-          comply with the affirmations of fact or promise; (5) that
ranty, because the disclaimer was legally inoperative           the plaintiff was injured by such failure [**15] of the
[**13] as to the express warranty; (3) even if there were       product to comply with the express warranty; and (6) that
an effective disclaimer of warranty, the trial court erred in   such failure was the proximate cause of plaintiff's injury.
not rendering judgment that Great American recover for          Morris v. Adolph Coors Co., 735 S.W.2d 578, 587 (Tex.
breach of contract, because, as a matter of law,                App.--Fort Worth 1987, writ ref'd n.r.e.). Great American
Permabond's invoices did not disclaim responsibility for        had the burden to plead, prove, and submit all elements
breach of the agreement; (4) even if there were an effec-       but failed to do so. In essence, Great American is asking
tive limitation of remedy, the trial court erred in not ren-    this Court to deem a finding of breach of express warranty
dering judgment that Great American recover damages,            based on an ambiguous jury submission so as to invalidate
because, as a matter of law, the limitation of remedy           the trial court's judgment. This we will not do.
provision in Permabond's invoices failed of its essential            Great American requested Jury Question No. 3, and
purpose; and (5) the trial court erred in not rendering         the trial court submitted it over Permabond's objections.
judgment that Great American recover attorney's fees            The jury answered this question in the affirmative. It is
awarded by the jury.                                            unknown whether the jury found an express warranty by
    DISCUSSION                                                  Permabond. Even assuming the validity of Great Ameri-
                                                                can's argument regarding express warranties, where a
    Breach of Express Warranty                                  jury's findings are capable of two constructions and one
                                                                                                                     Page 5
                                    94 S.W.3d 675, *; 2002 Tex. App. LEXIS 7175, **


would reconcile the findings in favor of the judgment,          holding that limited warranty and limited remedy provi-
reconciliation in favor of the judgment that was rendered       sion rendered irrelevant any jury finding regarding lost
on the jury verdict is mandatory. Materials Mktg. Corp.         profits). A question is immaterial when it should not have
v. Spencer, 40 S.W.3d 172, 176 (Tex. App.--Texarkana            been submitted, it calls for a finding beyond the province
2001, no pet.). We overrule issue two.                          of the jury, e.g., a question of law, or when it was properly
                                                                submitted but has been rendered immaterial by other
     [**16]     [*682] Disregarding Jury Findings
                                                                findings. Id. A trial court may disregard a finding on an
     In issues one and three, Great American argues that        immaterial issue and render judgment on the remaining
the trial court erred by disregarding, or failing to recon-     findings; such a judgment is not considered a judgment
cile, certain jury findings in support of the jury's verdict.   notwithstanding the verdict. Kuehnhoefer v. Welch, 893
Underlying these issues is the apparent conflict between        S.W.2d 689, 692 (Tex. App.--Texarkana 1995, writ de-
the jury's answers to Questions Nos. 3 and 8 (that              nied).
Permabond breached a warranty and breached its agree-
                                                                     In the instant case, Permabond filed a motion for
ment) and the jury's answer to Question No. 7(D) (that
                                                                judgment in which it urged the trial court to disregard the
Great American agreed to be bound by the standard terms
                                                                jury's findings of breach of warranty and breach of
and conditions in Permabond's invoices). 5 As discussed,
                                                                agreement based on the [**18] jury's affirmative answer
the standard terms and conditions in Permabond's in-
                                                                to Question No. 7(D), finding that Great American agreed
voices disclaimed all warranties and limited Great
                                                                to be bound by the standard terms and conditions, i.e., the
American's remedy to replacement of the glue.
                                                                disclaimer of warranties contained in its invoices. In the
                                                                alternative, Permabond asked for a judgment notwith-
       5      In issue one, Great American specifically
                                                                standing the verdict based on insufficient evidence. The
       claims that because the blanket order agreement
                                                                trial court ultimately rendered final judgment for
       had expired at the time of breach, the jury findings
                                                                Permabond that Great American take nothing by its suit.
       of breach of warranty and breach of agreement can
       be reconciled by construing the answer to Ques-               We agree with Permabond that the jury's answer to
       tion No. 7(D) as a finding that the parties had once     Question No. 7(D) rendered its answers relating to breach
       agreed to be bound, but that the agreement was not       of warranty immaterial. In answering Question No. 7(D),
       in force when the breach occurred. However, that         the jury impliedly found that Great American agreed to be
       is not how the jury charge reads. The jury was in-       bound by the standard terms and conditions, including the
       structed that the parties had "entered into an           disclaimer and limitation of remedy, [*683] contained
       agreement regarding the purchase and sale" of the        in its sales invoices. Once the jury found that Great
       Permabond adhesive. The jury was asked whether           American agreed to be bound by the standard terms and
       that agreement included the agreement to be              conditions on Permabond's invoices, the jury's findings of
       bound by the standard terms contained in                 breach of warranty became immaterial. A disclaimer of
       Permabond's invoices. In answering Question No.          warranty is an affirmative defense. Tex. R. Civ. P. 94;
       7, the jury was directed to consider the parties'        Johnston v. McKinney Am., Inc., 9 S.W.3d 271, 280 (Tex.
       course of dealing, usage of trade, and course of         App.--Houston [14th Dist.] 1999, pet. denied). An af-
       performance. There is nothing in the charge or           firmative defense is by its nature "one of confession
       question that referenced the blanket order agree-        [**19] and avoidance" which seeks to establish an in-
       ment. In addition, there is nothing to indicate the      dependent reason why the plaintiff should not prevail.
       jury was thinking about some prior, expired              Texas Beef Cattle Co. v. Green, 921 S.W.2d 203, 212, 39
       blanket order agreement when it answered Ques-           Tex. Sup. Ct. J. 523 (Tex. 1996) (jury's finding of affirm-
       tion No. 7. In answering Question No. 7(D) af-           ative defense of justification rendered immaterial finding
       firmatively, the jury expressly found that Great         of actual malice).
       American had agreed to be bound by the terms and
                                                                     In addition, the jury's answer to Question No. 7(D)
       conditions stated in the invoices; therefore, the
                                                                rendered its answer to Question No. 8 immaterial because
       terms and conditions in the invoices were found to
                                                                Permabond expressly provided in its invoices that a buy-
       be part of the parties' agreement.
                                                                er's exclusive remedy for substandard goods was limited
      [**17] A trial court may disregard a jury's answers       to replacement of the goods. By answering all sub-parts to
that have no support in the evidence or when the answers        Question No. 7 in the affirmative, the jury specifically
to the questions are immaterial. Southeastern Pipe Line         found: (1) Permabond agreed to provide suitable adhesive
Co., Inc. v. Tichacek, 997 S.W.2d 166, 172, 42 Tex. Sup.        and technical service to Great American; (2) Great
Ct. J. 772 (Tex. 1997); see also Southwestern Bell Tel.         American agreed to pay Permabond for the adhesive if
Co. v. FDP Corp., 811 S.W.2d 572, 577, 34 Tex. Sup. Ct.         suitable; and (3) both parties agreed to be bound by the
J. 690 (Tex. 1991) (rendering take nothing judgment and         terms included in Permabond's invoices. In answering
                                                                                                                    Page 6
                                    94 S.W.3d 675, *; 2002 Tex. App. LEXIS 7175, **


Question No. 8 affirmatively, the jury found that               Permabond responds that Great American failed to submit
Permabond had failed to comply with its part of the             a jury question on the issue or raise the issue in its
agreement, specifically, providing suitable adhesive and        pleadings below and thus has waived it on appeal. Great
technical service to Great American. At the same time, by       American counters that its [**22] failure to submit a jury
finding that the parties agreed to be bound by the terms        question on whether Permabond's limited remedy failed
and conditions of the invoices, the [**20] jury also            of its essential purpose is not fatal to its pursuit of this
found that the remedy for failure to comply with the            issue on appeal. See Mercedes Benz of N. Am., Inc. v.
agreement was limited to replacement of the defective           Dickenson, 720 S.W.2d 844 (Tex. App.--Fort Worth 1986,
product.                                                        no writ). In Mercedes Benz, the court of appeals consid-
                                                                ered the issue of whether a limited remedy failed of its
     The record reveals that the issue of disclaimer was
                                                                essential purpose, reasoning that the defendant could not
addressed throughout the trial, during closing arguments,
                                                                complain of the plaintiff's failure to plead the issue or to
and was raised by Permabond in its pleadings below.
                                                                submit a jury question on the issue in the absence of spe-
Permabond's general manager testified that Permabond's
                                                                cial exceptions to the plaintiff's pleadings. Id. at 853-54.
disclaimer of warranty and limitation of remedy language
                                                                The court relied on Roark v. Allen in which the supreme
was standard in the chemical industry, or a "usage of
                                                                court rejected the appellate court's determination that the
trade." Additionally, from the testimony of Great Amer-
                                                                plaintiffs' petition was insufficient to support the submis-
ican's CEO and purchasing agent, the jury could infer that
                                                                sion of special issues to the jury on the issue of negli-
Great American, based on its prior course of dealing with
                                                                gence. Roark v. Allen 633 S.W.2d 804, 1982 Tex. LEXIS
Permabond, should have been aware of the disclaimer
                                                                313, 25 Tex. Sup. Ct. J. 348 (Tex. 1982). However, unlike
language contained on Permabond's invoices and corre-
                                                                the instant case, the Roark plaintiffs submitted a jury
spondence. Furthermore, the preface to Question No. 7 of
                                                                question on the issue of negligence, although they did not
the court's charge specifically instructed the jury on
                                                                plead it specifically in their petition. Id. at 809. In the
course of dealing and usage of trade:
                                                                instant case, Great American not only failed to plead but
     A "course of dealing" is a sequence of previous            also [**23] failed to submit a jury question on the issue
conduct between the parties to a particular transaction         of whether the limited remedy failed of its essential pur-
which is fairly to be regarded as establishing a common         pose; therefore, we hold it has waived this issue on appeal.
basis of understanding for interpreting their expressions       Tex. R. App. P. 33.1; see also Henderson v. Ford Motor
or other conduct.                                               Co., 547 S.W.2d 663, 668-69 (Tex. App.--Amarillo 1977,
                                                                no writ).
      A "usage of trade" is any practice or method of
dealing having such regularity of [**21] observance in              Attorney's fees
place, vocation or trade as to justify an expectation that it
                                                                     In issue five, Great American claims the trial court
will be observed with respect to the transaction in ques-
                                                                erred in not rendering judgment on the jury's award of
tion.
                                                                attorney's fees to Great American. To recover attorney's
     Where an agreement for sale involves repeated oc-          fees under Section 38.001 of the Texas Civil Practice and
casions for performance by either party with knowledge          Remedies Code, a party must (1) prevail on a cause of
of the nature of the performance and opportunity for ob-        action for which attorney's fees are recoverable, and (2)
jection to it by the other, any course of performance ac-       recover damages. See Tex. Civ. Prac. & Rem. Code Ann. §
cepted or acquiesced in without objection shall be relevant     38.001 (West 1997); Green Int'l, Inc. v. Solis, 951 S.W.2d
to determine the meaning of the agreement.                      384, 390, 40 Tex. Sup. Ct. J. 610 (Tex. 1997) (citing State
                                                                Farm Life Ins. Co. v. Beaston, 907 S.W.2d 430, 437, 38
     Finally, we note that Great American requested the
                                                                Tex. Sup. Ct. J. 947 (Tex. 1995)). Great American has
charge of which it now complains. In summary, we hold
                                                                neither prevailed on any cause of action for which attor-
that the trial court did not err by disregarding the jury's     ney's fees are recoverable, nor has it recovered any
answers to the breach of warranty and breach of agree-          damages. Issue five is overruled.
ment questions. We overrule issues one and three.
     [*684] Limited Remedy Failed of Essential Pur-             CONCLUSION
pose?                                                                Having overruled all of Great [**24] American's
     In issue four, Great American urges that, as a matter      issues on appeal, we affirm the judgment of the district
of law, the limited remedy Permabond provided in its            court.
invoices failed of its essential purpose and that the jury's        David Puryear, Justice
inconsistent answers can be reconciled on this basis.
                                                                                                                 Page 1




                  Patricia Hamilton, Leonard Smith, and Latisha Hamilton, Appellants v. Texas
               Property and Casualty Insurance Guaranty Association; George Piccoli as Receiver
               for International Underwriters Insurance Company; White's Wrecker Service; and
                                        Lawrence Newhouse, Appellees

                                                 NO. 03-98-00355-CV

                        COURT OF APPEALS OF TEXAS, THIRD DISTRICT, AUSTIN

                                             1999 Tex. App. LEXIS 3163


                                                 April 29, 1999, Filed

NOTICE:     [*1] PURSUANT TO THE TEXAS                                and the remaining appellants were her passen-
RULES OF APPELLATE PROCEDURE, UN-                                     gers. Latisha Hamilton also sued as next friend
PUBLISHED OPINIONS SHALL NOT BE CITED AS                              for Senquinsha Howard, a minor.
AUTHORITY BY COUNSEL OR BY A COURT.                            [*2]
                                                                      2 For convenience, we will refer collectively to
PRIOR HISTORY:       FROM THE DISTRICT                                the Guaranty Association, White's Wrecker, and
COURT OF TRAVIS COUNTY, 250TH JUDICIAL                                Newhouse as appellees except where necessary to
DISTRICT.  NO.   94-12823,   HONORABLE                                name them individually. George Piccoli, the
MARGARET A. COOPER, JUDGE PRESIDING.                                  Delaware receiver for International Underwriters
                                                                      Insurance Company ("the receiver") was served
DISPOSITION:         Affirmed.                                        but did not answer.
                                                                      3 The claim of Senquinsha Howard was settled
                                                                      and approved by the court. The partial summary
JUDGES: Jan P. Patterson, Justice. Before Justices                    judgment granted to appellees became a final
Jones, Kidd and Patterson.                                            judgment on March 31, 1997, by combining the
                                                                      partial summary judgment with the court's ap-
OPINION BY: JAN P. PATTERSON                                          proval of the minor's settlement. The Hamiltons
                                                                      appeal only the summary judgment ruling that
OPINION                                                               does not affect the claim of the minor.
     Appellants Patricia Hamilton, Leonard Smith, and              This appeal involves interpretation of the Texas
Latisha Hamilton, 1 appeal from a summary judgment in         Property and Casualty Insurance Guaranty Act (the
favor of appellees, Texas Property and Casualty Insur-        "Guaranty Act"). 4 The Guaranty Act provides for the
ance Guaranty Association ("Guaranty Association"),           payment by the Guaranty Association of "covered
White's Wrecker Service (the "insured") and Lawrence          claims" up to a statutorily mandated maximum cap in the
Newhouse. 2 The Hamiltons sued appellees for personal         event a member insurance company becomes insolvent.
injuries they suffered in an automobile accident. Appel-      The question raised is whether an injured third party may
lees filed a motion for partial summary judgment which        seek recovery when the insurance company is in receiv-
was granted by the trial court and became a final judg-       ership in Delaware, [*3] has been declared an im-
ment. 3 The Hamiltons now appeal the granting of the          paired insurer in Texas, and the statute of limitations has
motion.                                                       expired as to the insured party. We hold that, under the
                                                              circumstances of this case, the Hamiltons may not re-
       1 For convenience and clarity, we will refer to        cover. We will affirm the trial court's summary judg-
       the appellants as the "Hamiltons." Patricia Ham-       ment.
       ilton was the driver of the appellants' automobile,
                                                                                                                 Page 2
                                             1999 Tex. App. LEXIS 3163, *


       4 See Tex. Ins. Code Ann. art. 21.28-C (West                THE GUARANTY ACT
       Supp. 1999).
                                                                   The Guaranty Act establishes an association of all
                                                              property and casualty insurers licensed to transact busi-
FACTUAL AND PROCEDURAL BACKGROUND
                                                              ness in Texas. See Guaranty Act § 6. 7 By assessing con-
     The facts of the case are uncontested. On February       tributions from solvent member insurers, the Guaranty
19, 1992, a White's Wrecker Service truck driven by           Association maintains a guaranty fund which assumes
Lawrence Newhouse collided with the Hamiltons' vehi-          insolvent insurers' obligations with respect to statutorily
cle. White's Wrecker was insured by International Un-         defined "covered claims." Id. § 5(8). The fund is held by
derwriters Insurance Company ("IUIC"), a Delaware             the Guaranty Association to pay insureds' claims up to a
insurance company. On March 11, 1993, IUIC was                statutorily mandated maximum cap in the event the in-
placed in receivership in Delaware and was designated         surance company becomes insolvent. The stated purpos-
an impaired insurer by the Texas Commissioner of In-          es of the Act are: (1) to protect policyholders and claim-
surance on March 22, 1993. The impairment of IUIC             ants from financial loss because of the impairment of an
authorized the Guaranty Association to pay "covered           insurer, and (2) to provide a mechanism [*6] for the
claims" 5 against IUIC insureds.                              payment of "covered claims" under certain insurance
                                                              policies. Id. § 2.
       5 A "covered claim" is defined as "an unpaid
       claim of an insured or third-party liability claim-           7 The Texas Insurance Code creates three sep-
       ant that arises out of and is within the coverage             arate guaranty funds: the Texas Title Insurance
       and not in excess of the applicable limits of an              Guaranty Association to administer "covered
       insurance policy to which this Act applies, issued            claims" of an "impaired" title insurance company
       or assumed . . . by an insurer licensed to do busi-           authorized to do business in the state, Tex. Ins.
       ness in this state. . . ." Tex. Ins. Code Ann. art.           Code Ann. art. 9.48, § 14; the Texas Property
       21.28-C, § 5(8) (West Supp. 1999).                            and Casualty Insurance Guaranty Association to
                                                                     provide funds to the receiver for the payment of
      [*4] The Hamiltons' attorney received a letter
                                                                     "covered claims" of an "impaired" member of the
dated July 6, 1993, from an adjuster, apparently on be-
                                                                     association, Tex. Ins. Code Ann. art. 21.28-C, §
half of the Guaranty Association, acknowledging the
                                                                     14; and the Life, Accident, Health, and Hospital
Association's involvement in the claim. The letter de-
                                                                     Service Insurance Guaranty Association to pro-
scribed the procedure for filing claims with the Guaranty
                                                                     vide funds to the receiver for payment of the
Association and further stated: "The Association is con-
                                                                     "contractual obligations" of an "impaired" mem-
sidered the insurer to the extent of its obligation on cov-
                                                                     ber company, Tex. Ins. Code Ann. art. 21.28-D,
ered claims and to that extent has all the rights, duties,
                                                                     § 6. The procedures as well as the definitions of
and obligations of the impaired insurer as if the insurer
                                                                     "covered claim" are defined by the applicable
had not become impaired." The Hamiltons filed proofs of
                                                                     statutory provision.
claim with the Delaware receiver in November and De-
cember, 1993. On June 20, 1994, they sued White's                  The receiver and the Guaranty Association are crea-
Wrecker Service and Lawrence Newhouse for personal            tures of statute. 8 Prior to 1992, the Texas receiver had
injuries sustained as a result of the collision. They also    dual [*7] responsibilities: liquidation of the company
named the Guaranty Association and the Delaware re-           and the administration, evaluation, and payment of
ceiver in the lawsuit.                                        claims with funds advanced by the various guaranty
                                                              funds. The Guaranty Association, under the old statute,
     Appellees moved for summary judgment on the
                                                              played no claims-processing role but merely provided an
grounds that, under Texas law, the Hamiltons could not
                                                              extra purse for the payment of claims the receiver deter-
maintain a direct cause of action against the Guaranty
                                                              mined were "covered claims." See Chandler v. Gutierrez,
Association, and that the claims against White's and
                                                              906 S.W.2d 195, 198 (Tex. App.--Austin 1995, writ de-
Newhouse were barred by the two-year statute of limita-
                                                              nied).
tions. The trial court granted the motion, holding that the
Hamiltons could not maintain a direct cause of action
                                                                     8     See Couch on Insurance, Guarantee Asso-
[*5] against the Association and that all claims of
                                                                     ciations § 6:27 (3d ed. 1997).
plaintiffs (except the minor's) were barred by the appli-
cable two-year statute of limitations. 6                          In 1991, the Texas Legislature made substantial
                                                              changes to the insurance liquidation statute. 9 The
       6 Actions for personal injury must be brought          changes included the transfer of the receiver's duty to
       within two years of the injury. See Tex. Civ. Prac.    administer, evaluate, and pay claims to the Guaranty
       & Rem. Code Ann. § 16.003 (West 1986).                 Association for all companies placed in receivership on
                                                                                                                    Page 3
                                              1999 Tex. App. LEXIS 3163, *


or after January 1, 1992. Specifically, the Guaranty As-       limitations. Since the judgment is final as to the Guaran-
sociation undertook "to discharge the policy obligations       ty Association regarding its direct action bar, we need
of the impaired insurer, including the duty to defend          only address the remaining defendants, White's Wrecker
insureds under a liability policy, to the extent that policy   and Newhouse.
obligations [*8] are covered claims" under the Act. 10
                                                                    We review the record under the familiar precepts of
See Guaranty Act § 8(b). It is this changed role of the
                                                               summary judgment law that a summary judgment is
Guaranty Association that is disputed by the parties. Be-
                                                               proper only when a movant establishes that there is no
cause of the procedural posture of this case, we do not
                                                               genuine issue of material fact and that he is therefore
address the changed role of the Association in the han-
                                                               entitled to judgment as a matter of law. In deciding
dling of claims.
                                                               whether there is a disputed issue of material fact, matters
                                                               in the record that favor the nonmovant will be taken as
       9 The Guaranty Act was amended in 1991 and
                                                               true and every reasonable inference from the record must
       became effective on January 1, 1992. The
                                                               be resolved in favor of the nonmovant. See Nixon v. Mr.
       amended Act applies to any company designated
                                                               Property Management Co., 690 S.W.2d 546, 548-49
       an impaired insurer on or after January 1, 1992.
                                                               (Tex. 1985). A defendant who conclusively establishes
       The Act has been amended since 1992, but those
                                                               all of the [*10] elements of an affirmative defense is
       amendments are not relevant to this appeal.
                                                               entitled to summary judgment. See Cathey v. Booth, 900
       10 Article 21.28-C section 8(d) authorizes the
                                                               S.W.2d 339, 341 (Tex. 1995).
       Association to:
                                                               When a defendant moves for summary judgment on its
                  investigate and adjust, com-
                                                               affirmative defense, it must prove each element of its
               promise, settle, and pay covered
                                                               defense as a matter of law, leaving no issues of material
               claims to the extent of the associa-
                                                               fact. See Johnson & Johnson Med., Inc. v. Sanchez, 924
               tion's obligation and deny all other
                                                               S.W.2d 925, 927 (Tex. 1996). When the defendant moves
               claims. The association may re-
                                                               for summary judgment on a statute of limitations de-
               view settlements, releases, and
                                                               fense, the defendant must conclusively (1) prove when
               judgments to which the impaired
                                                               the cause of action accrued, and (2) if the plaintiff
               insurer or its insureds were parties
                                                               pleaded a tolling provision, negate its application as a
               to determine the extent to which
                                                               matter of law. See Jennings v. Burgess, 917 S.W.2d 790,
               those settlements, releases, and
                                                               793 (Tex. 1995). Once the movant has established a right
               judgments may be properly con-
                                                               to a summary judgment as a matter of law, the burden
               tested. Any judgment taken by
                                                               shifts to the non-movant. The non-movant must then
               default or consent against an in-
                                                               respond to the motion for summary judgment by pre-
               sured or the impaired insurer, and
                                                               senting to the trial court summary judgment proof suffi-
               any settlement, release, or judg-
                                                               cient to raise a fact issue. See Casso v. Brand, 776
               ment entered into by the insured or
                                                               S.W.2d 551, 556 (Tex. 1989).
               the impaired insurer, is not bind-
               ing on the association, and may                      The uncontroverted summary judgment evidence
               not be considered as evidence of                establishes that the Hamiltons' claims are barred by the
               liability or of damages in connec-              statute of limitations. The automobile accident occurred
               tion with any claim brought                     on February [*11] 19, 1992. The lawsuit was filed on
               against the association or any oth-             June 20, 1994, more than two years following the date
               er party under this Act.                        their cause of action accrued. Once appellees demon-
                                                               strated that the Hamiltons filed their lawsuit more than
                                                               two years following the accrual of their cause of action,
       Guaranty Act § 8(d).                                    the burden shifted to the Hamiltons to produce evidence
                                                               sufficient to raise a fact issue that would preclude sum-
 [*9] DISCUSSION                                               mary judgment. See City of Houston v. Clear Creek Ba-
                                                               sin Auth., 589 S.W.2d 671, 678 (Tex. 1979). This they
     In granting the appellees' motion for summary
                                                               failed to do.
judgment, the trial court specified two grounds in its or-
der: (1) that appellants did not have a direct cause of             The Hamiltons contend that they relied upon a letter
action against the Guaranty Association and (2) that the       to their lawyer to delay the filing of their lawsuit and that
claims were barred by the two-year statute of limitations.     they were misled by the letter into believing that they
On appeal, the Hamiltons challenge the court's granting        should await denial of their claims before filing suit.
of summary judgment only on the basis of the statute of        Specifically, on July 6, 1993, a claims adjuster, on behalf
                                                                                                                    Page 4
                                               1999 Tex. App. LEXIS 3163, *


of the Guaranty Association, sent a letter to the               When a motion for new trial is filed after a summary
Hamiltons' attorneys "to notify you of your rights and          judgment has been granted, as here, the district court is
obligations." The letter went on to state:                      entitled to consider only the [*14] record as it existed
                                                                prior to granting the summary judgment. See Parchman
     You must file your third party liability claim against
                                                                v. United Liberty Life Ins. Co., 640 S.W.2d 694, 696
an insured of International Underwriters, with the Asso-
                                                                (Tex. App.--Houston [14th Dist.] 1982, writ ref'd n.r.e.).
ciation. In the event the Association denies your claim,
                                                                Having raised no issue of estoppel in response to the
you are entitled to appeal that denial by filing suit against
                                                                motion for summary judgment, as it was their burden to
the insured in the same manner as you [*12] would file
                                                                do, appellants are not entitled to raise the issue on ap-
suit if International Underwriters had not become im-
                                                                peal.
paired.
                                                                     Even if the issue of estoppel could now be raised by
     In November and December 1993, the Hamiltons
                                                                the Hamiltons, it is without merit. First, it is moot as to
filed proofs of claim with the Delaware receiver. They
                                                                the Guaranty Association. Appellants' estoppel argument
filed this lawsuit in July 1994.
                                                                does not apply to the Association because the summary
     Relying solely upon the July 1993 letter, the              judgment is final on other grounds. Moreover, a plaintiff
Hamiltons contend that they were not told in the letter         may invoke equitable estoppel to prevent an opponent
that their claims were subject to a statute of limitations      from pleading limitations if the opponent, his agent, or
and that the letter was misleading as to the procedure to       representatives made representations that induced the
be followed for third party claims. They assert that these      plaintiff to delay filing suit within the applicable statute
factual issues regarding the Association's conduct are          of limitations. See Cook v. Smith, 673 S.W.2d 232, 235
sufficient to estop appellees from asserting a limitations      (Tex. App.--Dallas 1984, writ ref'd n.r.e.). To invoke
defense. Because appellees adduced conclusive evidence          equitable estoppel, proof must be made of the following
that the suit was barred by the limitations period, the         elements: (1) a false representation or concealment of a
burden was on appellants, as the non-movants, to pro-           material fact; (2) made with actual or constructive
duce summary judgment evidence sufficient to raise a            knowledge of the facts; (3) to a party without knowledge
fact issue on estoppel in avoidance of the affirmative          [*15] or the means of knowledge of the real facts; (4)
defense of limitations.                                         with the intention that it should have been acted upon;
                                                                and (5) the party to whom it was made must have relied
     The scope of review in an appeal from a summary
                                                                upon or acted upon it to his prejudice. See id.;
judgment is necessarily limited. It is well recognized that
                                                                Gulbenkian v. Penn, 151 Tex. 412, 252 S.W.2d 929, 932
a summary judgment motion must expressly state the
                                                                (Tex. 1952).
grounds upon which it is made and will stand or fall on
those grounds alone. See McConnell v. Southside Indep.
                                                                As evidence in support of their response to appellees'
Sch. Dist., 858 S.W.2d 337, [*13] 339 (Tex. 1993).
                                                                motion, the Hamiltons attached the following five docu-
Likewise, the answer or response to the motion must set
                                                                ments: a copy of the appellees' motion for summary
forth the grounds upon which the non-movant relies to
                                                                judgment; a copy of a partial summary judgment order
defeat the motion. Issues not expressly and timely pre-
                                                                rendered in another district court case, which was never
sented by written answer or response may not be consid-
                                                                appealed and has no precedential value in this case; a
ered on appeal as grounds for reversal. See Tex. R. Civ.
                                                                copy of a letter from an adjusting firm to the Hamiltons'
P. 166-a(c); see also Cincinnati Life Ins. Co. v. Cates,
                                                                counsel dated July 28, 1992 seeking additional infor-
927 S.W.2d 623, 625 (Tex. 1996); Abbott Labs., Inc. v.
                                                                mation about their injuries; the notification letter of July
Segura, 907 S.W.2d 503, 507 (Tex. 1995); Clear Creek
                                                                1993 from a second adjusting firm, presumably on behalf
Basin Auth., 589 S.W.2d at 678.
                                                                of the Guaranty Association to the Hamiltons' counsel;
     Reviewing the record, we find that the issue of es-        and a Plan of Operation of the Guaranty Association,
toppel was not timely presented to the trial court. The         which was not in effect at the time of the Hamiltons'
Hamiltons failed to address estoppel in either their re-        claims, containing claims-handling information for the
sponse to the motion for summary judgment or in their           Association.
supplemental response. They raised for the first time the
                                                                     There is no summary judgment evidence on any el-
issue of estoppel in their Motion for New Trial. This,
                                                                ement of estoppel sufficient to raise a fact question that
alone, does not put the issue before this court. See
                                                                would defeat summary [*16] judgment. At most, there
Hruska v. First State Bank of Deanville, 747 S.W.2d 783,
                                                                is argument of counsel that the July 1993 letter, standing
785 (Tex. 1988); Keightley v. Republic Ins. Co., 946
                                                                alone, is misleading. No affidavits or testimony were
S.W.2d 124, 126 (Tex. App.--Austin 1997, no writ).
                                                                submitted to show, for example, that the Hamiltons' at-
                                                                torneys, who received the letter, were without knowledge
                                                                                                                 Page 5
                                              1999 Tex. App. LEXIS 3163, *


of the real facts, that the Guaranty Association intended      if a new trial was granted. See Jackson v. Van Winkle,
for the Hamiltons or their attorney to rely on the letter,     660 S.W.2d 807, 809 (Tex. 1983). Except for the first
that the Hamiltons or their counsel relied upon the letter,    prong, the Hamiltons wholly fail to make the requisite
or even that the letter was wrong or misleading. In addi-      showing.
tion, the record is devoid of any showing that White's
                                                                    A trial court has broad discretion in deciding wheth-
Wrecker or Newhouse engaged in any conduct that
                                                               er to grant a new trial based upon new evidence, and the
would warrant the invocation of equitable estoppel. The
                                                               trial court's [*18] discretion will not be disturbed on
Hamiltons have failed to carry their burden of adducing
                                                               appeal absent a showing of a manifest abuse of discre-
evidence to defeat the affirmative defense and the evi-
                                                               tion. See Champion Int'l Corp. v. Twelfth Court of Ap-
dence is, in any event, insufficient to constitute estoppel.
                                                               peals, 762 S.W.2d 898, 899 (Tex. 1988). Finding no
Accordingly, we overrule appellants' first issue.
                                                               abuse of discretion in the ruling of the trial court, we
       As their second issue on appeal, the Hamiltons          overrule appellants' second issue on appeal.
contend that the trial court erred in failing to grant a new
trial because of unresolved issues of disputed fact. They      As a final issue on appeal, appellants argue that because
also argue that newly acquired evidence is relevant to         the Guaranty Association is a quasi-governmental entity,
their claim that the Guaranty Association should be eq-        its use of the limitations defense violates the "open
uitably estopped from asserting a limitations defense.         courts" provision of the Texas Constitution. Appellants
[*17] Appellants attached to the motion the Associa-           did not raise this constitutional argument in the trial
tion's Plan of Operation which sets forth the Associa-         court, and therefore, we may not consider it on appeal.
tion's claims-handling procedures. They argue that, under      See Boyd v. Fuel Distribs., Inc., 795 S.W.2d 266, 271
the plan, the Association was required to deny appellants'     (Tex. App.--Austin 1990, writ denied). We overrule the
claims in writing and that the document constitutes new        third issue.
evidence supporting their estoppel argument. The record
                                                                   CONCLUSION
reflects that the document attached to the motion was the
Association's Plan of Operation which was approved in              We conclude that the trial court did not err in grant-
June 1996 and was not in effect during the period of the       ing partial summary judgment to appellees, and we af-
lawsuit.                                                       firm the judgment of the trial court.
     To be entitled to a new trial on the basis of newly           Jan P. Patterson, Justice
discovered evidence, the party seeking the new trial must
satisfy the court that: (1) the evidence has come to the           Before Justices Jones, Kidd and Patterson
knowledge of the party since the trial; (2) it could not           Affirmed
have been discovered earlier by the exercise of reasona-
ble diligence; (3) it is not cumulative; and (4) it is so          Filed: April 29, 1999
material that it would probably produce a different result
                                                                                                                  Page 1




               HAMPDEN CORPORATION AND FANTASY DIAMOND CORPORATION, Ap-
                    pellants v. REMARK, INC. AND ROBERT KRAMER, Appellees

                                                 No. 05-13-00529-CV

                        COURT OF APPEALS OF TEXAS, FIFTH DISTRICT, DALLAS

                                              2014 Tex. App. LEXIS 6900


                                             June 25, 2014, Opinion Filed

SUBSEQUENT HISTORY: Petition for review denied               judgment interest against Hampden; (2) $228,611.30 in
by Remark, Inc. v. Hampden Corp., 2014 Tex. LEXIS            damages and prejudgment interest against Fantasy Dia-
1024 (Tex., Oct. 10, 2014)                                   mond; and (3) attorney's fees, costs, and post-judgment
                                                             interest against both appellants.
PRIOR HISTORY: [*1]
  On Appeal from the 366th Judicial District Court,                 1   See Hampden Corp. v. Remark, Inc., 331
Collin County, Texas. Trial Court Cause No.                         S.W.3d 489 (Tex. App.--Dallas 2010, pet. denied).
366-00342-06.
                                                                  In four issues on appeal, appellants contend the trial
Hampden Corp. v. Remark, Inc., 331 S.W.3d 489, 2010
                                                             court erred because (1) the agreement in question was
Tex. App. LEXIS 10052 (Tex. App. Dallas, 2010)
                                                             modified as a matter of law, which precludes any recov-
                                                             ery; (2) plaintiffs' claim is barred by "waiver or estoppel";
                                                             (3) the damages awarded by the trial court improperly
COUNSEL: For Appellants: Jeffrey S. Levinger, Dallas,
                                                             [*2] included treble damages under the Texas Sales
TX.
                                                             Representatives Act, see TEX. BUS. & COM. CODE ANN. §
                                                             54.004 (West 2009); and (4) plaintiffs were not entitled to
For Appellees: Evan Lane (Van) Shaw, Dallas, TX; Janet
                                                             the attorney's fees awarded.
R. Randle, Dallas, TX.
                                                                  We decide in favor of appellants on their first issue.
JUDGES: Before Justices Lang, Myers, and Brown.              Consequently, we need not address appellants' remaining
Opinion by Justice Lang.                                     issues. We reverse the trial court's judgment and render a
                                                             take-nothing judgment in favor of appellants. Because the
OPINION BY: DOUGLAS S. LANG                                  law to be applied in this case is well settled, we issue this
                                                             memorandum opinion. See TEX. R. APP. P. 47.2, 47.4.
OPINION
                                                             I. FACTUAL AND PROCEDURAL BACKGROUND
MEMORANDUM OPINION
                                                                  The following facts are not disputed by the parties.
    Opinion by Justice Lang                                  Hampden and Fantasy Diamond design, manufacture, and
                                                             sell jewelry and watches. In approximately 1988, Irving
    Appellees Remark, Inc. ("Remark") and Robert
                                                             Wein, Fantasy Diamond's chairman at that time, contacted
Kramer filed a breach of contract claim against appellants
                                                             Kramer about facilitating sales of those products to re-
Hampden Corporation ("Hampden") and Fantasy Dia-
                                                             tailer JCPenney. Later that same year, Kramer and Re-
mond Corporation ("Fantasy Diamond") based on a dis-
                                                             mark, a company formed by Kramer, entered into an
pute respecting compensation under a sales agreement.
                                                             agreement with Fantasy Diamond and a predecessor to
Following a bench trial and a subsequent appeal to and
                                                             Hampden2 pursuant to which Remark received commis-
remand by this Court,1 the trial court rendered judgment
                                                             sions on both companies' net sales to JCPenney.
awarding Remark (1) $67,483.36 in damages and pre-
                                                                                                                   Page 2
                                               2014 Tex. App. LEXIS 6900, *


       2 Hereafter, "Hampden" is used in this back-                 Several months later, Joseph Wein sent Kramer a
       ground section of this opinion to refer to appellant    letter dated January 18, 2005 (the "January 18, 2005 let-
       Hampden and/or its [*3] predecessors.                   ter"), that stated in part (1) "[d]uring those conversations
                                                               last summer, I told you that you . . . must be prepared for
     In 1996, Remark was requested by Hampden and
                                                               reducing income from [*5] Fantasy and Hampden going
Fantasy Diamond to sign a "standard Sales Representation
                                                               forward"; (2) "neither Fantasy nor Hampden requires
Agreement" and Remark did so (the "1996 Agreement").
                                                               ongoing outside representation at JCPenney or anywhere
The 1996 Agreement provided in part (1) the "Sales
                                                               else"; and (3) on December 31, 2005, the "retainer"
Representative," Remark, was to be paid a 5% commis-
                                                               payments "will end entirely" and "our representative
sion on the net sales of Hampden and Fantasy Diamond
                                                               relationship will cease." Remark received monthly re-
products to JCPenney; (2) the agreement would "continue
                                                               tainer payments from Fantasy Diamond and Hampden
and remain in full force and in effect until cancelled by
                                                               through 2005. No payments were made to Remark or
either party, which cancellation may be effected by either
                                                               Kramer by Fantasy Diamond or Hampden after December
party giving to the other 15 days' notice in writing of its
                                                               31, 2005.
intent to cancel, said notice to be mailed by certified or
registered mail"; and (3) "[t]he relationship between the           In 2006, Remark and Kramer ("plaintiffs") sued
Company and the Sales Representative is and shall be that      Fantasy Diamond and Hampden ("defendants") for,
of independently contracting parties and not that of em-       among other claims, breach of contract. In their sixth
ployer/employee."                                              amended petition, the live petition at the time of the
                                                               judgment now complained of, plaintiffs asserted in part
     In 2002, Wein's son, Joseph Wein, became chairman
                                                               that defendants breached the 2002 Agreement by failing
and chief executive officer of both Fantasy Diamond and
                                                               to pay plaintiffs as required under that agreement and such
Hampden. In October of that year, Kramer received sep-
                                                               breach "also violates [the Texas Sales Representatives
arate letters from Louis Price, president of Fantasy Dia-
                                                               Act] and entitles Plaintiffs to damages for three (3) times
mond, and Jim Herbert, president of Hampden, stating
                                                               the unpaid commissions" and reasonable attorney's fees
that as of January 1, 2003, Remark's commission on net
                                                               and costs. Defendants filed general denial answers.
sales to JCPenney would be reduced to 2.5%. Each letter
requested that Kramer [*4] indicate his agreement by                At the November 17, 2008 bench trial, defendants
"signing below and returning the original" to the sender.      argued in part that the 2002 Agreement was modified by
Kramer signed and returned each of those letters (collec-      the parties when defendants provided notice of a change
tively, the "2002 Agreement").                                 [*6] in compensation in 2004 and plaintiffs accepted that
                                                               change by their "continued performance," i.e. accepting
    Following a meeting with Kramer in summer 2004,
                                                               retainer payments from defendants.3 Plaintiffs argued at
Joseph Wein sent Kramer a letter dated July 1, 2004 (the
                                                               trial that the 1996 Agreement, rather than the 2002
"July 1, 2004 letter"), that stated in part
                                                               Agreement, was the operative agreement between the
                                                               parties and was breached by defendants.
           Per our conversation, we will convert
       payment to REMARK from commission
                                                                      3 Additionally, as to the alleged modification,
       to retainer beginning immediately.
                                                                      defendants also asserted that subsequent to the
            Beginning July 1, 2004 REMARK                             July 1, 2004 letter, Joseph Wein sent Kramer a
       will earn a retainer at an annualized rate of                  letter dated July 30, 2004, that stated the payments
       $100,000, or a monthly rate of $8,333.33.                      of $8,333 per month would continue through June
                                                                      2005 and the amount of the monthly payments
           Beginning January 1, 2005, RE-
                                                                      would change to $6,250 beginning July 1, 2005,
       MARK will earn a retainer at an annual-
                                                                      rather than January 1, 2005. Defendants referred
       ized rate of $75,000, or a monthly rate of                     to that letter and the July 1, 2004 letter, collec-
       $6,250.                                                        tively, as the "notice letters" and/or "the 2004
            Of course, this retainer is "at will" and                 Agreement." However, at trial, Kramer testified he
       can be modified or terminated by either of                     did not remember receiving the July 30, 2004
       us at any time.                                                letter.
                                                                   In a post-trial brief, defendants contended plaintiffs'
                                                               claim respecting breach of the 1996 Agreement was not
(emphasis original). The letter was on Fantasy Diamond         supported by plaintiffs' pleadings. The trial court (1)
letterhead and the closing stated "Warm personal regards,
                                                               granted plaintiffs leave to file a post-trial "seventh
FANTASY DIAMOND CORPORATION" (emphasis
                                                               amended petition" asserting breach of the 1996 Agree-
original), followed by Joseph Wein's signature.
                                                                                                                     Page 3
                                               2014 Tex. App. LEXIS 6900, *


ment and (2) rendered judgment in [*7] plaintiffs' favor                and (2) the other party accepted the
based on breach of the 1996 Agreement.                                  change.
     Defendants appealed to this Court. In December
2010, this Court concluded the trial court erred by grant-
                                                                 (citing and quoting Hathaway v. Gen. Mills, Inc., 711
ing plaintiffs leave to file their post-trial pleading. This
                                                                 S.W.2d 227, 228-29 (Tex. 1986)). Further, according to
Court vacated the trial court's judgment and remanded the
                                                                 defendants,
case to the trial court "to allow it to consider the evidence
                                                                            Fantasy Diamond and Hampden con-
at trial in light of the claims pleaded in Remark and
                                                                         clusively established that (1) they provided
Kramer's sixth amended petition." Hampden Corp., 331
                                                                         Plaintiffs notice of the changes to the 2002
S.W.3d at 499.
                                                                         Agreement, and (2) Plaintiffs accepted
      On remand in the trial court, plaintiffs filed a "Motion           those changes as a matter of law. After
for Final Judgment." Therein, plaintiffs stated in part that             discussing their financial issues with
Kramer agreed to the reduction of the commission from                    Kramer, and instead of invoking their
5% to 2.5% in October 2002. Plaintiffs asserted "[t]his                  unilateral right to terminate their rela-
commission change to the 1996 commission structure,                      tionship with Kramer and Remark, De-
constitutes the 2002 agreement, which essentially modi-                  fendants notified Kramer that, effective
fied the 1996 commission rate, leaving all terms of the                  July 1, 2004, they would cease paying him
1996 agreement as part of the 2002 agreement." However,                  based on a commission structure and in-
plaintiffs contended Kramer "never agreed to have the                    stead would begin paying a fixed monthly
2.5% commission altered in any manner." Additionally,                    retainer--specifically, $8,333 per month
plaintiffs alleged that "[s]ubsequently, Defendants ceased               from July 1, 2004 until June 30, 2005 and
paying any commissions or payments to Plaintiff, without                 $6,250 per month beginning on July 1,
providing proper notice as called for in the contract."                  2005. Although Kramer was not asked to
Plaintiffs claimed [*8] damages based on 2.5% of de-                     countersign Defendants' notice letters, he
fendants' net sales to JCPenney from January 1, 2003,                    acknowledged that he received them; he
through October 2008, minus the amounts actually paid to                 did not quit and instead continued to work
plaintiffs by defendants during that time. Further, plain-               as a sales representative for Defendants for
tiffs asserted that in light of defendants' breach, plaintiffs           the next 18 months; and he accepted and
are entitled to "three times the unpaid commissions" and                 retained all of the monthly [*10] retainer
reasonable attorney's fees and costs pursuant to the Texas               payments without complaint. Under these
Sales Representatives Act.                                               circumstances, Plaintiffs' continuing work
                                                                         and retention of payments constitute ac-
     Defendants filed an "Opposition to Plaintiffs' Motion               ceptance of the 2004 Agreement as a
for Final Judgment and Cross-Motion for Take-Nothing
                                                                         matter of law.
Judgment." Therein, defendants contended in part that
they did not breach the 2002 Agreement because "it was
modified by mutual agreement effective July 1, 2004" and
                                                                 (citations to record omitted).
plaintiffs "were paid everything they were owed under the
2004 Agreement." Specifically, defendants stated                      Plaintiffs and defendants both cited evidence from
                                                                 the November 2008 trial record in their motions, includ-
           In analogous cases involving at-will                  ing, in part, copies of the 1996 Agreement; the 2002
        employment, "either party may impose                     Agreement; the July 1, 2004 letter; and the January 18,
        modifications to the employment terms as                 2005 letter. Additionally, defendants cited the following
        a condition of continued employment."                    testimony of Kramer on direct examination:
        When an employer notifies an employee or
        independent contractor of changes in the                           Q. . . . So 2002 and 2003, you moved
        terms of their relationship, the employee or                    forward and you're now receiving two and
        independent contractor "must accept the                         a half percent on commissions that you had
        new terms or quit." If he "continues                            generated--on sales rather that had been
        working with knowledge of the changes,                          made from Fantasy and Hampden to
        he has accepted the changes [*9] as a                           JCPenney. You're getting two and a half
        matter of law." Thus, to prove a modifica-                      percent now, correct?
        tion of an at-will contract, a party must
                                                                             A. Correct.
        show (1) that it gave notice of the change,
                                                                                                                   Page 4
                                              2014 Tex. App. LEXIS 6900, *


          Q. And then in 2004, another letter                           ....
      sent to you saying, hey, we're going to                           Q. And over . . . the years, [Hampden]
      change the deal again. We're not going to                      and Fantasy Diamond Corporation paid
      give you two and a half percent, we're                         you several hundred--in excess of millions
      going to give you a flat fee per month. Do                     of dollars for compensation for your ser-
      you remember that letter?                                      vices rendered, did they [*12] not?
          A. I remember the letter, but that was                        A. I've never totaled it up. I don't
      a shocker.                                                     know what the amount is.
                                                                         Q. There's no dispute--is there any
                                                                     dispute that they paid you all the commis-
    Further, Kramer        testified   as    follows   on            sions you were due until 2002 when the
cross-examination:                                                   agreement was changed to two and a half
                                                                     percent, and they then paid you two and a
         Q. Now, when you were talking to Mr.                        half percent until the agreement was
      Price and Mr. Herbert about this change                        changed in 2004, and that they then paid
      [*11] of compensation from 5 to two and a                      you your retainer amount in 2004 and
      half percent, they each told you that their                    2005? There's no dispute that those
      companies were going through financial                         amounts were paid to you, correct?
      difficulties, correct?
                                                                          A. Correct.
         A. I have no recollection of that.
        ....
        Q. You did this to help protect these
                                                                   In a reply to defendants' response and cross-motion,
      companies by being able to pay you an
                                                              plaintiffs argued in part (1) "there was conflicting testi-
      amount that they could afford?
                                                              mony as to whether Kramer ever knew that his continued
           A. Correct.                                        efforts were to be interpreted as an acceptance," which
         ....                                                 knowledge "is critical to whether the continued effort of
         Q. Did [Joseph Wein] tell you [in                    the 'employee' will be deemed acceptance" and (2) in
      summer 2004] that you had to be prepared                Hathaway, the court "found that the intent of the parties
      to reduce your income from these compa-                 was not to modify the contract, and continued employ-
      nies and not be dependent on them going                 ment was NOT acceptance of terms not intended." (em-
      forward?                                                phasis original).
          A. I think he said that. And I said that's               At the hearing on plaintiffs' motion for final judgment
      not something that his father would ever                and defendants' opposition and cross-motion, defendants
      have done.                                              asserted, inter alia, their argument described above that
         ....                                                 the 2002 Agreement was modified by the parties in 2004
         Q. . . . [Y]ou did receive [the July 1,              as a matter [*13] of law pursuant to Hathaway. Plaintiffs
      2004 letter], correct?                                  asserted in response to that argument that (1) under
                                                              Hathaway, "the employee has to have knowledge of the
          A. Yes.
                                                              modification, and it must know the nature and changes
          Q. And this was following your con-                 and certainty of their imposition, and that was what was
      versation with Mr. Wein about your                      missing here" and (2) "[n]o one ever told Bob Kramer, by
      compensation, correct?                                  the way, if you take this money, you are accepting this
                                                              deal."
          A. Right.
         ....                                                      Defendants filed a post-hearing response to plaintiffs'
         Q. And then in January of 2005, you                  reply in which they asserted in part "[b]y citing to
      received . . . a letter from Mr. Wein in                [Hathaway], Plaintiffs acknowledge (as they must) that
      which he's describing for you the fact that             only two elements are required to prove a modification of
      your independent contractor relationship                an at-will employment or sales representative contract: (1)
      with his--the companies would expire, end               unequivocal notice of the change, and (2) acceptance of
      on December 31, 2005. Do you remember                   the change."
      receiving that letter?
                                                                  In a reply to that response, plaintiffs asserted that "in
          A. Yes.                                             none of the cases cited by Defendants was there, as here, a
                                                                                                                      Page 5
                                               2014 Tex. App. LEXIS 6900, *


clear history of modification procedures." According to
plaintiffs' reply, "[t]here is absolutely NO evidence that              4 Although Kramer was a plaintiff in the trial
the parties intended to alter the clear prior method of                 court, the trial court's January 22, 2013 final
modifications, providing a signature line on letterhead or              judgment does not award him any relief in his in-
signature from ALL DEFENDANTS, and/or signature                         dividual capacity. Kramer did not appeal the trial
line for KRAMER to sign and or acknowledge the                          court's judgment. He has filed an "Appellees'
change" and "[n]othing put KRAMER                 [*14] on              Opening Brief" in this appeal jointly with appellee
'unequivocal notice' that these documents, combined with                Remark.
continued working by KRAMER, would bind REMARK
as binding modifications." (emphasis original). Addi-           II. MODIFICATION OF THE 2002 AGREEMENT
tionally, in the conclusion to their reply, plaintiffs stated
as follows:                                                     A. Standard of Review
                                                                     We review the legal sufficiency of the evidence to
          As established by the documentary and
                                                                support a trial court's judgment after a bench trial under
       oral testimony at trial, DEFENDANT
                                                                the same standards applicable to a jury's verdict. See Ortiz
       FANTASY DIAMOND CORPORA-
                                                                v. Jones, 917 S.W.2d 770, 772 (Tex. 1996); Roberson v.
       TION'S proffer of evidence of a modifica-
                                                                Robinson, 768 S.W.2d 280, 281 (Tex. 1989); Ashcraft v.
       tion:
                                                                Lookadoo, 952 S.W.2d 907, 910 (Tex. App.--Dallas
           1. Contradicted their earlier methods                1997), pet. denied, 977 S.W.2d 562 (Tex. 1998). When
       of modification;                                         there are no findings of fact or conclusions of law filed,
                                                                the trial [*16] court's judgment implies all findings of
            2.       Did        not       advise
                                                                fact necessary to support it. See, e.g., BMC Software
       KRAMER/REMARK the earlier methods
                                                                Belg., N.V. v. Marchand, 83 S.W.3d 789, 795 (Tex. 2002);
       of modification with signature were being
                                                                Holt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 83
       altered;
                                                                (Tex. 1992); Weisfeld v. Tex. Land Fin. Co., 162 S.W.3d
            3.     Did        not         advise                379, 381 (Tex. App.--Dallas 2005, no pet.). If a reporter's
       KRAMER/REMARK that continued ser-                        record is filed, an appellant may challenge the legal and
       vice would mean acceptance of the terms;                 factual sufficiency of the trial court's implied findings.
                                                                See, e.g., Heine, 835 S.W.2d at 84; Roberson, 768 S.W.2d
           4. Reference oral negotiations that
                                                                at 281; Volume Millwork, Inc. v. W. Houston Airport
       were expressly contested and refuted by
                                                                Corp., 218 S.W.3d 722, 729 (Tex. App.--Houston [1st
       Plaintiff; and
                                                                Dist.] 2006, pet. denied).
            5. Did not mention HAMPDEN                               When a party challenges the legal sufficiency of the
            As such, KRAMER/REMARK'S                            evidence supporting an adverse finding on an issue on
       continued service did not accept the al-                 which the party had the burden of proof, it must show that
       leged modifications to the 2002 agreement                the evidence establishes as a matter of law all vital facts in
       ....                                                     support of the issue. Dow Chem. Co. v. Francis, 46
                                                                S.W.3d 237, 241 (Tex. 2001); PopCap Games, Inc. v.
                                                                MumboJumbo, LLC, 350 S.W.3d 699, 710 (Tex.
(emphasis original). Attached to plaintiffs' reply were         App.--Dallas 2011, pet. denied). The appellant must show
excerpts from trial testimony of Kramer in which he stated      that there is no evidence to support the trial judge's finding
he did not "agree to" the 2004 changes to his compensa-         and that the evidence conclusively establishes the finding
tion.                                                           urged by the appellant. [*17] See R.J. Suarez Enters. Inc.
                                                                v. PNYX L.P., 380 S.W.3d 238, 245 (Tex. App.--Dallas
     In a final judgment dated January 22, 2013, the trial      2012, no pet.). In our review, we must credit evidence
court rendered judgment in favor of Remark as described         favorable to the finding if reasonable jurors could and
above.4 Defendants filed a timely request for findings of       disregard contrary evidence unless reasonable jurors
fact and conclusions [*15] of law and a notice of past          could not. City of Keller v. Wilson, 168 S.W.3d 802, 827
due findings of fact and conclusions of law. No findings        (Tex. 2005). "Evidence is conclusive only if reasonable
of fact or conclusions of law were issued by the trial court.   people could not differ in their conclusions, a matter that
Additionally, defendants filed a "Motion to Vacate,             depends on the facts of each case." Id. at 816.
Modify, Correct, or Reform the Judgment" in which they
asserted, inter alia, the modification arguments described      B. Applicable Law
above. That motion was overruled by operation of law.
This appeal timely followed.
                                                                                                                     Page 6
                                               2014 Tex. App. LEXIS 6900, *


     Contract modification is an affirmative defense. Intec     General Mills, Inc. under an "employment at will con-
Sys., Inc. v. Lowrey, 230 S.W.3d 913, 918 (Tex.                 tract"6 to sell shirts for General Mills on a commission
App.--Dallas 2007, no pet.) (citing Brownlee v. Brownlee,       basis. Id. at 228. On January 21, 1980, Hathaway met with
665 S.W.2d 111, 112 (Tex. 1984)). The party asserting it        General Mills' national sales manager to discuss lowering
bears the burden of proof. Id. (citing Hathaway, 711            Hathaway's 1980 commission rate. Id. Hathaway testified
S.W.2d at 229); see White v. Harrison, 390 S.W.3d 666,          he disagreed with the rate change and was told by the
674 (Tex. App.--Dallas 2012, no pet.).                          national sales manager to discuss the proposed new
                                                                commission rate with Gary [*20] Duncan, Hathaway's
C. Application of Law to Facts                                  regional sales manager. Id. Further, Hathaway testified
                                                                Duncan told him not to worry about the rate change and
     In their first issue, appellants contend the trial court
                                                                that Duncan would "take care of the situation." Id.
erred by rendering judgment against them on appellees'
                                                                Hathaway continued to work for General Mills.
claim for breach of the 2002 Agreement to pay a 2.5%
commission because "as a matter of law, Plaintiffs agreed
                                                                       6 It is not clear from the opinion in Hathaway
in July 2004 to a new fixed monthly retainer arrangement
                                                                       whether the "employment at will contract" in that
that defendants fully performed." Appellants argue
                                                                       case was in writing. See id.
[*18] "[t]here is no evidence to support an implied finding
that plaintiffs did not agree to the July 2004 letter                In February 1980, General Mills sent Hathaway a
changing the commission to a fixed monthly retainer" and        letter proposal containing the new rates. Id. Hathaway
"the evidence conclusively establishes that they did agree      testified that Duncan told him not to sign the letter and
to that change." Specifically, according to appellants, (1)     that Duncan would "talk to" the national sales manager
contract modifications in "employment-related contexts"         about the rate changes. Id. Hathaway did not sign the
require only two elements, "unequivocal notice of the           letter. Id. After firing Hathaway in April 1980, General
change and acceptance of the change by continued em-            Mills offered to pay him under the proposed new, lower
ployment" and (2) both of those elements were conclu-           commission rates for his work to that time. Id. Hathaway
sively established by the evidence in this case. Further,       sued General Mills for the old, higher commissions, al-
appellants assert "[i]n implicitly holding otherwise--i.e.,     leging that he never accepted the new rates. Id. The case
that Plaintiffs did not 'agree' to the modification set forth   was tried before a jury. Id.
in the [July 2004 notice letters]--the court below appears
                                                                     In its answers to the jury questions, the jury found (1)
to have disregarded the undisputed evidence or misun-
                                                                Hathaway did not accept or ratify the commission rate
derstood the controlling law on contract formation." 5
                                                                change and (2) General Mills ratified Hathaway's refusal
                                                                to accept the changes. Id. Based on those findings, the trial
       5 Appellants assert "[t]he trial court's rulings
                                                                court rendered judgment in favor of Hathaway. [*21] Id.
       are necessarily implicit because it did not file any
                                                                This Court reversed, holding that Hathaway accepted the
       findings of fact or conclusions of law despite
                                                                lower rates as a matter of law by continuing to work for
       Defendants' timely request and past due notice."
                                                                General Mills knowing of the changed rates. Id.
       However, appellants state, "this Court need not
       follow the usual remedy of abating the appeal and             On appeal to the supreme court, Hathaway argued
       remanding the case because the material facts in         General Mills did not clearly notify him of the rate
       question are not [*19] disputed and the trial            changes and, therefore, he did not accept the modification
       judge (who did not try this case) would do no more       as a matter of law by remaining with General Mills. Id.
       than review the same record as this Court would."        The supreme court agreed. Id. That court stated "to prove
                                                                a modification of an at will employment contract, the
     Appellees respond that the trial court "was correct in
                                                                party asserting the modification must prove two things:
rendering its finding that Defendants breached the [2002
                                                                (1) notice of the change; and (2) acceptance of the
Agreement] because there was never any modification to
                                                                change." Id. at 229. Specifically, that court stated
that agreement." According to appellees, this Court
"should affirm the trial court's finding that there was no
                                                                           To prove notice, an employer asserting
intent to modify the 2002 agreement, and that because
                                                                       a modification must prove that he une-
Defendants/Appellants did not provide unequivocal no-
                                                                       quivocally notified the employee of defi-
tice, Plaintiffs'/Appellees' continued service was not an
                                                                       nite changes in employment terms. Cases
agreement of the terms of any post-2002 proposed modi-
                                                                       dealing with employment modifications
fication."
                                                                       require that the employee have knowledge
     In support of their arguments on this issue, both sides           of the proposed modification. Fairness also
cite Hathaway. See 711 S.W.2d at 227. In that case,                    dictates this rule. To have knowledge of a
plaintiff Gregg N. Hathaway was employed by defendant                  modification, the employee must know the
                                                                                                                        Page 7
                                               2014 Tex. App. LEXIS 6900, *


        nature of the changes and the certainty of               like appellants, appellees assert that the requirements
        their imposition.                                        stated in Hathaway are applicable to this appeal and,
                                                                 [*24] as described above, cited Hathaway in support of
            The employer asserting a modifica-
                                                                 their arguments on remand in the trial court. Therefore,
        tion must also prove that the employee
                                                                 we adopt the proposition utilized by the Fourteenth Court
        accepted the proposed changes. If the em-
                                                                 of Appeals in Houston in Price Pfister, Inc. v. Moore &
        ployer proves [*22] that he has une-
                                                                 Kimmey, Inc., 48 S.W.3d 341, 350 n.2 (Tex.
        quivocally notified the employee of the
                                                                 App.--Houston [14th Dist.] 2001, pet. denied), that
        changes, the employee's continuing em-
                                                                 "[a]lthough Hathaway specifically deals with an at-will
        ployment will constitute acceptance as a
                                                                 employment contract, we will accept as true both parties'
        matter of law.
                                                                 assertion that its analysis should be applied to the parties'
                                                                 agreement in this case." Id. (applying Hathaway re-
                                                                 quirements in case involving non-employee sales repre-
Id. (citations omitted). The supreme court reasoned that
                                                                 sentative); see also Tex. Farm Bureau Mut. Ins. Cos. v.
the record, which included Hathaway's testimony that he
                                                                 Sears, 84 S.W.3d 604, 606 (Tex. 2002) (applying law
was told to discuss the changes with Duncan and was told
                                                                 pertaining to at-will employment after concluding inde-
by Duncan not to worry and that Duncan would "take care
                                                                 pendent insurance agent whose contract with insurance
of it," showed evidence of "conflicting signals from
                                                                 company provided either party could terminate without
General Mills' managers" that made "unequivocal notifi-
                                                                 cause upon ten days' notice was "an at-will agent" and "as
cation" a jury question. Id. The supreme court concluded
                                                                 the parties acknowledge, his relationship with [the in-
that because General Mills did not conclusively prove or
                                                                 surance company] has all the characteristics of at-will
request a jury question on notification, that element must
                                                                 employment").7
be deemed in support of the judgment and against une-
quivocal notification. Id.
                                                                        7 Like the court in Price Pfister, we "express no
     In the case before us, appellants argue, without citing            opinion, however, whether Hathaway governs
authority, that the sales representative agreement between              oral agreements outside of the context of at-will
the parties is "analogous" to an "at-will employment                    employment." [*25] Price Pfister, 48 S.W.3d at
contract." Further, appellants assert in their appellate brief          350 n.2.
that courts have "consistently applied" the principles
                                                                      Appellees argue this case is distinguishable from the
stated in Hathaway "to enforce modifications of com-
                                                                 cases cited by appellants and fails to meet the require-
pensation agreements with sales representatives, and to
                                                                 ments of Hathaway because appellants' "unilateral pro-
reject their claims for breach of the original agreement."
                                                                 posed 'modification'" altered the parties' "prior modifica-
In support of that [*23] assertion, appellants cite several
                                                                 tion procedures." According to appellees,
Texas cases involving employee/employer relationships
and one federal case involving a non-employee sales
                                                                           There is absolutely NO evidence that
agent. See Mitsubishi Aircraft Int'l, Inc. v. Maurer, 675
                                                                        the parties intended to alter the clear prior
S.W.2d 286 (Tex. App.--Dallas 1984, no writ) (involving
                                                                        method of modifications, providing a sig-
employee sales representative); L.G. Balfour Co. v.
                                                                        nature line on letterhead or signature from
Brown, 110 S.W.2d 104 (Tex. Civ. App.--Fort Worth
                                                                        ALL DEFENDANTS, and/or signature
1937, no writ) (involving employee sales representative);
                                                                        line for KRAMER to sign and or
Perkins v. Ulrich, No. 14-05-00992-CV, 2007 Tex. App.
                                                                        acknowledge the change. Nothing put
LEXIS 3088, 2007 WL 1191903 (Tex. App.--Houston
                                                                        KRAMER on "unequivocal notice" that
[14th Dist.] Apr. 24, 2007, no pet.) (involving sales as-
                                                                        these documents, combined with contin-
sociate employed by home builder); Bell v. Phillips, No.
                                                                        ued working by KRAMER, would bind
14-00-01189-CV, 2002 Tex. App. LEXIS 2734, 2002 WL
                                                                        REMARK as binding modifications.
576036 (Tex. App.--Houston [14th Dist.] Apr. 18, 2002,
no pet.) (involving employee sales representative); Cen-
tury Sales, Inc. v. Jupiter Aluminum, Inc., No.
                                                                 (emphasis original). Additionally, appellees contend (1)
4:02-CV-0607-A, 2002 U.S. Dist. LEXIS 24578, 2002 WL
                                                                 "FANTASY DIAMOND CORPORATION'S proffer of
31875610 (N.D. Tex. Dec. 20, 2002) (involving
                                                                 evidence of a modification . . . [d]id not mention
non-employee sales agent).
                                                                 HAMPDEN" (emphasis original); (2) the parties' "prior
     The record shows the 1996 Agreement stated "[t]he           modifications with signatures and from both defendants"
relationship between the Company and the Sales Repre-            "expressly contradict any interpretation of [the July 2004
sentative is and shall be that of independently contracting      notice letters] as BINDING MODIFICATIONS" (em-
parties and not that of employer/employee." However,             phasis original); and (3) Kramer "unequivocally denied
                                                                                                                    Page 8
                                              2014 Tex. App. LEXIS 6900, *


agreeing to" or "negotiating" any of the new terms. In         of law. Hathaway, 711 S.W.2d at 229. "To have
support of those arguments, [*26] appellees cite (1) In re     knowledge of a modification, the employee must know
Halliburton Co., 80 S.W.3d 566, 569 (Tex. 2000), in            the nature of the changes and the certainty of their impo-
which the supreme court, in concluding the notice in that      sition." Id. The July 1, 2004 letter (1) stated that pursuant
case was unequivocal and the employee's continuing             to a prior conversation between Kramer and Joseph Wein,
employment constituted acceptance, quoted language in          which the record shows pertained to reducing Kramer's
the "notice documents" that "explained" the modification,      income from both Fantasy Diamond and Hampden,
stated the effective date, and "explained that by working      payment to Remark would be converted to retainer "be-
after that date an employee would indicate that he or she      ginning immediately" and (2) set forth in detail the
accepted the provision" and (2) Hathaway.8                     amounts of the retainer payments to be received by Re-
                                                               mark. Although appellees cite Hathaway and In re Hal-
       8 Additionally, appellees cite Stowers v. Har-          liburton in support their position that appellants were
       per, 376 S.W.2d 34 (Tex. Civ. App.--Tyler 1964,         required to advise them that "the earlier methods of
       writ ref'd n.r.e.) for the same statement of law        modification with signature were being altered" neither of
       quoted above from Hathaway.                             those cases mentions or addresses any "earlier methods of
                                                               modification" or any requirement to advise as to alteration
     To the extent appellees contend In re Halliburton
                                                               of such. See [*29] id. at 228-29; In re Halliburton, 80
requires appellants to show Kramer knew his continued
                                                               S.W.3d at 568. Further, appellees cite Hathaway to sup-
service and acceptance of the monthly retainer payments
                                                               port their position that "prior modifications with signa-
would indicate he accepted the alleged modification, we
                                                               tures and from both defendants" "expressly contradict"
cannot agree. While In re Halliburton quotes portions of a
                                                               any interpretation of the July 1, 2004 letter as a binding
notice that so advised the employee in that case, the law
                                                               modification. However, unlike the case before us,
specifically stated and applied in that case is the two-part
                                                               Hathaway involved "conflicting signals" during the par-
test from Hathaway and no additional elements of proof
                                                               ties' communications pertaining to the alleged modifica-
are described or imposed by the In re Halliburton court.
                                                               tion in question in that case. Hathaway, 711 S.W.2d at
See In re Halliburton, 80 S.W.3d at 568-69, 572-73.
                                                               229. Appellees cite no authority, and we have found none,
     Next, we consider appellees' [*27] assertion that the     to support the position that the "prior modifications" al-
July 1, 2004 letter did not "mention" Hampden. Appellees       leged by appellees constitute "conflicting signals" pur-
do not specifically explain how this assertion is material     suant to Hathaway. Finally, Kramer's testimony that he
to their argument. To the extent this assertion can be         "unequivocally denied agreeing to" or "negotiating" any
construed as an argument that appellees were not given         of the alleged modifications is immaterial to our analysis
notice that the alleged modification pertained to Hampden      of whether the record establishes the two elements re-
as well as Fantasy Diamond, the record shows Kramer            quired by Hathaway. See id.
testified (1) Joseph Wein told him in summer 2004 that he
                                                                    On this record, we conclude the evidence conclu-
had to be prepared to reduce his income from "these
                                                               sively established appellants "unequivocally notified"
companies" and not be dependent on "them" going for-
                                                               appellees of the change in question and appellees accepted
ward and (2) Kramer received the July 1, 2004 letter from
                                                               that change. Accordingly, we conclude the parties' 2002
Joseph Wein following that conversation. The July 1,
                                                               Agreement was modified as a matter of law. See id.
2004 letter stated in part "[p]er our conversation, we will
convert payment to REMARK from commission to re-                    We decide in favor of appellants on their [*30] first
tainer beginning immediately." The letter was signed by        issue.
Joseph Wein, who was chairman and chief executive
officer of both Fantasy Diamond and Hampden. While the         III. CONCLUSION
July 1, 2004 letter did not "mention" Hampden, the record
                                                                    We decide appellants' first issue in their favor. In
shows that letter was written pursuant to a conversation
                                                               light of our resolution of that issue, we need not address
between Kramer and Joseph Wein respecting payments
                                                               appellants' remaining issues.9
from both Fantasy Diamond and Hampden. Further, there
is no evidence in the record that any party intended or
                                                                      9 Additionally, appellees (1) state in the fact
understood that the change from [*28] commission to
                                                                      section of their appellate brief that "[n]o notice via
retainer pertained only to Fantasy Diamond.
                                                                      certified mail was ever provided as required under
     As to appellee's remaining arguments, Hathaway                   the terms of the agreement" and (2) asserted in part
provides that if an employer proves he "unequivocally                 during oral argument before this Court that the
notified" an at-will employee of "definite changes in                 fifteen-day notice of termination by certified or
employment terms," the employee's continuing employ-                  registered mail as required by the parties' agree-
ment will constitute acceptance of the changes as a matter            ment "did not occur here." However, appellees
                                                                                                               Page 9
                                             2014 Tex. App. LEXIS 6900, *


       stated during oral argument (1) although the trial         JUSTICE
       court's judgment from which this appeal is taken
       did not specifically address the termination date of   JUDGMENT
       the parties' agreement, the damages awarded by
                                                                  In accordance with this Court's opinion of this date,
       the trial court appear to be based on a termination
                                                              the judgment of the trial court is REVERSED and
       date of December 31, 2005 and (2) appellees do
                                                              judgment is RENDERED that appellees REMARK, INC.
       not contest that the parties' agreement was termi-
                                                              and ROBERT KRAMER take nothing on their claims.
       nated effective December 31, 2005. Appellees did
       not appeal the trial court's judgment, nor do they          It is ORDERED that appellants HAMPDEN
       assert a cross-issue or argument in their appellate    CORPORATION and FANTASY DIAMOND COR-
       brief respecting the termination date of the           PORATION recover their costs of this appeal from ap-
       agreement. Therefore, appellees' assertions re-        pellees REMARK, INC. and ROBERT KRAMER.
       specting the termination date of the parties' [*31]
                                                                  Judgment entered this 25th day of June, 2014.
       agreement present nothing for this Court's review.
       See TEX. R. APP. P. 25.1(c), 38.2.                         /Douglas S. Lang/
    We reverse the trial court's judgment and render a            DOUGLAS S. LANG
take-nothing judgment in favor of appellants.
                                                                  JUSTICE
    /Douglas S. Lang/
    DOUGLAS S. LANG
                                                                                                                  Page 1
                                            2003 Tex. App. LEXIS 9027, *




               Healix Infusion Therapy, Inc., Appellant v. Nicholaos C. Bellos, M.D., P.A., Appellee

                                                 No. 11-02-00346-CV

                   COURT OF APPEALS OF TEXAS, ELEVENTH DISTRICT, EASTLAND

                                              2003 Tex. App. LEXIS 9027


                                              October 23, 2003, Decided

PRIOR HISTORY:               [*1]   Appeal from Dallas
                                                                  Dr. Bellos sued Healix in another lawsuit; the parties
County.
                                                             reached a settlement in that suit. Both parties agreed not to
                                                             disclose the nature of the settlement agreement. The
DISPOSITION:         Affirmed.
                                                             agreement provided for $ [*2] 10,000.00 in liquidated
                                                             damages in the event of a breach by either party. After the
                                                             settlement agreement was signed, Methodist Hospitals of
COUNSEL: For Plaintiff or Petitoner: Murphy Klasing,
                                                             Dallas (Methodist), where Dr. Bellos practiced, sent $
Kenneth Moursund Jr., McGinnis, Lockridge & Kilgore,
                                                             6,385.13, which it owed to Dr. Bellos, because it mis-
Houston, TX.
                                                             takenly believed that Healix held a lien against Dr. Bellos.
                                                             Healix sent a letter and a copy of the settlement agreement
For Defendant or Respondent: Cathy Hendrickson, Kevin
                                                             to Methodist to show that there was no lien. Dr. Bellos
A. Kinnan, Ryan Downton, Bruce Howell, Arter &
                                                             claimed that Healix breached the settlement agreement
Hadden, Attorneys at Law, Dallas, TX. Jeffrey Hellberg
                                                             when Healix furnished the agreement to Methodist, and
Jr., Flanary Carter Schubert, P.C., Attoneys at Law, Dal-
                                                             he sued Healix to recover under the liquidated damages
las, TX.
                                                             provision of the agreement.
JUDGES: Panel consists of: Arnot, C.J., and Wright, J.,           A trial court must grant a motion for summary
and McCall, J.                                               judgment if the moving party establishes that no genuine
                                                             issue of material fact exists and that the moving party is
OPINION BY: JIM R. WRIGHT                                    entitled to judgment as a matter of law. TEX.R.CIV.P.
                                                             166a(c); Lear Siegler, Inc. v. Perez, 819 S.W.2d 470,
OPINION                                                      471, 35 Tex. Sup. Ct. J. 154 (Tex.1991). Once the movant
                                                             establishes a right to a summary judgment, the
    Memorandum Opinion
                                                             non-movant must come forward with evidence or law that
     The trial court granted a motion for summary judg-      precludes summary judgment. City of Houston v. Clear
ment filed by Nicholaos C. Bellos, M.D., P.A. and en-        Creek Basin Authority, 589 S.W.2d 671, 678-79, 23 Tex.
forced a contractual liquidated damages clause against       Sup. Ct. J. 7 (Tex.1979). When reviewing a summary
Healix Infusion Therapy, Inc. The trial court awarded Dr.    judgment, [*3] the appellate court takes as true evidence
Bellos $ 10,000.00 in his suit against Healix. The trial     favorable to the non-movant. Every reasonable inference
court also awarded attorney's fees to Dr. Bellos. In two     must be indulged in favor of the non-movant and any
issues on appeal, Healix argues that the liquidated dam-     doubts resolved in its favor. American Tobacco Com-
ages clause is an unenforceable penalty and that there are   pany, Inc. v. Grinnell, 951 S.W.2d 420, 425, 40 Tex. Sup.
genuine issues of material fact regarding damages. 1 We      Ct. J. 658 (Tex.1997); Nixon v. Mr. Property Manage-
affirm.                                                      ment Company, Inc., 690 S.W.2d 546, 548-49, 28 Tex.
                                                             Sup. Ct. J. 384 (Tex.1985). In order to succeed on an
       1 The award of attorney's fees is not contested       affirmative defense in a summary judgment proceeding, a
       in this appeal.                                       defendant must establish every element of the affirmative
                                                                                                                      Page 2
                                               2003 Tex. App. LEXIS 9027, *


defense. American Tobacco Company, Inc. v. Grinnell,             contacted Dean Matthys, the corporate risk manager for
supra.                                                           Methodist, to have him destroy the agreement. She further
                                                                 stated that Matthys indicated that only he and his assistant
     Courts will enforce liquidated damages provisions in
                                                                 were aware of the settlement agreement. Also included in
contracts when the court finds that the harm resulting
                                                                 the summary judgment evidence was an affidavit given by
from a breach of the contract is incapable or difficult to
                                                                 Matthys as well [*6] as a letter from Matthys to Healix.
estimate and when it also finds that the amount provided
                                                                 These documents indicated that the copy of the settlement
as liquidated damages is a reasonable forecast of just
                                                                 agreement was destroyed soon after it was received by
compensation. Rio Grande Valley Sugar Growers, Inc.
                                                                 Methodist and that the only two people to see the agree-
v. Campesi, 592 S.W.2d 340, 342 n.2, 23 Tex. Sup. Ct. J.
                                                                 ment, Matthys and his assistant Lisa Irby, were not in-
142 (Tex.1979). The "difficulty of estimation" and "rea-
                                                                 volved with the re-credentialing process at Methodist.
sonable forecast" questions must be determined from
                                                                 Finally, Healix offered as summary judgment evidence
evidence of the circumstances which existed at the time
                                                                 Dr. Bellos's response to a request for disclosure that any
the parties executed the agreement. Baker v. Interna-
                                                                 economic damages suffered by Dr. Bellos were difficult
tional Record Syndicate, Inc., 812 S.W.2d 53 [*4]
                                                                 to estimate.
(Tex.App. - Dallas 1991, no writ). Courts will not enforce
liquidated damages clauses which do not meet those cri-               This evidence does not meet the burden Healix must
teria because the clauses would constitute unenforceable         bear: that at the time the agreement was made damages
penalties. Phillips v. Phillips, 820 S.W.2d 785, 35 Tex.         could be easily ascertained and that the amount of the
Sup. Ct. J. 220 (Tex.1991). Determining whether a liqui-         liquidated damages award was not a reasonable forecast
dated damages clause is enforceable or whether it is an          of just compensation. Healix contends that the award of
unenforceable penalty is a question of law. Phillips v.          liquidated damages is disproportionate to the actual
Phillips, supra.                                                 damages suffered by Dr. Bellos because Dr. Bellos did not
                                                                 have any actual damages. To emphasize this point, Healix
     In this case, the initial burden was on the movant.
                                                                 relies on Baker. "If the liquidated damages are shown to
However, when a party raises the affirmative defense of
                                                                 be disproportionate to the actual damages, then the liq-
penalty, that party assumes the burden to conclusively
                                                                 uidated damages can be declared a penalty and recovery
establish the defense. Baker v. International Record
                                                                 limited to actual damages proven." Baker v. International
Syndicate, Inc., supra. Therefore, the burden was upon
                                                                 Record Syndicate, Inc., supra at 55. [*7] Healix still
Healix to prove that the contractual liquidated damages
                                                                 must show that, at the time the agreement was made, the
was an unenforceable penalty.
                                                                 amount of the liquidated damages was not a reasonable
     The settlement agreement offered as summary                 forecast. To prove this defense, Healix must prove actual
judgment evidence by Dr. Bellos showed that the parties          damages, if any, to show that the actual loss was not an
agreed to keep the nature of the settlement agreement            approximation of the stipulated sum. Baker v. Interna-
confidential. The parties further agreed that a breach of        tional Record Syndicate, Inc., supra. That damages are
the confidentiality clause would result in imminent and          not yet ascertainable is not tantamount to evidence of
irreparable harm and that the damages for a breach of            "zero" damages.
confidentiality would be $ 10,000.00. Healix admitted in
                                                                      The summary judgment evidence establishes that
its response to Dr. Bellos's [*5] request for admissions
                                                                 there was an agreement between Healix and Dr. Bellos
that it agreed to the confidentiality of the agreement and
                                                                 that prohibited the disclosure of the nature of the settle-
that it agreed to the $ 10,000.00 liquidated damages
                                                                 ment agreement and that Dr. Bellos performed all the
clause. Dr. Bellos's affidavit reflected that he agreed to the
                                                                 required acts under the agreement. Healix breached the
confidential nature of the agreement and that he had per-
                                                                 agreement by sending a copy of the agreement to Meth-
formed all acts required of him under the settlement
                                                                 odist. Because we find that Healix failed to meet its bur-
agreement. His affidavit further showed that Methodist
                                                                 den of proof on the penalty issue and because Healix
subjected him to a re-credentialing process every two
                                                                 failed to raise a genuine issue of material fact, we hold
years. He was unaware of how the disclosure of the
                                                                 that the trial court did not err when it granted Dr. Bellos's
agreement would affect the re-credentialing process, but
                                                                 motion for summary judgment. Healix's issues on appeal
states that he has been harmed in a manner that is "inca-
                                                                 are overruled.
pable of or difficult of estimation."
                                                                     The judgment of the trial court is affirmed.
     As part of its proof, Healix attached the affidavit of
Heather Hughes-Glass, the corporate risk manager for                 JIM R. WRIGHT
Healix. In her affidavit, Heather Hughes-Glass stated that,
                                                                     JUSTICE
as soon as she became aware of the confidentiality pro-
vision of the agreement that was sent to Methodist, she
                                                                                                                    Page 1




                HIRSCHFELD STEEL COMPANY, INC., Appellant v. KELLOGG BROWN &
               ROOT, INC. AND HARRIS COUNTY-HOUSTON SPORTS AUTHORITY, Appel-
                                            lees

                                                  NO. 14-04-00504-CV

                   COURT OF APPEALS OF TEXAS, FOURTEENTH DISTRICT, HOUSTON

                                     201 S.W.3d 272; 2006 Tex. App. LEXIS 7152


                                         August 15, 2006, Judgment Rendered
                                           August 15, 2006, Opinion Filed

PRIOR HISTORY:             [**1] On Appeal from the           declaratory relief against the general contractor and the
270th District Court. Harris County, Texas. Trial Court       owner. After a jury trial, the trial court rendered judgment
Cause No. 02-24591.                                           that both the subcontractor and the general contractor take
                                                              nothing on their claims against each other. On appeal, the
DISPOSITION:         Affirmed.                                subcontractor (1) challenges the legal and factual suffi-
                                                              ciency of the jury's finding that it did not substantially
                                                              perform [**2] its duties under the subcontract, (2) as-
COUNSEL: For APPELLANTS: Steven J. Lownds,                    serts the trial court abused its discretion in admitting
Dallas, TX; Marcie Lynn Schot, Dallas, TX; Roger D.           evidence regarding the warranty, (3) claims the trial court
Townsend, Houston, TX.                                        erred in not rendering judgment in its favor on an alleg-
                                                              edly separate and independent contract claim for
for APPELLEES: Daniel J. Kraftson, McLean, TX; E.             maintenance work on the roof, and (4) argues the trial
Katherine Strahan, Houston, TX; Gene L. Locke, Hou-           court erred in rendering summary judgment dismissing its
ston, TX; Kerry McMahon, Houston, TX; Nicholas A.             declaratory-judgment claims. In its cross-appeal, the
Simms, Houston, TX.                                           general contractor asserts the trial court erred in denying it
                                                              attorney's fees under provisions of the subcontract al-
JUDGES: Panel consists of Justices Fowler, Frost, and         lowing the prevailing party in litigation between the
Guzman.                                                       subcontractor and the general contractor to recover at-
                                                              torney's fees. We affirm the trial court's judgment.
OPINION BY: Kem Thompson Frost
                                                              I. FACTUAL AND PROCEDURAL BACKGROUND
OPINION
                                                                   Appellee Harris County-Houston Sports Authority
      [*275] This case arises out of the construction of      (hereinafter the "Sports Authority") is the owner of Mi-
what is now known as Minute Maid Park and involves            nute Maid Park, a state-of-the-art professional baseball
disputes among the owner of the ball park, the general        stadium located in downtown Houston. In December
contractor, and one of its subcontractors. The subcon-        1997, the Sports Authority and appellee Kellogg Brown &
tractor sued the general contractor asserting contract        Root, Inc. ("Kellogg") entered into a contract for the
claims for retainage and contract damages as well as          construction of Minute Maid Park (hereinafter the "Con-
seeking a declaratory judgment against both the owner         struction Contract"). In May of 1998, Kellogg and ap-
and the general contractor that the subcontractior's          pellant Hirschfeld Steel [**3] Company, Inc. (hereinaf-
ten-year warranty on the park's retractable roof was void.    ter "Hirschfeld") entered into a subcontract, under which
The general contractor asserted a counterclaim for breach     Hirschfeld agreed to provide various metal systems for
of contract and declaratory relief. The trial court granted   Minute Maid Park (hereinafter the "Subcontract"). As part
summary judgment denying the subcontractor's claims for       of the Subcontract, Hirschfeld agreed to design and build
                                                                                                                       Page 2
                                   201 S.W.3d 272, *; 2006 Tex. App. LEXIS 7152, **


all structural, architectural, electrical, and mechanical      this agreement, Kellogg agreed that the ten-year warranty
components required to provide a complete and working          on the Roof System is in full force and effect and is en-
retractable roof system for Minute Maid Park (hereinafter      forceable directly against Kellogg notwithstanding the
"Roof System"). Under the Subcontract, Hirschfeld              purported revocation of this warranty by Hirschfeld.
[*276] also was required to warrant various aspects of
the Roof System for ten years.                                 Litigation
                                                                    In May 2002, Hirschfeld filed this lawsuit against
Performance of First-Year Maintenance Services
                                                               Kellogg and the Sports Authority. Hirschfeld asserted
     Hirschfeld subcontracted with Uni-Systems, Inc. to        claims against Kellogg for retainage under the Subcon-
perform some of the services required under the Subcon-        tract and other contract damages. Hirschfeld also sought a
tract. Uni-Systems provided some first-year maintenance        declaratory judgment against both the Sports Authority
services for the Roof System, but a dispute arose over who     and Kellogg that its ten-year warranty on the retractable
was supposed to pay for these services. The Sports Au-         roof was void because of an alleged failure to perform
thority asserted that first-year maintenance services were     required maintenance on the Roof System. Kellogg
included in the Construction Contract and should be            counterclaimed for breach of contract and [**6] declar-
performed at no additional cost to the Sports Authority.       atory-judgment relief.
Kellogg asserted that these services were not included in
                                                                    The Sports Authority and Kellogg filed motions for
the Construction Contract and that Kellogg was entitled to
                                                               summary judgment asserting, among other things, that (1)
a change order under that contract [**4] giving it addi-
                                                               the trial court lacked subject matter jurisdiction over
tional compensation for providing these services. As
                                                               [*277] Hirschfeld's declaratory-judgment claims re-
between the Sports Authority and Kellogg, an arbitration
                                                               garding the ten-year warranty because the claims were not
panel eventually ruled against the Sports Authority's po-
                                                               ripe and (2) as a matter of law, the Subcontract does not
sition and determined that Kellogg was not obligated to
                                                               make performance of maintenance on the Roof System a
provide the first-year maintenance services without re-
                                                               condition precedent to the existence of Hirschfeld's war-
ceiving additional compensation. In any event,
                                                               ranty. The trial court granted both motions for summary
Uni-Systems allegedly provided various first-year
                                                               judgment and dismissed Hirschfeld's claims for a declar-
maintenance services and sought payment from
                                                               atory judgment that its warranty was void.
Hirschfeld for these services. Hirschfeld settled with
Uni-Systems and then sought payment from Kellogg for                 The contract claims of Kellogg and Hirschfeld were
the first-year maintenance services allegedly provided on      tried to a jury. The jury found that (1) Hirschfeld did not
its behalf by Uni-Systems.                                     substantially perform its duties under the Subcontract; (2)
                                                               $ 1,259,922 remains unpaid under the Subcontract; (3)
Subcontractor's Suspension of Ten-Year Warranty                remedying or repairing Hirschfeld's defects and/or omis-
                                                               sions would cost $ 500,000; (4) Hirschfeld performed
     On September 22, 2000, Hirschfeld sent a letter to
                                                               first-year maintenance through its subcontractor
Kellogg stating that Hirschfeld was declaring the ten-year
                                                               Uni-Systems as directed by Kellogg; and (5) $ 240,000 is
warranty suspended based on the Sports Authority's al-
                                                               the fair and reasonable value of the first-year maintenance
leged failure to perform maintenance on the Roof System
                                                               provided by Hirschfeld through its subcontractor
allegedly required by the ten-year warranty. Hirschfeld
                                                               Uni-Systems.
asserted that the warranty would be suspended until
Hirschfeld reinstated the warranty based on the occur-              The trial court signed [**7] a final judgment in-
rence of various events, including completion of all re-       corporating its summary-judgment rulings on Hirschfeld's
pairs necessitated by the Sports Authority's failure to        declaratory-judgment claims and ordering that Hirschfeld
perform the required maintenance [**5] and the per-            and Kellogg take nothing by their claims. The trial court
formance of all required maintenance on the roof mecha-        denied Kellogg's request for attorney's fees under a pro-
nism. Hirschfeld did not thereafter reinstate its ten-year     vision in the Subcontract allowing the prevailing party in
warranty.                                                      litigation between the parties to recover its attorney's fees.
                                                               Hirschfeld appealed, and Kellogg cross-appealed.
Settlement Agreement Between Owner and General
Contractor                                                     II. ISSUES PRESENTED
     Kellogg and the Sports Authority finally resolved all         On appeal, Hirschfeld raises the following issues:
of their differences regarding this project and entered into
a settlement agreement effective March 29, 2002. This                     (1) Is the evidence legally and factually
agreement provided that Kellogg would receive final                    sufficient to support the jury's finding that
payment from the Sports Authority by April 26, 2002. In
                                                                                                                     Page 3
                                   201 S.W.3d 272, *; 2006 Tex. App. LEXIS 7152, **


       Hirschfeld did not substantially perform its             matter of law. Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124
       duties under the Subcontract?                            S.W.3d 154, 157, 47 Tex. Sup. Ct. J. 40 (Tex. 2003).
           (2) Did the trial court reversibly err in
                                                                IV. ANALYSIS
       admitting allegedly irrelevant testimony
       regarding Hirschfeld's suspension of its
                                                                A. Did the trial court err in granting summary judg-
       warranty?
                                                                ment as to the declaratory-judgment claims relating to
            (3) In light of the jury's findings, did            the ten-year warranty?
       the trial court erroneously refuse to render
                                                                     In its fourth issue, which we address first, Hirschfeld
       judgment in favor of Hirschfeld on its
                                                                asserts that the trial court erred in granting summary
       claim for $ 240,000 and attorney's fees
                                                                judgment as to its claims for declaratory judgment re-
       based on its claim regarding first-year
                                                                garding the ten-year warranty. In their motions for sum-
       maintenance?
                                                                mary judgment, Kellogg and the Sports Authority argued
           (4) Did the trial court err in granting              the trial court lacked subject matter jurisdiction because
       summary judgment as to Hirschfeld's                      the declaratory-judgment claims are not ripe and, in the
       claims against Kellogg and the Sports                    alternative, they fail on the merits. The trial court granted
       Authority for declaratory judgment re-                   the motions without specifying [**10] the grounds.
       garding the ten-year [**8] warranty?                     Because the trial court dismissed the claims with preju-
                                                                dice rather than without prejudice, it does not appear that
                                                                the trial court concluded it lacked jurisdiction under the
                                                                ripeness doctrine. However, it is possible the trial court
    In its cross-appeal, Kellogg asserts the trial court        found a lack of ripeness and rendered an improper judg-
erred by not awarding Kellogg its attorney's fees.              ment based on this determination. Furthermore, even if
                                                                the trial court did not conclude the declaratory-judgment
III. STANDARDS OF REVIEW                                        claims were not ripe, we still would lack jurisdiction if
    In reviewing the trial court's traditional summary          this were so. Therefore, we must address the ripeness
judgment as to Hirschfeld's declaratory-judgment claims,        issue in any event.
we take as true all evidence favorable to the non-movant,            In deciding a ripeness issue, we ask whether, at the
and we make all reasonable inferences in the
                                                                time a lawsuit is filed, the facts have developed suffi-
non-movant's favor. Dolcefino v. Randolph, 19 S.W.3d
                                                                ciently so that an injury has occurred or is likely to occur,
906, 916 (Tex. App.--Houston [14th Dist.] 2000, pet.
                                                                rather than being contingent or remote. Patterson v.
denied). If the movant's motion and summary-judgment
                                                                Planned Parenthood of Houston & Se. Tex., Inc., 971
evidence facially establish its right to judgment as a          S.W.2d 439, 442, 41 Tex. Sup. Ct. J. 1001 (Tex. 1998). The
matter of law, the burden shifts to the non-movant to raise     ripeness inquiry thus focuses on whether the case involves
a genuine, material fact issue sufficient to defeat summary
                                                                uncertain or contingent future events that may not occur
judgment. Id.
                                                                as anticipated or may not occur at all. Id. By maintaining
     In construing the Subcontract, our primary concern is      this focus, the ripeness doctrine serves to avoid premature
to ascertain and give effect to the intentions of the parties   adjudication. Id.
as expressed in the contract. Kelley-Coppedge, Inc. v.               The Texas Declaratory Judgment Act is a remedial
Highlands Ins. Co., 980 S.W.2d 462, 464, 42 Tex. Sup. Ct.       statute whose purpose [**11] is to afford relief from
J. 130 (Tex. 1998). To ascertain the parties' true inten-
                                                                uncertainty and insecurity with respect to rights, status,
tions, we examine the entire agreement in an effort to
                                                                and other legal relations. TEX. CIV. PRAC. & REM.
harmonize and give effect to all of its provisions so that
                                                                CODE ANN. § 37.002(b) (Vernon 1997). We must con-
none will be rendered meaningless. MCI Telecomms.               strue and administer this statute liberally. Id. A court of
Corp. v. Tex. [*278] Utils. Elec. Co., 995 S.W.2d 647,          record, acting within its jurisdiction, has power to declare
652, 42 Tex. Sup. Ct. J. 656 (Tex. 1999). [**9] Whether
                                                                rights, status, and other legal relations whether or not
a contract is ambiguous is a question of law for the court.
                                                                further relief is or could be claimed. Id. § 37.003(a)
Heritage Res., Inc. v. NationsBank, 939 S.W.2d 118, 121,
                                                                (Vernon 1997). A person with an interest in a written
39 Tex. Sup. Ct. J. 537 (Tex. 1996). A contract is am-
                                                                contract may ask a court to determine any question of
biguous when its meaning is uncertain and doubtful or is        construction or validity arising under the contract and
susceptible to more than one reasonable interpretation. Id.     obtain a declaration of rights, status, or other legal rela-
However, when a written contract is worded so that it can
                                                                tions thereunder. Id. § 37.004(a) (Vernon 1997). A con-
be given a certain or definite legal meaning or interpreta-
                                                                tract may be construed either before or after a breach. Id. §
tion, it is unambiguous, and the court construes it as a
                                                                37.004(b).
                                                                                                                   Page 4
                                   201 S.W.3d 272, *; 2006 Tex. App. LEXIS 7152, **


     Kellogg and the Sports Authority assert that                        c. This Subcontractor shall warrant
Hirschfeld's declaratory-judgment claims regarding the              the design of the roof mechanism and the
ten-year warranty are not ripe because so far no warranty           roof Structure [sic] against errors and
claims have been made or threatened. However, the rec-              omissions for a period of ten (10) years
ord reflects that there is a real and current controversy           from the date of Substantial Completion of
regarding this warranty. Kellogg relies on its interpreta-          the project.
tion of the warranty to support the trial court's
                                                                         5. This Subcontractor shall warrant
take-nothing [**12] judgment on Hirschfeld's contract
                                                                    the interface between design of [**14]
[*279] claim. If Hirschfeld's construction of the war-
                                                                    the structural Roof [sic] system and the
ranty is correct, this court's analysis of Hirschfeld's first
                                                                    roof mechanism for a period of ten (10)
and second issues on appeal will be affected. After careful
                                                                    years from the date of final completion of
consideration, we conclude that Hirschfeld's declarato-
                                                                    the project. The following clarifications
ry-judgment claims regarding the ten-year warranty are
                                                                    are acknowledged as a basis of Subcon-
ripe. See Patterson, 971 S.W.2d at 442; City of Waco v.
                                                                    tractor's [Guaranteed Maximum Price]:
Tex. Nat. Res. Conserv. Comm'n, 83 S.W.3d 169, 175-78
(Tex. App.--Austin 2002, pet. denied) (holding that de-                  a. This Subcontractor shall warrant
claratory-judgment claims were ripe). Therefore, we have            the design, manufacture, and installation
appellate jurisdiction over these claims, and the trial court       of the roof mechanism to perform [its] in-
erred to the extent it granted summary judgment on this             tended purpose of; [sic] opening and
basis.                                                              closing the roof structure without exces-
                                                                    sive noise, excessive vibration, and/or
     We now must decide whether the trial court erred in
                                                                    excessive wear for a period of ten (10)
refusing to grant Hirschfeld's request for a declaratory
                                                                    years from the date of Substantial Com-
judgment that its ten-year warranty is void and its revo-
                                                                    pletion of the project.
cation of this warranty was effective. Hirschfeld argues
that it no longer owes any obligations under the ten-year                b. Acts of God and other normal in-
warranty on the Roof System because alleged express                 surable risks are excluded from this war-
conditions precedent--scheduled inspections and                     ranty.
maintenance--did not occur. Hirschfeld asserts that the
                                                                        c. Architectural elements (i.e. glass,
performance of the inspections and maintenance is a
                                                                    roof membrane) are excluded from this
condition precedent [**13] to the existence of the
                                                                    warranty.
ten-year warranty as a matter of law, or in the alternative,
that the Subcontract is ambiguous in this regard.                        d. Adequacy of design of structural
    The Subcontract states the following:                           roof components to perform as a static roof
                                                                    is excluded from this warranty (i.e. if the
                                                                    roof design is determined to be adequate
           4. This Subcontractor shall provide a
                                                                    for a static roof under design loads, this
       Ten (10) Year Warranty for the Mecha-
                                                                    Subcontractor will guarantee the perfor-
       nized Retractable Roof System which in-
                                                                    mance of the roof structure and mechanism
       corporates the Structural Steel, Roof Deck
       and Roof Mechanization System in its en-                     to jointly perform their designed function;
       tirety. The Ten-Year Warranty shall pro-                     if the roof design [*280] were to be
                                                                    determined to be inadequate for a static
       vide the following coverage:
                                                                    roof under design loads, [**15] this
            a. This Subcontractor shall warrant                     Subcontractor does not warrant that inad-
       the structural steel and deck against all                    equacy).
       defects in quality and workmanship,
       manufacture and installation for a period                         6. This Subcontractor shall specify
                                                                    and publish a ten- (10) year written
       of ten (10) years, from the date of Sub-
                                                                    maintenance program for the Roof
       stantial Completion of the project.
                                                                    Mechanization System, which includes a
            b. This Subcontractor shall warrant                     manufacturer recommended maintenance
       the roof mechanism against all defects in                    schedule. The ten- (10) year maintenance
       quality and workmanship, manufacture                         program shall be submitted to the Archi-
       and installation for a period of ten (10)                    tect/Engineer of record. However, the Ar-
       years, from the date of Substantial Com-                     chitect/Engineer of record's review com-
       pletion of the project.                                      ments must not diminish the integrity of the
                                                                                                          Page 5
                           201 S.W.3d 272, *; 2006 Tex. App. LEXIS 7152, **


specified maintenance program as a con-                     By [**17] the Owner, which includes
dition of the ten- (10) year warranty, un-                  detailed observations and recommenda-
less the subject revisions are accepted by                  tions. The Owner's annual maintenance
the Contractor. This Subcontractor's ten                    and inspections shall include (at a mini-
(10) [sic] year written maintenance pro-                    mum) but are not limited to the following:
gram shall include but is not limited to the
                                                                 1. The maintenance contractor se-
folllowing:
                                                            lected by the Owner shall perform a "point
     a. A schedule of daily and weekly                      by point" inspection, developed and pub-
inspections required to be performed by                     lished by this Subcontractor in accordance
the Owners [sic] Roof Mechanization                         with the completed design, and submitted
System operator, which will facilitate                      to the Architect/Engineer of record on this
identification of potential maintenance                     project. The Owner shall submit a copy of
issues.                                                     the inspection report to this Subcontractor
                                                            and the Contractor.
     b. A schedule of quarterly required
maintenance and inspections to be per-                           2. The maintenance contractor se-
formed by a maintenance contractor to be                    lected by the Owner shall implement a
selected by the Owner. The Owner shall                      local observation system that will be
publish quarterly reports to this Subcon-                   monitored via modem at all times, each
tractor, (copied to the Contractor) [sic] The               time the roof is operated. The Owner shall
Owner's quarterly maintenance and in-                       submit pertinent information regarding the
spections [**16] shall include (at a                        location of the observation post and con-
minimum) but are not limited to the fol-                    tact information shall be submitted to this
lowing:                                                     Subcontractor and the Contractor. [*281]
                                                            The Owner shall dispatch a local techni-
     1. The maintenance contractor se-
                                                            cian to the site in the event any problems
lected by the Owner shall grease all wheel
                                                            are detected, and notify this Subcontractor
bearings, lubricate all open gearing, clean
                                                            accordingly. This Subcontractor shall ad-
power feed rail, clean microwave guide,
                                                            vise the Owner as required to resolve any
clean all electrical component cooling fins.
                                                            operational malfunctions. This Subcon-
     2. The maintenance contractor se-                      tractor shall maintain a permanent record
lected by the Owner shall perform a full                    regarding issues of this [**18] nature
system inspection, utilizing a minimum of                   throughout the life of the warranty [sic] A
sixty (60) man hours and two (2) techni-                    complete report regarding issues of this
cians. The full system inspection shall be                  nature shall be submitted to the Contractor
developed and published by this Subcon-                     by the Subcontractor.
tractor in accordance with the completed
design, and reviewed by the Archi-
tect/Engineer of record.                             Attachment B of the Subcontract (emphasis added).
      3. The maintenance contractor se-                   Relying primarily on the italicized language above,
lected by the Owner shall perform a "point           Hirschfeld asserts that the written maintenance program
by point" inspection, developed and pub-             described in Paragraph 6 above is a condition precedent
lished by this Subcontractor in accordance           and that, if this maintenance program is not followed, then
with the completed design reviewed by the            its ten-year warranty is void. To determine whether a
Architect/Engineer of record on this pro-            condition precedent exists, the intention of the parties
ject.                                                must be ascertained, and that can be done only by looking
                                                     at the entire contract. Criswell v. European Crossroads
     c. A schedule of annual maintenance
                                                     Shopping Ctr., Ltd., 792 S.W.2d 945, 948, 33 Tex. Sup. Ct.
and inspections required to be performed
                                                     J. 598 (Tex. 1990). To make performance specifically
by the maintenance contractor selected by
                                                     conditional, a term such as "if," "provided that," "on
the Owner, which shall include all struc-            condition that," or some similar phrase of conditional
tural, mechanical, and electrical compo-             language normally must be included. Id. If no such lan-
nents, including finishes. An inspection
                                                     guage is used, the terms typically will be construed as a
report shall be published to this Subcon-
                                                     covenant in order to prevent a forfeiture. Id. Though there
tractor (and copied to the Contractor) [sic]
                                                     is no requirement that such phrases be utilized, their ab-
                                                                                                                     Page 6
                                   201 S.W.3d 272, *; 2006 Tex. App. LEXIS 7152, **


sence is probative of the parties' intention that a promise            tract to the contrary, it is further expressly agreed
be made, rather than [**19] a condition imposed. Id. In                that final payment by the [Sports Authority] to
construing a contract, forfeiture by finding a condition               [Kellogg] is an absolute condition precedent to
precedent is to be avoided when another reasonable                     final payment by [Kellogg] to [Hirschfeld]."
reading of the contract is possible. Id. When the intent of
                                                                     Sections 4 and 5 require Hirschfeld to warrant for ten
the parties is doubtful or when a condition would impose
                                                                years (1) the Structural Steel, Roof Deck and roof
an absurd or impossible result, the agreement will be
                                                                mechanism against all defects in quality and workman-
interpreted as creating a covenant rather than a condition.
                                                                ship, manufacture, and installation, (2) the design of the
Id. Because of their harshness in operation, conditions are
                                                                roof mechanism and roof structure against errors and
not favored in the law. Id.
                                                                omissions, (3) the interface between the design of the
     There is no language in the Subcontract stating that       structural roof system and the roof mechanism, and (4) the
there will be a ten-year warranty from Hirschfeld "if,"         design, [**22] manufacture, and installation of the roof
"provided that," or "on condition that" the written             mechanism to perform its intended purpose of opening
maintenance program is followed. There is no contract           and closing the roof structure without excessive noise,
language stating that nonperformance of the maintenance         excessive vibration, and/or excessive wear. Given these
program will void the warranty. 1 Hirschfeld focuses on a       substantial warranties, it would not be reasonable to in-
sentence that uses the word "condition"; however, this          terpret the passing reference in the Subcontract as stating
sentence notably does not use the term "condition prece-        a condition precedent, and it would not be reasonable to
dent." The term "condition" can mean a condition prece-         interpret this statement as an intention to void the ten-year
dent, but it also can be used more generally to mean a term     warranty based on the failure to make one daily inspection
or provision in a contract that is not a condition precedent.   or the failure to grease one wheel bearing, as required by
See BLACK'S LAW DICTIONARY 312-13 (8th ed.                      the written maintenance program in section 6.
2004) (defining condition as "a future and uncertain event
                                                                     After considering the entire Subcontract under the
on which [**20] the existence or extent of an obligation
                                                                applicable legal standard, we conclude that, under the
or liability depends" and also as "a term, provision, or
                                                                unambiguous language of the Subcontract, performance
clause in a contract"). In Attachment B of the Subcontract,
                                                                of the written maintenance plan is not a condition prece-
the parties first describe the ten-year warranty required of
                                                                dent to the existence of Hirschfeld's ten- year warranty.
Hirschfeld in sections 4 and 5, and then, in section 6, they
                                                                See Criswell, 792 S.W.2d at 948-49 (holding that contract
require Hirschfeld to publish a ten-year written mainte-
                                                                language did not make sale of the property on a condo-
nance program, which Hirschfeld must submit to the
                                                                minium basis a condition precedent to plaintiff's entitle-
Architect/Engineer. The sentence upon which Hirschfeld
                                                                ment to compensation); Sturges v. System Parking, Inc.,
relies states that, although the Architect/Engineer may
                                                                834 S.W.2d 472, 474 (Tex. App.--Houston [14th Dist.]
make comments and suggest revisions to this maintenance
                                                                1992, writ [**23] dism'd by agr.) (concluding there was
program, these comments and suggested revisions
                                                                no condition precedent under contract as a matter of law).
[*282] alone do not change the maintenance program
                                                                The trial court did not err in granting the traditional mo-
unless Kellogg accepts them. In the course of stating this,
                                                                tions for summary judgment filed by the Sports Authority
the parties provided in the Subcontract that the Archi-
                                                                and Kellogg and in dismissing with prejudice Hirschfeld's
tect/Engineer's comments "must not diminish the integrity
                                                                declaratory-judgment claims regarding the ten-year war-
of the specified maintenance program as a condition of
                                                                ranty. 2 Accordingly, we overrule Hirschfeld's fourth
the ten- (10) year warranty, unless the subject revisions
                                                                issue.
are accepted by the Contractor." However, given that
these sophisticated parties do not indicate in any other
                                                                       2 Kellogg also asserted a no-evidence motion
sentence of the Subcontract that performance of the
                                                                       for summary judgment regarding these claims;
written maintenance is a condition precedent to the ex-
                                                                       however, by concluding the trial court did not err
istence of Hirschfeld's warranty obligation, it seems
                                                                       in granting the traditional motion, we need not
[**21] unlikely that if they intended as much they would
                                                                       analyze this additional ground for summary
have mentioned it only in passing as they were addressing
                                                                       judgment.
the effect of the Architect/Engineer's comments on the
written maintenance program.
                                                                B. Is the evidence legally and factually sufficient to
                                                                support the jury's finding that the subcontractor did
       1 Elsewhere in the Subcontract, the parties used
                                                                not substantially perform its duties under the Sub-
       language creating an express condition precedent.
                                                                contract?
       For example, in section 22(C)(8) of the Subcon-
       tract's Attachment A, the parties state that                  In its first issue, Hirschfeld attacks the legal and
       "[n]otwithstanding any provision of this Subcon-         factual sufficiency of the evidence to support the jury's
                                                                                                                        Page 7
                                    201 S.W.3d 272, *; 2006 Tex. App. LEXIS 7152, **


finding that Hirschfeld failed to substantially perform its              willfully departed from the terms of the
duties under the Subcontract. Because Hirschfeld [**24]                  Subcontract, that it has not omitted essen-
had the burden of proof as to this issue, for Hirschfeld to              tial points of the Subcontract, that it has
succeed in its legal-sufficiency challenge, we must con-                 honestly and faithfully performed the
clude that Hirschfeld conclusively proved it substantially               construction contract in its material and
performed its duties under the Subcontract as a matter                   substantial particulars, and that the only
[*283] of law. See Dow Chem. Co. v. Francis, 46 S.W.3d                   variance from the strict and literal per-
237, 241, 44 Tex. Sup. Ct. J. 664 (Tex. 2001). Hirschfeld                formance of the Subcontract consists of
asserts it made this showing and therefore the trial court               technical or unimportant omissions or de-
should have awarded it attorney's fees and $ 759,922--the                tails.
difference between the amount the jury found was unpaid
under the Subcontract ($ 1,259,922) and the cost of
remedying or repairing Hirschfeld's defects and omissions        With the exception of using a different word to refer to the
as found by the jury ($ 500,000). In making this deter-          Subcontract, this instruction regarding the meaning of
mination, we must consider the evidence in the light most        "substantial performance" is identical to the instruction
favorable to the challenged finding and indulge every            proposed by Hirschfeld in its pretrial submission to the
reasonable inference that would support it. See City of          trial court. At trial, no party objected to this instruction as
Keller v. Wilson, 168 S.W.3d 802, 822, 48 Tex. Sup. Ct. J.       to what constitutes "substantial performance." 3 Therefore,
848 (Tex. 2005). We must credit favorable evidence if a          we review the sufficiency of the evidence under [**27]
reasonable factfinder could and disregard contrary evi-          the above instruction, without regard to whether it is a
dence unless a reasonable factfinder could not. See id. at       correct statement of the law. See St. [*284] Joseph
827. We must determine whether the evidence at trial             Hosp. v. Wolff, 94 S.W.3d 513, 530, 46 Tex. Sup. Ct. J.
would enable a reasonable and fair-minded person to find         142 (Tex. 2003) (stating that appellate courts in civil cases
the facts at issue. [**25] See id. The factfinder is the         review sufficiency of evidence based on the definitions
sole judge of the credibility of the witnesses and the           contained in the charge, unless a party objects to the
weight to be given their testimony. See id. at 819. Evi-         charge and points out the correct definition that is not
dence is conclusive only if reasonable people could not          being used in the charge); Osterberg v. Peca, 12 S.W.3d
differ in their conclusions. See id.                             31, 55, 43 Tex. Sup. Ct. J. 380 (Tex. 2000) (holding that
                                                                 court could not review the sufficiency of the evidence
     As to Hirschfeld's factual-sufficiency challenge, we
                                                                 based on a particular legal standard because that standard
examine the entire record, considering both the evidence
                                                                 was not submitted to the jury and no party objected to the
in favor of, and contrary to, the challenged finding. Cain
                                                                 charge on this ground or requested that the jury be
v. Bain, 709 S.W.2d 175, 176, 29 Tex. Sup. Ct. J. 214 (Tex.
                                                                 charged using this standard); L&F Distributors v. Cruz,
1986). After considering and weighing all the evidence,
                                                                 941 S.W.2d 274, 279, 286 (Tex. App.--Corpus Christi
we set aside the fact finding only if it is so contrary to the
                                                                 1996, writ denied) (holding that parties are bound by a
overwhelming weight of the evidence as to be clearly
                                                                 charge that misinforms the jury about the substantive law
wrong and unjust. Pool v. Ford Motor Co., 715 S.W.2d
                                                                 unless a party properly brings the defect in the charge to
629, 635, 29 Tex. Sup. Ct. J. 301 (Tex. 1986). The trier of
                                                                 the trial court's attention).
fact is the sole judge of the credibility of the witnesses and
the weight to be given to their testimony. GTE Mobilnet of
                                                                         3 Although Kellogg objected that this instruc-
S. Tex. v. Pascouet, 61 S.W.3d 599, 615-16 (Tex.
                                                                         tion failed to specifically state that substantial
App.--Houston [14th Dist.] 2001, pet. denied). We may
                                                                         completion of a project or building is not neces-
not substitute our own judgment for that of the trier of
                                                                         sarily the same as a contractor substantially per-
fact, even if we would reach a different answer on the
                                                                         forming its responsibilities under the contract, the
evidence. Maritime Overseas Corp. v. Ellis, 971 S.W.2d
                                                                         instruction given was consistent with Kellogg's
402, 407, 41 Tex. Sup. Ct. J. 683 (Tex. 1998). [**26] The
                                                                         proposed additional instruction. The trial court
amount of evidence necessary to affirm a judgment is far
                                                                         simply declined to give a more specific instruction
less than that necessary to reverse a judgment. Pascouet,
                                                                         in this regard.
61 S.W.3d at 616.
                                                                       [**28] As discussed above, the Subcontract re-
     The jury found that Hirschfeld did not substantially
                                                                 quired Hirschfeld to warrant various matters relating to
perform its duties under the Subcontract based on the
                                                                 the Roof System for ten years. 4 According to the March
following instruction regarding substantial performance:
                                                                 29, 2002 Settlement Agreement between the Sports Au-
                                                                 thority and Kellogg (hereinafter "Settlement Agree-
           To establish "substantial performance"
                                                                 ment"), the ten-year warranty commenced on August 1,
        Hirschfeld must show that: [sic] it has not
                                                                 2000. Although Kellogg may have admitted in its coun-
                                                                                                                        Page 8
                                   201 S.W.3d 272, *; 2006 Tex. App. LEXIS 7152, **


terclaim that Hirschfeld "provided" Kellogg with a                    ity] or its authorized representative has
ten-year warranty, this does not prevent Kellogg from                 demonstrated that the required mainte-
asserting, as it has, that Hirschfeld suspended, revoked, or          nance is being performed on the roof
repudiated the warranty that it provided.                             mechanism."
                                                                          . If all of these conditions are satisfied,
       4 As quoted above, sections 4 and 5 of At-
                                                                      then Hirschfeld will acknowledge that
       tachment B of the Subcontract state that
                                                                      [*285] the ten-year warranty is reinstat-
       Hirschfeld "shall warrant" for a period of ten years
                                                                      ed, effective retroactively to the date the
       (1) the design of the Roof System, (2) the interface
                                                                      roof mechanism was put in service by the
       between the design of the structural roof system
                                                                      Sports Authority.
       and the roof mechanism, and (3) the design,
       manufacture, and installation of the roof mecha-
       nism to perform its intended purpose. In section
                                                               Hirschfeld did not reinstate its ten-year warranty after
       20(B) of Attachment A of the Subcontract,
                                                               sending this letter.
       Hirschfeld also agreed to "promptly make good,
       without cost to [Kellogg] or [the Sports Authori-             Although Kellogg and Hirschfeld have different po-
       ty], any and all defects due to faulty workmanship      sitions as to when any final payment by Kellogg to
       and/or materials which may appear within the            Hirschfeld was due, under either party's interpretation, the
       guarantee or warranty period(s) established in the      final payment from Kellogg to Hirschfeld, including any
       Contract Documents."                                    retainage owed, was not due before April 26, 2002. 5
                                                               There was evidence before the jury that Hirschfeld pro-
       [**29] On September 22, 2000, Hirschfeld sent a
                                                               vided the ten-year warranty but then suspended it on
letter to Kellogg stating the following:
                                                               September 22, 2000, and thereafter did not reinstate it. At
                                                               trial, Hirschfeld's corporate representative testified that
          . After the Roof System was put in ser-
                                                               (1) the ten-year warranty on the Roof System was "an
       vice and used to support the Sports Au-
                                                               important and critical part of the undertaking"; (2)
       thority's use of Minute Maid Park, the
                                                               something was communicated to the effect that if
       Sports Authority failed to perform or cause
                                                               Hirschfeld was unwilling [**31] to offer a ten-year
       to be performed the level of maintenance
                                                               warranty on the Roof System, then Kellogg would not
       required by Hirschfeld's ten-year warranty
                                                               enter into the Subcontract with Hirschfeld; (3) when the
       on the Roof System and required by the
                                                               parties entered into the Subcontract, "the 10-year war-
       manufacturer's "O & M manual [sic]." As a
                                                               ranty that Hirschfeld promised to provide was an essential
       result of this failure, Hirschfeld believed as
                                                               part of the contract" and (4) he considers the words
       of September 22, 2000, that the roof
                                                               "suspend" and "revoke" in this context to be essentially
       mechanism was unreliable and potentially
                                                               the same. There is evidence that from September 22, 2000
       in disrepair.
                                                               forward, Hirschfeld asserted that the ten-year warranty
           . Additionally, because the required                was suspended and not in effect based on the alleged
       maintenance was not being performed by                  failure to perform an alleged condition precedent--the
       or on behalf of the Sports Authority, the               written maintenance plan. As discussed above, this
       terms of Hirschfeld's ten-year warranty                 maintenance plan is not a condition precedent to the ex-
       have not been satisfied.                                istence of the ten-year warranty. Under the applicable
                                                               standard of review, Hirschfeld did not conclusively prove
            . Hirschfeld believes the Sports Au-
                                                               that (1) it did not willfully depart from the terms of the
       thority's failure to comply with these
                                                               Subcontract, (2) it did not omit essential points of the
       warranty        requirements       "entitles
                                                               Subcontract, (3) it honestly and faithfully performed the
       [Hirschfeld] to declare its warranty obli-
                                                               construction contract in its material and substantial par-
       gations suspended until such time as the
                                                               ticulars, and (4) the only variance from the strict and
       roof mechanism commissioning has been
                                                               literal performance of the Subcontract consists of tech-
       completed, all repairs necessitated by [the
                                                               nical or unimportant omissions or details. Furthermore,
       Sports Authority's] failure to perform the
                                                               under the [**32] applicable standard of review, we
       required maintenance have been compet-
                                                               conclude that there is factually sufficient evidence to
       ed, the manufacturer has inspected and
                                                               support the jury's finding that, under the jury charge def-
       certified that the roof mechanism is in
                                                               inition, Hirschfeld did not substantially perform its duties
       compliance with all [**30] original re-
                                                               under the Subcontract.
       quirements and operating parameters for
       such mechanism, and [the Sports Author-
                                                                                                                    Page 9
                                  201 S.W.3d 272, *; 2006 Tex. App. LEXIS 7152, **


       5 At trial, Kellogg asserted that any final pay-             . Any alleged failure to perform contrac-
       ment to Hirschfeld was not due until Kellogg re-             tual covenants that do not include any
       ceived final payment from the Sports Authority on            work on the construction project should
       April 26, 2002. Hirschfeld asserted that, under              not be considered in determining whether
       change order 18 to the Subcontract, final payment            Hirschfeld substantially performed all of
       from Kellogg was due thirty days after Kellogg               its duties under the Subcontract.
       issued a final "Certificate for Payment" following
       Hirschfeld's full performance of the Subcontract
       (with certain exceptions). Hirschfeld asserted that
                                                                  Without commenting on the validity of any of these
       the relevant parts of the Subcontract had been
                                                             substantive legal arguments, as a threshold matter, we
       fully performed and that the Settlement Agree-
                                                             note that all of these arguments involve legal standards for
       ment constituted the final "Certificate for Pay-
                                                             what constitutes "substantial performance" that were not
       ment." Under this theory, final payment, if any,
                                                             submitted to the jury. Significantly, no party objected to
       was due thirty days after March 29, 2002, on April
                                                             the failure to submit these legal standards to the jury, and
       28, 2002.
                                                             no party requested that these legal standards be submitted
     On appeal, Hirschfeld asserts that it conclusively      to the jury. Therefore, we cannot use these legal standards
proved substantial performance at trial based on [**33]      in our review of the sufficiency of the evidence to support
the following arguments:                                     the jury's finding that Hirschfeld did not substantially
                                                             perform its duties under the Subcontract. See Wolff, 94
          . Kellogg admitted in the Settlement               S.W.3d at 530; Osterberg, 12 S.W.3d at 55; L&F Dis-
       Agreement that the project was completed              tributors, 941 S.W.2d at 279, 286. Accordingly, we
       by August 1, 2000, and, under Texas law,              overrule Hirschfeld's first issue.
       substantial completion of the Project is the
                                                                  C. Did the trial court reversibly err in admitting
       same as substantial performance by
                                                             allegedly irrelevant testimony [**35]         regarding
       Hirschfeld of all of its duties under the
                                                             the subcontractor's suspension of its warranty?
       Subcontract.
                                                                  In its second issue, Hirschfeld asserts the trial court
            . Kellogg and the Sports Authority
                                                             abused its discretion in determining that evidence re-
       received the benefit of their bargain.
                                                             garding Hirschfeld's suspension of its ten-year warranty
       Hirschfeld performed its work under the
                                                             was relevant. Hirschfeld claims that it preserved this
       Subcontract, and only minor repairs were
                                                             alleged error by its pretrial motion under Texas Rule of
       necessary. Under Texas law, this showing
                                                             Civil Procedure 248, which states:
       is all that is needed for Hirschfeld to es-
       tablish substantial performance of its ob-
                                                                       When a jury has been demanded, ques-
       ligations under the Subcontract.
                                                                    tions of law, motions, exceptions to
                                                                    pleadings, and other unresolved pending
        [*286] . The cost of the backcharges on
                                                                    matters shall, as far as practicable, be
       the Subcontract were less then one percent
                                                                    heard and determined by the court before
       of the Subcontract price. More than nine-
                                                                    the trial commences, and jurors shall be
       ty-nine percent of the work required by the
                                                                    summoned to appear on the day so desig-
       Subcontract allegedly was performed sat-
                                                                    nated.
       isfactorily.

       . Once Hirschfeld provided the warranty,
                                                             TEX. R. CIV. P. 248.
       any subsequent suspension, revocation, or
       repudiation of the warranty would be a                     Nowhere in its Rule 248 motion does Hirschfeld ask
       breach-of-warranty issue that cannot be               the trial court to exclude any evidence or argue that any
       considered in determining whether                     evidence is irrelevant. Furthermore, our record does not
       Hirschfeld substantially performed all of             reflect that Hirschfeld obtained a ruling on this motion.
       its duties under the Subcontract, as shown
       by this court's opinion in Coastal Chem.,                  Hirschfeld also asserts that it preserved error by the
       Inc. v. Brown, 35 S.W.3d 90, 93 (Tex.                 following objection at trial:
       [**34] App.--Houston [14th Dist.] 2000,
                                                                        [Counsel for Kellogg]: Now, you're
       pet. denied).
                                                                    aware, aren't you, that it's Hirschfeld's po-
                                                                    sition in this case that it has revoked the
                                                                                                                     Page 10
                                    201 S.W.3d 272, *; 2006 Tex. App. LEXIS 7152, **


        warranty with regard [**36]           to the             Nonetheless, we conclude that these two jury findings do
        ten-year warranty?                                       not entitle Hirschfeld to relief under this theory. The jury
                                                                 was neither asked about the formation of this alleged oral
            [Counsel for Hirschfeld]: Objection,
                                                                 contract nor instructed that it existed. Even if Kellogg
        Your Honor. This is a judiciary [sic] ad-
                                                                 directed Hirschfeld to perform first-year maintenance
        mission on this issuance of the warranty
                                                                 through its subcontractor Uni-Systems, this direction
        and there is an issue on this in the motion.
                                                                 could have been given even if the maintenance work in
            [Trial Court]: Approach.                             question constituted additional work covered by the
                                                                 Subcontract, as asserted by Kellogg. Likewise, a deter-
            (At the Bench, off the record)                       mination of the fair and reasonable value of these services
            Overruled.                                           would be appropriate to a quantum meruit claim or to a
                                                                 claim under the Subcontract if no rate of compensation
                                                                 was specified. Even if the second finding were held to be a
Hirschfeld did not assert in this objection that any evi-        damages question on this alleged contract claim, we could
dence was irrelevant. Because it did not voice in the trial      not imply findings that these damages resulted from a
court the evidentiary [*287] complaint it raises in its          breach of the alleged oral contract because such findings
second issue on appeal, Hirschfeld failed to preserve error      would not be in support of the trial court's judgment. See
as to this issue. See Hardin v. Hardin, 161 S.W.3d 14, 27        TEX. R. CIV. P. 279 (stating that appellate courts will
(Tex. App.--Houston [14th Dist.] 2004, no pet.). In any          imply findings of omitted and unrequested [**39] es-
event, even if error had been preserved, we could not            sential elements of a claim whose absence from the charge
conclude that the trial court abused its discretion in ad-       did not draw an objection, if (1) at least one essential
mitting this evidence. Accordingly, we overrule                  element necessarily referable to that claim was found by
Hirschfeld's second issue.                                       the jury, (2) there is factually sufficient evidence to sup-
                                                                 port a finding on the omitted elements, and (3) the implied
D. In light of the jury's findings, did the trial court          findings support the trial court's judgment); Gulf States
erroneously refuse to render judgment in favor of the            Utilities Co. v. Low, 79 S.W.3d 561, 564, 45 Tex. Sup. Ct.
subcontractor for damages plus attorney's fees based             J. 724, 45 Tex. Sup. Ct. J. 793 (Tex. 2002) (holding that
on its claim regarding first-year maintenance?                   findings may be deemed under Rule 279 only when they
                                                                 support the trial court's judgment).
     In its third issue, Hirschfeld asserts that, based on the
jury's verdict, the trial court should have rendered judg-            After reviewing the record, we conclude that
ment in its favor on its claim for $ [**37] 240,000 plus         Hirschfeld did not conclusively prove the existence and
attorney's fees for first-year maintenance work performed        breach of an independent [*288] oral contract with
under a contract independent from the Subcontract. The           Kellogg for the provision of first-year maintenance ser-
jury found that (1) Hirschfeld performed first-year              vices. Therefore, Hirschfeld's failure to obtain jury find-
maintenance through its subcontractor Uni-Systems as             ings on this issue precludes recovery on this claim. See
directed by Kellogg and (2) $ 240,000 is the fair and            TEX. R. CIV. P. 279 (stating that "[u]pon appeal all in-
reasonable value of the first-year maintenance provided          dependent grounds of recovery or of defense not conclu-
by Hirschfeld through its subcontractor Uni-Systems.             sively established under the evidence and no element of
Hirschfeld asserts that, even if it did not substantially        which is submitted or requested are waived"); In re S.A.P.,
perform the Subcontract so as to be entitled to relief           156 S.W.3d 574, 577, 48 Tex. Sup. Ct. J. 368 (Tex. 2005).
thereunder, it still is entitled to recover against Kellogg      Accordingly, we overrule Hirschfeld's third issue.
under an alleged independent oral contract based on these
two jury findings. 6 Hirschfeld asserts it does not seek to       [**40] E. Did the trial court err in denying the gen-
recover under a theory of quantum meruit.                        eral contractor recovery of its attorney's fees under
                                                                 the Subcontract?
        6 If this work fell under the Subcontract, then
                                                                      The Subcontract contains a provision entitling "[t]he
        Hirschfeld's failure to substantially perform the
                                                                 prevailing party in any litigation arising out of any dispute
        Subcontract would bar its recovery. See Dobbins
                                                                 between [Kellogg] and [Hirschfeld]" to recover its attor-
        v. Redden, 785 S.W.2d 377, 378, 33 Tex. Sup. Ct.
                                                                 ney's fees and all other costs incurred as a result of this
        J. 273 (Tex. 1990).                                      litigation. 7 During trial Hirschfeld and Kellogg stipulated
    Although Kellogg asserts that Hirschfeld never               that if either of them were entitled to recover attorney's
pleaded such a claim for breach of an alleged [**38] oral        fees, then a reasonable and necessary amount of such fees
contract for first-year maintenance, we presume for the          would be $ 1.2 million. 8 The trial court refused to award
sake of argument that Hirschfeld did plead such a claim.
                                                                                                                     Page 11
                                   201 S.W.3d 272, *; 2006 Tex. App. LEXIS 7152, **


Kellogg such fees and did not award either side any                    entire $ 500,000 under its counterclaim. The trial
amount of attorney's fees.                                             court denied this relief, and Kellogg has not ap-
                                                                       pealed this ruling.
       7 Kellogg also relies on another provision of the
                                                                     [*289] On appeal, Kellogg points to its pleadings
       Subcontract allowing Kellogg to recover attor-
                                                               and emphasizes the language in its counterclaim, which
       ney's fees if it is determined to be the "prevailing
                                                               states that Kellogg sought to recover no more than $
       party" in the litigation; however, the scope of this
                                                               700,000 [**43] in addition to keeping the retainage.
       provision is not broader than the quoted provision
                                                               Although Kellogg's counterclaim does say this, Kellogg
       and this clause involves the same inquiry into
                                                               overlooks the reality that, if the jury had answered "$ 5.2
       whether Kellogg was the "prevailing party" in this
                                                               million" to question three of the charge, as Kellogg re-
       litigation.
                                                               quested, then Kellogg would have been entitled to amend
       8 Though the parties stipulated as to the ag-
                                                               its counterclaim and recover the greater amount awarded
       gregate amount of fees for each side in the litiga-
                                                               by the jury. See Greenhalgh v. Service Lloyds Ins. Co.,
       tion, neither party undertook to segregate fees on a
                                                               787 S.W.2d 938, 939-40, 33 Tex. Sup. Ct. J. 387 (Tex.
       claim-by-claim basis, and neither party has argued
                                                               1990) (stating that trial court would have abused its dis-
       that the Subcontract entitled it to fees as a "pre-
                                                               cretion if it had denied plaintiff's request to amend his
       vailing party" on a claim-by-claim basis.
                                                               petition after trial to ask for $ 128,000 in punitive dam-
       [**41] In its issue on cross-appeal, Kellogg asserts    ages, which was the amount awarded by the jury, rather
that the trial court erred in impliedly concluding that it     than $ 100,000, which was the amount requested in his
was not a "prevailing party" entitled to attorney's fees       live petition during trial); Whole Foods Mkt. Sw., L.P. v.
under the Subcontract. Hirschfeld went to trial on a peti-     Tijerina, 979 S.W.2d 768, 776 (Tex. App.--Houston [14th
tion that asserted breach-of-contract and declarato-           Dist.] 1998, pet. denied) (stating that "[a]n amendment is
ry-judgment claims against Kellogg. 9 Likewise, Kellogg        mandatory if it is merely procedural in nature such as
went to trial on a counterclaim asserting                      conforming the pleadings to the evidence at trial").
breach-of-contract and declaratory-judgment claims
                                                                    In its counterclaim, Kellogg also sought declaratory
against Hirschfeld. Although Kellogg requested separate
                                                               relief as to eleven matters. Both in its motion for entry of
liability and damages questions on its contract counter-
                                                               judgment and in one of its motions to modify judgment,
claims, the trial court apparently concluded that a jury
                                                               Kellogg continued to request [**44] declaratory relief
finding that Hirschfeld did not substantially perform its
                                                               under its counterclaim. Kellogg also sought to recover $
duties under the Subcontract would be equivalent to a
                                                               500,000 based on the jury's answer to question three.
finding that Hirschfeld breached the Subcontract and
                                                               Nonetheless, the trial court adhered to its original judg-
therefore did not submit a separate liability question as to
                                                               ment, which ordered that both Hirschfeld and Kellogg
Kellogg's contract counterclaim. Likewise, the trial court
                                                               take nothing on all of their claims.
apparently reasoned that question three could serve as part
of the determination of the amount that should be de-               In sum, at trial, Hirschfeld sought approximately $ 2
ducted from the retainage if Hirschfeld proved substantial     million in contract damages plus declaratory relief against
performance and that this question also could be used to       Kellogg, and Kellogg asserted a counterclaim for ap-
determine Kellogg's damages, if any, under its counter-        proximately $ 4 to $ 5 million plus declaratory relief
claim. During closing argument at trial, Kellogg, [**42]       against Hirschfeld. The trial court's judgment ordered that
without objection, argued that the answer to question          both parties take nothing on their claims. In this context,
three should be at least $ 3.9 million and as much as $ 5.2    we conclude the trial court did not err in determining that
million. The jury answered "$ 500,000." Therefore, at          neither Hirschfeld nor Kellogg was a "prevailing party" in
trial, Kellogg sought to recover as much as $ 5.2 million      this litigation entitled to all of its attorney's fees under the
on its contract counterclaim. This amount would be $           Subcontract. See Western Skies P'ship/Physician's
3,940,078 if $ 1,259,922 (the amount found by the jury to      Healthcare Assocs., L.C. v. Physician's Healthcare
be unpaid under the Subcontract) is subtracted from the $      Assocs. L.C., 2004 Tex. App. LEXIS 4438, No.
5.2 million. 10                                                08-02-00231-CV, 2004 WL 1078491, at *4 (Tex. App.--El
                                                               Paso May 13, 2004, no pet.) (holding in memorandum
       9 More than four months before trial, Hirschfeld        opinion that trial court did not err in concluding that,
       dropped from its petition negligence and fraud          under contractual provisions awarding fees to "prevailing
       claims that it had been asserting.                      party" in the litigation, no party prevailed [**45] be-
       10 Even though the $ 500,000 found by the jury          cause all parties recovered nothing on their claims and
       in question three is less than the $ 1,259,922 found    counterclaims). Accordingly, we overrule Kellogg's
       by the jury to be unpaid under the Subcontract,         cross-issue.
       Kellogg sought in the trial court to recover the
                                                                                                                 Page 12
                                   201 S.W.3d 272, *; 2006 Tex. App. LEXIS 7152, **


V. CONCLUSION                                                  the jury's findings and the evidence at trial, we conclude
                                                               the [*290] trial court did not err in refusing to render
     Under the unambiguous language of the Subcontract,
                                                               judgment in favor of Hirschfeld on its claim seeking
performance of the written maintenance plan is not a
                                                               compensation for first-year maintenance services. As to
condition precedent to the existence of Hirschfeld's
                                                               Kellogg's cross-appeal, we conclude the trial court did not
ten-year warranty. Therefore, the trial court did not err in
                                                               err in denying Kellogg recovery of all its attorney's fees
dismissing with prejudice Hirschfeld's declarato-
                                                               [**46] in this litigation under the "prevailing party"
ry-judgment claims regarding the ten-year warranty.
                                                               provisions in the Subcontract.
Under the applicable standard of review, there is legally
and factually sufficient evidence to support the jury's            Having overruled all of the issues raised in the appeal
finding that Hirschfeld did not substantially perform its      and cross-appeal, we affirm the trial court's judgment.
duties under the Subcontract. Hirschfeld did not preserve
                                                                   /s/ Kem Thompson Frost
error as to whether the trial court abused its discretion by
admitting allegedly irrelevant testimony regarding                 Justice
Hirschfeld's suspension of its ten-year warranty. Based on
                                                                                                                   Page 1




               HOOVER SLOVACEK LLP, FORMERLY HOOVER, BAX & SLOVACEK, LLP,
                       PETITIONER, v. JOHN B. WALTON, JR., RESPONDENT

                                                     NO. 04-1004

                                           SUPREME COURT OF TEXAS

                             206 S.W.3d 557; 2006 Tex. LEXIS 1129; 50 Tex. Sup. J. 125

                                              December 1, 2005, Argued
                                             November 3, 2006, Delivered

SUBSEQUENT HISTORY:                 [**1] Released for       TICE HECHT filed a dissenting opinion, in which JUS-
Publication December 22, 2006.                               TICE MEDINA and JUSTICE WILLETT joined.

PRIOR HISTORY:          ON PETITION FOR REVIEW               OPINION BY: Wallace B. Jefferson
FROM THE COURT OF APPEALS FOR THE EIGHTH
DISTRICT OF TEXAS. From Winkler County; 8th dis-             OPINION
trict (08-03-00366-CV, 149 S.W.3d 834, 10-14-04).
                                                                   [*559] We deny Walton's motion for rehearing and
Hoover Slovacek LLP v. Walton, 2006 Tex. LEXIS 646
                                                             grant Hoover Slovacek's motion for rehearing.
(Tex., 2006)
Walton v. Hoover, Bax & Slovacek, L.L.P., 149 S.W.3d              We withdraw our opinion of June 30, 2006 and sub-
834, 2004 Tex. App. LEXIS 9107 (Tex. App. El Paso,           stitute the following in its place.
2004)
                                                                  In this case, we must determine whether an attorney
DISPOSITION:          The court affirmed the reversal of     hired on a contingent-fee basis may include in the fee
                                                             agreement a provision stating that, in the event the attor-
the trial court's judgment, reversed the court of appeals'
                                                             ney is discharged before completing the representation,
take-nothing judgment, and remanded to the court of
                                                             the client must immediately pay a fee equal to the present
appeals for further consideration of whether there was
good cause for the client to terminate the representation.   value of the attorney's interest in the client's claim. We
                                                             conclude that this termination fee provision is contrary to
                                                             public policy and unenforceable. We affirm the court of
                                                             appeals' judgment in part, reverse in part, and remand to
COUNSEL: For PETITIONER: Mr. Mike A. Hatchell,
                                                             the court of appeals for further proceedings.
Ms. Molly H. Hatchell, Mr. Charles R. Watson, Jr.,
LOCKE LIDDELL & SAPP, L.L.P., Austin, TX; Mr.
Steven L. Hughes, MOUNCE, GREEN, MYERS, SAFI                  [**2] I Background
& GALATZAN, El Paso, TX; The Honorable Thomas R.                  In June 1995, John B. Walton, Jr. hired attorney
Phillips, BAKER BOTTS, L.L.P., Austin, TX.                   Steve Parrott of Hoover Slovacek LLP (Hoover) to re-
                                                             cover unpaid royalties from several oil and gas companies
For RESPONDENT: Mr. John M. Phalen, Jr., Mr. Daniel          operating on his 32,500 acre ranch in Winkler County.
J. Sheehan, Jr., Mr. Michael L. Atchley, DANIEL              The engagement letter granted Hoover a 30% contingent
SHEEHAN & ASSOCIATES, L.L.P., Dallas, TX.                    fee for all claims on which collection was achieved
                                                             through one trial. Most significantly, the letter included
JUDGES: CHIEF JUSTICE JEFFERSON delivered the                the following provision:
opinion of the Court, in which JUSTICE O'NEILL,
JUSTICE WAINWRIGHT, JUSTICE BRISTER, JUS-                              You may terminate the Firm's legal
TICE GREEN, and JUSTICE JOHNSON joined. JUS-                        representation at any time . . . . Upon ter-
                                                                    mination by You, You agree to immedi-
                                                                                                                   Page 2
                                     206 S.W.3d 557, *; 2006 Tex. LEXIS 1129, **;
                                                 50 Tex. Sup. J. 125

       ately pay the Firm the then present value of                 When Hoover sought to intervene in the settlement
       the Contingent Fee described [herein], plus             proceedings between Walton and Bass, the trial court
       all Costs then owed to the Firm, plus sub-              severed Hoover's claim, and the parties tried the case
       sequent legal fees [incurred to transfer the            before a jury. Richard Bianchi, a former state district
       representation to another firm and with-                judge in Harris County, testified as Hoover's expert wit-
       draw from litigation].                                  ness. Bianchi opined that a 28.66% contingent fee was, "if
                                                               [**5] anything, lower than normal, but certainly rea-
                                                               sonable under these circumstances," and that "it would
                                                               only be unconscionable to ignore the agreement of the
     Shortly after signing the contract, Walton and Parrott
                                                               parties." He also testified that charging more than Walton
agreed to hire Kevin Jackson as local counsel and reduced
                                                               ultimately recovered from Bass "doesn't change the deal
Hoover's contingent fee to 28.66%. Parrott negotiated
                                                               they made. That's just a bad business deal." In contrast,
settlements exceeding $ 200,000 with Texaco and El Paso
                                                               Walton's local counsel, Kevin Jackson, testified that he
Natural Gas, and Walton paid Hoover its contingent fee.
                                                               had never heard of attorneys charging a percentage based
Parrott then turned to Walton's claims against Bass En-
                                                               on the present value of a claim at the time of discharge
terprises Production Company (Bass), and hired ac-
                                                               rather than the client's actual recovery, and that the $ 1.7
countant Everett Holseth to perform [**3] an audit and
                                                               million fee was unconscionable.
compile evidence establishing the claims' value. 1
Meanwhile, Walton authorized Parrott to settle his claims           The jury failed to find that Walton discharged Hoover
against Bass for $ 8.5 million.                                for good cause or that Hoover's fee was unconscionable.
                                                               The trial court entered judgment on the verdict, which
       1 Holseth never completed the audit, but testi-         awarded Hoover $ 900,000. 2 The court of appeals re-
       fied that he estimated the value of Walton's claims     versed and rendered a take-nothing judgment for Walton,
       at $ 2 million to $ 4 million.                          concluding that Hoover's fee agreement was uncon-
                                                               scionable as a matter of law. 149 S.W.3d 834, 847. We
      In January 1997, Parrott made an initial settlement
                                                               granted Hoover's petition for review. 2005 Tex. LEXIS
demand of $ 58.5 million. Bass's attorney testified that
                                                               758, 49 Tex. Sup. Ct. J. 15 (Oct. 14, 2005). Because our
Parrott was unable to support this number with any legal
                                                               reasoning differs from the court of appeals' in some re-
theories, expert reports, or calculations, and that the de-
                                                               spects, we affirm its judgment in part, reverse in part, and
mand was so "enormous" he basically "quit listening."
                                                               [**6] remand this case to the court of appeals.
The following month, however, Bass offered $ 6 million
not only to settle Walton's claims, but also to purchase the
                                                                      2 The jury was instructed to multiply the pre-
surface estates of eight sections of the Winkler County
                                                                      sent value of Walton's claims at the time Hoover
ranch, acquire numerous easements, and secure Walton's
                                                                      was discharged by 28.66%. Thus, the jury pre-
royalty interests under the leases. Walton refused to sell,
                                                                      sumably valued the claims at $ 3.14 million ($
but authorized Parrott to accept $ 6 million to settle only
                                                                      900,000/ .2866 = $ 3.14 million). The court of
Walton's claims for unpaid royalties. Walton also wrote
                                                                      appeals speculated that, because $ 900,000 is the
Parrott and expressed [*560] discontent that Parrott did
                                                                      exact amount for which Walton settled with Bass,
not consult [**4] him before making the $ 58.5 million
                                                                      perhaps the jury inadvertently failed to multiply
demand. According to Walton, Parrott responded by
                                                                      this value by 28.66%. 149 S.W.3d 834, 842 n.3.
pressuring him to sell part of the ranch and his royalties
                                                                      Walton challenges the legal sufficiency of the
for $ 6 million. In March 1997, Walton discharged Par-
                                                                      evidence supporting the jury's implicit finding that
rott, complaining that Parrott was doing little to prosecute
                                                                      his claims were worth $ 3.14 million, but because
his claims against Bass and had damaged his credibility
                                                                      we conclude that Hoover's termination fee provi-
by making an unauthorized and "absurd" $ 58.5 million
                                                                      sion is unenforceable, we do not reach this issue.
demand.
     Walton then retained Andrews & Kurth LLP, which,          II
in November 1998, settled Walton's claims against Bass
for $ 900,000. By that time, Hoover had sent Walton a bill     Discussion
for $ 1.7 million (28.66% of $ 6 million), contending that
                                                                    When interpreting and enforcing attorney-client fee
Bass's $ 6 million offer, and Walton's subsequent au-
                                                               agreements, it is "not enough to simply say that a contract
thorization to settle for that amount, established the pre-
                                                               is a contract. There are ethical considerations overlaying
sent value of Walton's claims at the time of discharge.
                                                               the contractual relationship." Lopez v. Munoz, Hockema
Walton paid Andrews & Kurth approximately $ 283,000
                                                               & Reed, L.L.P., 22 S.W.3d 857, 868, 43 Tex. Sup. Ct. J.
in hourly fees and costs, but refused to pay Hoover.
                                                                                                                    Page 3
                                      206 S.W.3d 557, *; 2006 Tex. LEXIS 1129, **;
                                                  50 Tex. Sup. J. 125

806 (Tex. 2000) [**7]      (Gonzales, J., concurring and         [**9]
dissenting).                                                             5 See Ted Schneyer, Legal-Process Constraints
                                                                         on the Regulation of Lawyers' Contingent Fee
           In Texas, we hold attorneys to the                            Contracts, 47 DEPAUL L. REV. 371, 389-90
       highest standards of ethical conduct in                           (1998) (arguing that institutional constraints have
       their dealings with their clients. The duty is                    made regulation of contingent fees excessive and
       highest when the attorney contracts                               ineffective).
       [*561] with his or her client or otherwise
                                                                     In Texas, if an attorney hired on a contingent-fee
       takes a position adverse to his or her cli-
                                                                basis is discharged without cause before the representa-
       ent's interests. As Justice Cardozo ob-
                                                                tion is completed, the attorney may seek compensation in
       served, "[a fiduciary] is held to something
                                                                quantum meruit or in a suit to enforce the contract by
       stricter than the morals of the marketplace.
                                                                collecting the fee from any damages the client subse-
       Not honesty alone, but the punctilio of an
                                                                quently recovers. Mandell & Wright v. Thomas, 441
       honor the most sensitive, is then the
                                                                S.W.2d 841, 847, 12 Tex. Sup. Ct. J. 346 (Tex. 1969)
       standard of behavior." Accordingly, a
                                                                (citing Myers v. Crockett, 14 Tex. 257 (1855)). Both
       lawyer must conduct his or her business
                                                                remedies are subject to the prohibition against charging or
       with inveterate honesty and loyalty, al-
                                                                collecting an unconscionable fee. TEX. DISCIPLINARY
       ways keeping the client's best interest in
                                                                R. PROF'L CONDUCT 1.04(a), reprinted in TEX.
       mind.
                                                                GOV'T CODE, tit. 2, subtit. G app. A (TEX. STATE
                                                                BAR R. art. X, § 9). 6 Whether a particular fee amount or
                                                                contingency percentage charged by the attorney is un-
Id. at 866-67 (alteration in original) (citations omitted).
                                                                conscionable under all relevant circumstances of the
The attorney's special responsibility to maintain the
                                                                representation [**10] is an issue for the factfinder. 7 See,
highest standards of conduct and fair dealing establishes a
                                                                e.g., Curtis v. Comm'n for [*562] Lawyer Discipline,
professional benchmark that informs much of our analysis
                                                                20 S.W.3d 227, 233 (Tex. App.--Houston [14th Dist.]
in this case.
                                                                2000, no pet.) (concluding that the evidence was suffi-
     Although contingent fee contracts are increasingly         cient to support a finding that a contingent fee equaling
used by businesses and other sophisticated parties, their       70-100% of the client's recovery was unconscionable). On
primary purpose is to allow plaintiffs who cannot afford        the other hand, whether a contract, including a fee
an attorney to obtain legal services by compensating the        agreement between attorney and client, is contrary to
attorney from the proceeds of any recovery. [**8]               public policy and unconscionable at the time it is formed
Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d         is a question of law. See, e.g., TEX. BUS. & COM. CODE
812, 818, 40 Tex. Sup. Ct. J. 591 (Tex. 1997). The con-         § 2.302 (courts may refuse to enforce contracts deter-
tingent fee offers "the potential of a greater fee than might   mined to be unconscionable as a matter of law); SkiRiver
be earned under an hourly billing method" in order to           Dev., Inc. v. McCalla, 167 S.W.3d 121, 136 (Tex.
compensate the attorney for the risk that he or she will        App.--Waco 2005, pet. denied) ("The ultimate question of
receive "no fee whatsoever if the case is lost." Id. In ex-     unconscionability of a contract is one of law, to be de-
change, the client is largely protected from incurring a net    cided by the court."); Pony Express Courier Corp. v.
financial loss in connection with the representation. 3 This    Morris, 921 S.W.2d 817, 821 (Tex. App.--San Antonio
risk-sharing feature creates an incentive for lawyers to        1996, no writ) (distinguishing procedural and substantive
work diligently and obtain the best results possible. 4 A       aspects of unconscionability).
closely related benefit is the contingent fee's tendency to
reduce frivolous litigation by discouraging attorneys from             6 Although the Disciplinary Rules do not define
presenting claims that have negative value or otherwise                standards of civil liability for attorneys, they are
lack merit. 5                                                          persuasive authority outside the context of disci-
                                                                       plinary proceedings, and we have applied Rule
       3 Depending on the terms of the agreement,                      1.04 as a rule of decision in disputes concerning
       clients sometimes pay court costs and other ex-                 attorney's fees. TEX. DISCIPLINARY R.
       penses of the litigation.                                       PROF'L CONDUCT preamble P15; see also
       4 See Lester Brickman, Contingent Fees With-                    Johnson v. Brewer & Pritchard, P.C., 73 S.W.3d
       out Contingencies: Hamlet Without the Prince of                 193, 205, 45 Tex. Sup. Ct. J. 470 (Tex. 2002);
       Denmark?, 37 UCLA L. REV. 29, 43 (1989) (ar-                    Bocquet v. Herring, 972 S.W.2d 19, 21, 41 Tex.
       guing that contingent fees are appropriate only in              Sup. Ct. J. 650 (Tex. 1998); Arthur Andersen, 945
       cases where there is a realistic risk of                        S.W.2d at 818.
       nonrecovery).                                             [**11]
                                                                                                                  Page 4
                                     206 S.W.3d 557, *; 2006 Tex. LEXIS 1129, **;
                                                 50 Tex. Sup. J. 125

       7 Under the Disciplinary Rules, a fee is un-           complies with the principle that a contingent-fee lawyer
       conscionable if a competent lawyer could not form      "is entitled to receive the specified fee only when and to
       a reasonable belief that the fee is reasonable. TEX.   the extent the client receives payment." RESTATEMENT
       DISCIPLINARY R. PROF'L CONDUCT 1.04(a).                (THIRD) OF THE LAW GOVERNING LAWYERS § 35(2)
       The reasonableness of a fee is determined by           (2000). Hoover's termination fee, however, sought im-
       considering all relevant circumstances relating to     mediate payment of the firm's contingent interest without
       the representation, including:                         regard for when and whether Walton eventually prevailed.
                                                              Public policy strongly favors a client's freedom to employ
                  (1) the time and labor required,            a lawyer of his choosing and, except in some instances
               the novelty and difficulty of the              where counsel is appointed, to discharge the lawyer dur-
               questions involved, and the skill              ing the representation [**13] for any reason or no reason
               required to perform the legal ser-             at all. See Martin v. Camp, 219 N.Y. 170, 114 N.E. 46, 48
               vices properly;                                (N.Y. 1916) (describing this policy as a "firmly estab-
                                                              lished rule which springs from the personal and confi-
                   (2) the likelihood . . . that the
                                                              dential nature" of the attorney-client relationship); see
               acceptance of the particular em-
                                                              also Whiteside v. Griffis & Griffis, P.C., 902 S.W.2d 739,
               ployment will preclude other em-
                                                              746 (Tex. App.--Austin 1995, writ denied) (noting that the
               ployment by the lawyer;
                                                              policy supporting a client's freedom to select his attorney
                    (3) the fee customarily                   precludes the application of commercial standards to
               charged in the locality for similar            agreements that restrict the practice of law); TEX. DIS-
               legal services;                                CIPLINARY R. PROF'L CONDUCT 1.15 cmt. 4 ("A
                                                              [*563] client has the power to discharge a lawyer at any
                    (4) the amount involved and               time, with or without cause . . . ."). Nonetheless, we rec-
               the results obtained;
                                                              ognize the valid competing interests of an attorney who,
                   (5) the time limitations im-               like any other professional, expects timely compensation
               posed by the client or by the cir-             for work performed and results obtained. Thus, attorneys
               cumstances;                                    are entitled to protection from clients who would abuse
                                                              the contingent fee arrangement and avoid duties owed
                    (6) the nature and length of the          under contract. Striving to respect both interests, Mandell
               professional relationship with the             provides remedies to the contingent-fee lawyer who is
               client;                                        fired without cause. Hoover's termination fee provision,
                    (7) the experience, reputation,           [**14] however, in requiring immediate payment of the
               and ability of the lawyer or lawyers           firm's contingent interest, exceeded Mandell and forced
               performing the services; and(8)                the client to liquidate 28.66% of his claim as a penalty for
               whether the fee is fixed or contin-            discharging the lawyer. Because this feature imposes an
               gent on results obtained or uncer-             undue burden on the client's ability to change counsel,
               tainty of collection before the legal          Hoover's termination fee provision violates public policy
               services have been rendered.                   and is unconscionable as a matter of law.
                                                                   Notwithstanding its immediate-payment require-
                                                              ment, several additional considerations lead us to con-
       TEX. DISCIPLINARY R. PROF'L CONDUCT                    clude that Hoover's termination fee provision is unen-
       1.04(b), cited in Arthur Andersen, 945 S.W.2d at       forceable. In Levine v. Bayne, Snell & Krause, Ltd., we
       818.                                                   refused to construe a contingent fee contract as entitling
      [**12] Hoover's termination fee provision pur-          the attorney to compensation exceeding the client's actual
ported to contract around the Mandell remedies in three       recovery. 40 S.W.3d 92, 95, 44 Tex. Sup. Ct. J. 387 (Tex.
ways. First, it made no distinction between discharges        2001). In that case, the clients purchased a home con-
occurring with or without cause. Second, it assessed the      taining foundation defects, and stopped making mortgage
attorney's fee as a percentage of the present value of the    payments when the defects were discovered. Id. at 93.
client's claim at the time of discharge, discarding the       They agreed to pay their lawyer one-third of "any amount
quantum meruit and contingent fee measurements. Fi-           received by settlement or recovery." Id. A jury awarded
nally, it required Walton to pay Hoover the percentage fee    the clients $ 243,644 in damages, but offset the award
immediately at the time of discharge.                         against the balance due on their mortgage, resulting in a
                                                              net recovery of $ 81,793. Id [**15] . The lawyer sued to
     In allowing the discharged lawyer to collect the con-    collect $ 155,866, a fee equaling one-third of the gross
tingent fee from any damages the client recovers, Mandell     recovery plus pre- and post-judgment interest and ex-
                                                                                                                      Page 5
                                      206 S.W.3d 557, *; 2006 Tex. LEXIS 1129, **;
                                                  50 Tex. Sup. J. 125

penses. Id. In refusing to interpret "any amount received"           Examining the risk-sharing attributes of the parties'
as permitting collection of a contingent fee exceeding the      contract reveals that Hoover's termination fee provision
client's net recovery, we emphasized that the lawyer is         weighs too heavily in favor of the attorney at the client's
entitled to receive the contingent fee "'only when and to       expense. Specifically, it shifted to Walton the risks that
the extent the client receives payment.'" Id. at 94 (quoting    accompany both hourly fee and contingent fee agreements
RESTATEMENT (THIRD) OF THE LAW GOVERNING                        while withholding their corresponding benefits. In obli-
LAWYERS § 35). A reasonable client does not expect that         gating Walton to pay a 28.66% contingent fee for any
a lawyer engaged on a contingent-fee basis will charge a        recovery obtained by Parrott, the fee caused Walton to
fee equaling or, as in this case, exceeding 100% of the         bear [**18] the risk that Parrott would easily settle his
recovery. 8 In Levine, we noted that "'[l]awyers almost         claims without earning the fee. But Walton also bore the
always possess the more sophisticated understanding of          risk inherent in an hourly fee agreement because, if he
fee arrangements. It is therefore appropriate to place the      discharged Hoover, he was obligated to pay a 28.66% fee
balance of the burden of fair dealing and the allotment of      regardless of whether he eventually prevailed. This
risk in the hands of the lawyer in regard to fee arrange-       "heads lawyer wins, tails client loses" provision altered
ments with clients.'" Id. at 95 (quoting In re Myers, 663       Mandell almost entirely to the client's detriment. Indeed,
N.E.2d 771, 774-75 (Ind. 1996)). We believe Hoover's            the only scenario in which Hoover's termination fee pro-
termination fee provision is unreasonably susceptible to        vision would benefit Walton is if he expected the value of
overreaching, [**16] exploiting the attorney's superior         his claim to significantly increase after discharging
information, and damaging the trust that is vital to the        Hoover. In that case, Walton could limit Hoover's fee to
attorney-client relationship.                                   28.66% of a relatively low value, and avoid paying
                                                                28.66% of a much larger recovery eventually obtained
       8 Hourly fee agreements and cases in which the           with new counsel. Thus, it is conceivable that a client
       prevailing party recovers attorney's fees from an        viewing the events in hindsight could find that the ar-
       opposing party do not implicate the concerns             rangement worked out to his benefit. At the time of con-
       presented here. Thus, pursuant to statute or a           tracting, however, the client has no reason to desire such a
       contract between the parties, it is not uncommon         provision because the winning scenario is not only un-
       for courts to approve fee-shifting awards that ex-       likely, but also entirely arbitrary in relation to its timing
       ceed the damages recovered by the client. See,           and occurrence. Moreover, to the extent the client believes
       e.g., Hruska v. First State Bank of Deanville, 747       the value of his claim will increase as a result of em-
       S.W.2d 783, 785, 31 Tex. Sup. Ct. J. 292 (Tex.           ploying new counsel, a rational [**19] client would
       1988) (upholding $ 12,570 fee where the client           forego the representation altogether rather than agree to
       recovered $ 2,920); Sibley v. RMA Partners, L.P.,        the provision. In sum, the benefits of Hoover's termination
       138 S.W.3d 455, 458-59 (Tex. App.--Beaumont              fee provision are enjoyed almost exclusively by the at-
       2004, no pet.) (upholding $ 82,748 fee where the         torney.
       client stood to recover approximately $ 43,000).
                                                                      Hoover's termination fee provision is also antagonis-
     The Disciplinary Rules provide that a contingent fee       tic to many policies supporting the use of contingent fees
is permitted only where, quite sensibly, the fee is "con-       in civil cases. Most troubling is its creation of an incentive
tingent on the outcome of the matter for which the service      for the lawyer to be discharged soon after he or she can
is rendered." TEX. DISCIPLINARY R. PROF'L CON-                  establish the present value of the client's claim with suf-
DUCT 1.04(d). [**17] [*564] Hoover's termination                ficient certainty. Whereas the contingent fee encourages
fee, if not impliedly prohibited by Rule 1.04(d), is directly   efficiency and diligent efforts to obtain the best results
forbidden by Rule 1.08(h), which states that "[a] lawyer        possible, Hoover's termination fee provision encourages
shall not acquire a proprietary interest in the cause of        the lawyer to escape the contingency as soon as practica-
action or subject matter of litigation the lawyer is con-       ble, and take on other cases, thereby avoiding the de-
ducting for the client, except that the lawyer may . . .        mands and consequences of trials and appeals. Moreover,
contract in a civil case with a client for a contingent fee     the provision encourages litigation of a subset of claims
that is permissible under Rule 1.04." Id. 1.08(h)(2). Thus,     that would not be pursued under traditional contingent fee
even if Hoover's termination fee provision is viewed as         agreements.
transforming a traditional contingent fee into a fixed fee,
                                                                     Finally, Hoover's termination fee provision creates
it nonetheless impermissibly grants the lawyer a proprie-
                                                                problems relating to valuation and administration, but not
tary interest in the client's claim by entitling him to a
                                                                in the manner articulated by the court of appeals. The
percentage of the claim's value without regard to the ul-
                                                                court of appeals viewed the parties' contract as empow-
timate results obtained.
                                                                ering Parrott alone to determine [**20] the value of
                                                                Walton's claims at the time of discharge, concluding that
                                                                                                                     Page 6
                                       206 S.W.3d 557, *; 2006 Tex. LEXIS 1129, **;
                                                   50 Tex. Sup. J. 125

"[a]n agreement that leaves the damages to be paid upon          contingent fee for settlements that Parrott negotiated with
termination by one party wholly [*565] within the                Texaco and El Paso Natural Gas, and Walton does not
unfettered discretion of the other party is so one-sided as      contend that this portion of the agreement is uncon-
to be substantively unconscionable." 149 S.W.3d at 846           scionable. On the contrary, in his brief to the court of
(citations omitted). We disagree, because nothing in their       appeals, Walton argued in the alternative that Hoover was
fee agreement indicates that Parrott retained such discre-       limited to recovering 28.66% of the $ 900,000 settlement
tion. On the contrary, the contract is silent with respect to    reached in the Bass litigation and requested rendition of
valuation. Nevertheless, its silence in that respect exposes     judgment in that amount. Severing the termination [**23]
an additional defect--the contract fails to explain how the      fee provision, the remainder of the fee agreement is en-
present value of the claims will be measured. It does not        forceable. Thus, if Hoover were discharged without cause,
describe how the nature and severity of the client's injuries    it would be entitled to either its contingent fee or com-
will be characterized, nor does it state whether any other       pensation in quantum meruit. Mandell, 441 S.W.2d at 847.
factors, such as venue, availability and quality of wit-
                                                                       The court of appeals rendered a take-nothing judg-
nesses, the defendant's wealth and the strength of its
                                                                 ment against Hoover, holding the entire fee agreement
counsel, and the reprehensibility of the defendant's con-
                                                                 unenforceable and denying a recovery in quantum meruit
duct will apply to the calculation. Lawyers have a duty, at
                                                                 because Hoover failed to present evidence [*566] of
the outset of the representation, to "inform a client of the
                                                                 the reasonable value of its services. 149 S.W.3d at 847.
basis or rate of the fee" and "the contract's implications for
                                                                 We agree that Hoover no longer has a claim for quantum
the client." Levine, 40 S.W.3d at 96 (citing RESTATE-
                                                                 meruit, but we disagree with the take-nothing judgment.
MENT (THIRD) OF THE LAW GOVERNING LAWYERS
                                                                 In the trial court, Hoover sought to enforce the contract's
§§ 38(1), 18). [**21] We have stated that "to impose
                                                                 termination fee provision. Our holding, however, severs
the obligation of clarifying attorney-client contracts upon
                                                                 the termination fee provision, leaving a contingent fee
the attorney 'is entirely reasonable, both because of [the
                                                                 contract subject to Mandell. The jury (1) found that
attorney's] greater knowledge and experience with respect
                                                                 Walton did not comply with the contract and (2) failed to
to fee arrangements and because of the trust [the] client
                                                                 find that Walton had good cause to discharge Hoover.
has placed in [the attorney].'" Levine, 40 S.W.3d at 95
                                                                 Under Mandell, therefore, Hoover was entitled to its
(quoting Cardenas v. Ramsey County, 322 N.W.2d 191,
                                                                 contingent fee: 28.66% of $ 900,000, or $ 257,940. In the
194 (Minn. 1982)) (alterations in original). For these
                                                                 trial court, and again in his appellate brief, Walton argued
reasons, the "failure of the lawyer to give at the outset a
                                                                 that Hoover was entitled to only this amount, and Hoover
clear and accurate explanation of how a fee was to be
                                                                 [**24] requested this relief in the alternative in its brief
calculated" weighs in favor of a conclusion that the fee
                                                                 to this Court. 9
may be unconscionable. TEX. DISCIPLINARY R.
PROF'L CONDUCT 1.04 cmt. 8. And while experts can
                                                                        9 Because the trial court's judgment awarded
calculate the present value of a claim at the time of dis-
                                                                        Hoover the more favorable recovery under its
charge, this extra time, expense, and uncertainty can be
                                                                        termination fee provision, Hoover was not re-
avoided under hourly billing and the traditional contin-
                                                                        quired to raise the alternative theory as a cross
gent fee, even in cases in which a discharged attorney
                                                                        point on appeal. Boyce Iron Works, Inc. v. Sw. Bell
seeks compensation from a disgruntled client.
                                                                        Tel. Co., 747 S.W.2d 785, 787, 31 Tex. Sup. Ct. J.
     Our conclusion that Hoover's termination fee provi-                310 (Tex. 1988). Hoover's contention that it is en-
sion is unconscionable does not render the parties' entire              titled to enforce its contingent fee arises from the
fee agreement unenforceable. See RESTATEMENT                            court of appeals' judgment. It may be raised in this
(SECOND) OF CONTRACTS § 208 [**22] (1981) ("If a                        Court without having first filed a motion for re-
contract or term thereof is unconscionable at the time the              hearing in the court of appeals. TEX. R. APP. P.
contract is made a court may refuse to enforce the con-                 49.9; see also Bunton v. Bentley, 153 S.W.3d 50,
tract, or may enforce the remainder of the contract without             53, 48 Tex. Sup. Ct. J. 197 (Tex. 2004).
the unconscionable term, or may so limit the application
                                                                      In the court of appeals, however, Walton challenged
of any unconscionable term as to avoid any unconscion-
                                                                 the factual and legal sufficiency of the evidence support-
able result."); Williams v. Williams, 569 S.W.2d 867, 871,
                                                                 ing the jury's finding on the good-cause issue. Because the
21 Tex. Sup. Ct. J. 400 (Tex. 1978) (explaining that an
                                                                 court of appeals reversed and rendered judgment, it did
illegal provision generally may be severed if it does not
                                                                 not reach Walton's sufficiency points. Accordingly, we
constitute the essential purpose of the agreement); In re
                                                                 remand the case to that court for [**25] consideration of
Kasschau, 11 S.W.3d 305, 313 (Tex. App.--Houston [14th
                                                                 those issues.
Dist.] 1999, no pet.) (concluding that an unenforceable
provision may be severed if the parties would have en-
                                                                 III
tered into the contract without it). Walton paid Hoover its
                                                                                                                     Page 7
                                      206 S.W.3d 557, *; 2006 Tex. LEXIS 1129, **;
                                                  50 Tex. Sup. J. 125

                                                                      (holding that an attorney suspended from practice
Conclusion                                                            before completion of representation was not enti-
                                                                      tled to recover on the contract or for quantum
     Hoover's termination fee provision penalized Walton
                                                                      meruit, but stating: "If an attorney, without just
for changing counsel, granted Hoover an impermissible
                                                                      cause, abandons his client before the proceeding
proprietary interest in Walton's claims, shifted the risks of
                                                                      for which he was retained has been conducted to
the representation almost entirely to Walton's detriment,
                                                                      its termination, or if such attorney commits a
and subverted several policies underlying the use of con-
                                                                      material breach of his contract of employment, he
tingent fees. We hold that this provision is unconscionable
                                                                      thereby forfeits all right to compensation." (in-
as a matter of law, and therefore, unenforceable. We af-
                                                                      ternal quotation marks omitted)), and Kelly v.
firm that part of the court of appeals' judgment reversing
                                                                      Murphy, 630 S.W.2d 759, 761-762 (Tex.
the trial court's judgment, but reverse its take-nothing
                                                                      App.--Houston [1st Dist.] 1982, writ ref'd n.r.e.)
judgment, and remand this case to the court of appeals for
                                                                      (holding that an attorney who dismissed his cli-
further proceedings. TEX. R. APP. P. 60.2(a), (d).
                                                                      ent's lawsuit without authorization was not enti-
    Wallace B. Jefferson                                              tled to recover for quantum meruit), with Rocha v.
                                                                      Ahmad, 676 S.W.2d 149, 156 (Tex. App.--San
    Chief Justice                                                     Antonio 1984, writ dism'd) (holding that attorney
                                                                      discharged for good cause was nevertheless enti-
DISSENT BY: Nathan L. Hecht
                                                                      tled to recover for quantum meruit, and stating: "If
                                                                      the former client pleads and proves good cause for
DISSENT                                                               discharge, . . . then the attorney is not entitled to
    JUSTICE HECHT, joined by JUSTICE MEDINA                           recover under the contract of employment. In such
and JUSTICE WILLETT, dissenting.                                      a case, the attorney may attempt to recover a fee
                                                                      for services rendered up to the time of discharge
    I withdraw my dissenting opinion dated June 30,                   under quantum meruit.").
2006 and substitute this one in its stead.                      [**27]
     No rational plaintiff changes lawyers midway                     2 Mandell & Wright v. Thomas 441 S.W.2d 841,
through a case in order to recover less, and John B. Wal-             847, 12 Tex. Sup. Ct. J. 346 (Tex. 1969) ("In
ton, Jr. was not irrational. So when he retained what is              Texas, when the client, without good cause, dis-
now the law firm of Hoover Slovacek LLP to collect                    charges an attorney before he has completed his
royalties for oil and gas produced on his 32,500-acre                 work, the attorney may recover on the contract for
[**26] ranch for a contingent fee of 28.66% of any re-                the amount of his compensation." (citing Myers v.
covery, he must have reasoned that if he had to discharge             Crockett, 14 Tex. 257 (1855); White v. Burch, 19
the firm it would be to maximize recovery, in which event             S.W.2d 404 (Tex. Civ. App.--Fort Worth 1929,
the firm should not receive a percentage of the final re-             writ ref'd); White v. Burch, 33 S.W.2d 512 (Tex.
covery and thereby benefit from services rendered by the              Civ. App.--Fort Worth 1930, writ re f'd ); Cottle
new lawyers but should be paid only what the fee was                  County v. McClintock & Robertson, 150 S.W.2d
worth at the time of discharge. Without an agreement on               134 (Tex. Civ. App.--Amarillo 1941, writ dism'd
the subject, if Hoover Slovacek were discharged for good              judgment cor.))). One might well think that the
cause, it might have the right to be paid the value of its            most the client would owe in such circumstances
services [*567] rendered, 1 but if it were discharged                 would be the contractual fee prorated for the ser-
without good cause, it would be entitled to its full con-             vices the lawyer actually performed. See RE-
tingent fee from the final recovery. 2 Walton and Hoover              STATEMENT (THIRD) OF THE LAW GOV-
Slovacek agreed instead that if he terminated the repre-              ERNING LAWYERS § 40 cmt. c (2000) ("Allow-
sentation, with or without cause, he would "immediately               ing a discharged or withdrawing lawyer to recover
pay the Firm the then present value of the Contingent                 compensation under a fee contract with the client
Fee". Hoover Slovacek would not receive a percentage of               is sometimes more appropriate . . . where the client
the final recovery if discharged without cause, and Walton            discharges a contingent-fee lawyer without cause
would pay the value of the fee, which could take into                 just before the contingency occurs, perhaps in
account more than the time spent and thus might be more               order to avoid paying the contractual percentage
or less than the value of the services rendered by the firm           fee. . . . [T]he contractual fee is prorated for the
based on an hourly rate.                                              services actually perform ed . . . ."). But that is not
                                                                      Texas law, and the parties in this case have not
       1 Compare Royden v. Ardoin, 160 Tex. 338, 331                  suggested it should be.
       S.W.2d 206, 209, 3 Tex. Sup. Ct. J. 149 (Tex. 1960)
                                                                                                                     Page 8
                                     206 S.W.3d 557, *; 2006 Tex. LEXIS 1129, **;
                                                 50 Tex. Sup. J. 125

      [**28] What appears to have been a good-faith            between other parties or in other circumstances. If a court
effort by lawyer and client to reach a fair arrangement for    can imagine circumstances in which an agreement could
handling the difficult possibility of estrangement was,        be unconscionable -- and here, the Court has tried to list
according to the Court, unconscionable, meaning that "a        every conceivable way that could happen, and then some
competent lawyer could not form a reasonable belief that       -- it is unconscionable. Here are the seven reasons the
the fee is reasonable." 3 This, of course, does not reflect    Court gives for holding this termination fee agreement
very well on Hoover Slovacek or its distinguished counsel      unconscionable and against public policy:
in this case, who have advocated the reasonableness of the
                                                                    . The agreement does not distinguish between dis-
fee, and the Court's condemnation of what might appear to
                                                               charges with and without cause. True, but surely a lawyer
be a rather innocuous fee agreement may also come as a
                                                               and client can agree to a termination fee that avoids
surprise to a large number of other lawyers who have up
                                                               wrangling over whether discharge was with or without
until now considered themselves competent. Worse still,
                                                               cause, given the intrinsic uncertainties in that issue.
the Court says, the agreement violated public policy,
                                                               Walton and Hoover Slovacek settled on a termination fee
which means, not that it was bad, but that it "contra-
                                                               that Walton, at least, surely thought would be less than a
vene[d] some positive statute or some well-established
                                                               percentage of the ultimate recovery, and the firm, perhaps,
rule of law". 4 The [*568] Court does not actually
                                                               thought might be more than the value of services rendered
identify a statute or rule of law that has been contravened,
                                                               at an hourly fee. Mere compromise is not [**31] un-
and truthfully, none has been. In fact, the agreement has
                                                               conscionable, but if it were, no matter here. Walton un-
done no devilry at all. To be sure, Walton and Hoover
                                                               dertook to prove that he discharged Hoover Slovacek with
Slovacek have fought hard over how much is owed, the
                                                               cause but failed to convince the jury, so even if the
firm claiming at least $ 1.7 million (28.66% of $ 6 million,
                                                               agreement had drawn the distinction, he could not take
which Walton once may have [**29] though this claims
                                                               advantage of it. At this point, the distinction is irrelevant.
were worth), maybe more, while the client admits to
owing no more than $ 257,940 (28.66% of the$ 900,000                . If the contingent fee were worth more at the time of
his claims actually settled for), and maybe nothing at all.    discharge than at the end of the case, it would be a bad
But fighting over an agreement does not make the               deal for the client. So it would, but a fee agreement is not
agreement unconscionable and against public policy, or         unconscionable and against public policy merely because
the number of valid agreements would be much smaller.          it could be a bad deal for the client. As noted at the outset,
                                                               a rational plaintiff does not change lawyers to recover
       3 TEX. DISCIPLINARY R. PROF'L CONDUCT                   less, and if that is what Walton did, he has himself to
       1.04(a) ("A fee is unconscionable if a competent        blame. The Court criticizes this agreement because it
       lawyer could not form a reasonable belief that the      would benefit the client only when the claim is improved
       fee is reasonable.").                                   by changing lawyers, but since the client is in control,
       4 Lawrence v. CDB Servs., Inc., 44 S.W.3d 544,          benefit to the client should always be intended and, absent
       553, 44 Tex. Sup. Ct. J. 554 (Tex. 2001) ("'Public      misjudgment, achieved. Moreover, there is no evidence in
       policy, so me courts have said, is a term of vague      this case that Hoover Slovacek's contingent fee was ever
       and uncertain meaning, which it pertains to the         worth more than it would have been at the end of the case.
       law-making power to define, and courts are apt to       If the fee was worth as much at discharge as it would have
       encroach upon the domain of that branch of the          been at the end, the agreement gave the [**32] firm only
       government if they characterize a transaction as        what Texas law would if there had been no termination
       invalid because it is contrary to public policy,        clause, since it has not been established that discharge was
       unless the transaction contravenes some positive        for cause. [*569] Walton couldhave made a bad deal,
       statute or some well-established rule of law.'");       but there is no evidence he did.
       Town of Flower Mound v. Stafford Estates Ltd.
       Partnership, 135 S.W.3d 620, 628, 47 Tex. Sup.               . Ascertaining the value of a contingent fee mid-case
                                                               is hard. There is some tension between this argument and
       Ct. J. 497 (Tex. 2004); Texas Commerce Bank,
                                                               the previous one, which assumes that a contingent fee can
       N.A. v. Grizzle, 96 S.W.3d 240, 250, 46 Tex. Sup.
                                                               be valued before the end of the case to the client's detri-
       Ct. J. 318 (Tex. 2002);.Churchill Forge, Inc. v.
                                                               ment. Actually, the value of a contingent fee mid-case
       Brown, 61 S.W.3d 368, 373, 45 Tex. Sup. Ct. J.
       116 (Tex. 2001).                                        may well be impossible to prove with sufficient certainty
                                                               for recovery, even in a case like this one involving only
      [**30] What does make an agreement uncon-                economic damages. Walton's lawyer first demanded $
scionable and against public policy, according to the          58.5 million to settle, the defendants countered with $ 6
Court, is not its terms, which seem fair enough in this        million and conditions, Walton demanded $ 6 million
case, or any consequence to the parties, as yet unrealized     without conditions, the defendants offered $ 300,000, and
here, but what might happen if the agreement were made         the case finally settled for $ 900,000, due largely to new
                                                                                                                     Page 9
                                     206 S.W.3d 557, *; 2006 Tex. LEXIS 1129, **;
                                                 50 Tex. Sup. J. 125

and unforeseen developments. Walton discharged Hoover          scionable, rule 1.08(h) is [*570] inapplicable, and if
Slovacek 22 months into a 42-month-long case. What was         the termination fee was unconscionable, rule 1.08(h) is
Hoover Slovacek's contingent fee worth at discharge?           inconsequential. Either way, rule 1.08(h) is irrelevant.
That question has been fully tried but has still not been
                                                                    . A client should not reasonably expect a contingent
answered -- there is no evidence what a willing buyer
                                                               fee to equal or exceed the recovery. Certainly not, but
would have paid a willing seller for [**33] a claim like
                                                               even if that could ever occur with a termination fee like
Walton's the day he discharged Hoover Slovacek -- and it
                                                               the one in this case, and it is not at all clear that it ever
may not be answerable. Even if the audit of royalty pay-
                                                               could, it has not happenedin this case. Walton settled for $
ments Walton commissioned had been completed, un-
                                                               900,000, and there is no evidence that he owes Hoover
certainties remained in determining whether he had been
                                                               Slovacek more than 28.66% of that amount. The Court
underpaid. But the Court seems not to notice that Hoover
                                                               notes that its concerns do not extend to hourly fee
Slovacek bears the burden of proving the value of its fee,
                                                               agreements, but it is not clear why only contingent fees
and any difficulty in carrying that burden does not preju-
                                                               are subject to abuse. 5
dice Walton, it benefits him.
     . A lawyer who knows that the value of a claim is                5 See RESTATEMENT (THIRD) OF THE LAW
declining has an incentive to misbehave, provoke dis-                 GOVERNING LAWYERS § 34 cmt. c (2000)
charge, collect more than he would in the end, and turn to            ("Accordingly, the reasonableness of a fee due
more lucrative business. This argument rejects what the               under an hourly rate contract, for example, de-
previous one asserts, that the value of a contingent fee is           pends on whether the number of hours the lawyer
hard to predict. But more importantly, the Court appears              worked was reasonable in light of the matter and
to assume a jurisdiction in which lawyers do not owe                  client. It is also relevant whether the lawyer pro-
clients a fiduciary duty, the intentional breach of which is          vided poor service, such as might make unrea-
a tort remedied by actual and exemplary damages. A                    sonable a fee that would be appropriate for better
lawyer as wicked as the Court's imagination may be more               services, or services that were better or more
deterred by the threat of punitive damages than the threat            successful than normally would have been ex-
of a voided contract. In any event, no evidence in this case          pected . . . .").
hints at anything even approaching this pollo poco
                                                                     [**36] In sum, the Court "believe[s] Hoover's
nightmare.
                                                               termination fee provision is unreasonably susceptible to
     . The agreement required [**34] Walton to pay             overreaching, exploiting the attorney's superior infor-
up at discharge. But if there had been no agreement,           mation, and damaging the trust that is vital to the attor-
Walton would undisputedly have been required to pay            ney-client relationship." 6 Although I think the Court's
Hoover Slovacek at discharge the value of its services         arguments are strained at best, even if they had more
rendered. The impoverished client the Court hypothesizes       substance, a fee agreement should not be voided as un-
-- certainly not Walton -- who could afford representation     conscionable and against public policy based merely on
only on a contingent fee, would be required to pay for the     what could happen but was not intended and has not in
value of the discharged lawyer's services at termination.      fact occurred. It could have happened that Hoover
To agree to what the law would otherwise provide can           Slovacek provoked its own discharge for nefarious rea-
hardly be unconscionable. Even so, it would in fact have       sons, or that Walton discharged Hoover Slovacek for
been no burden on Walton. He could have paid Hoover            cause, or that when he did, the termination fee exceeded
Slovacek, just as he paid his new lawyers $ 283,000 at an      the contingent fee, or that he was somehow prejudiced by
hourly rate. And in any event, in over nine years, Walton      the difficulty in evaluating the termination fee, or that he
has not yet paid Hoover Slovacek one cent for prosecuting      had to pay before any recovery was realized, or that the
his claims against the Bass defendants.                        fee exceeded his recovery. Any of these things could have
                                                               happened, but none did. Walton and Hoover Slovacek
     . The agreement violated professional rule 1.08(h) by
                                                               anticipated exactly what occurred and tried to make
allowing Hoover Slovacek to acquire an interest in Wal-
                                                               suitable provision for it. Whether their agreement was
ton's claim other than by a contingent fee authorized by
                                                               unconscionable, and therefore abhorrent to public policy
rule 1.04. Here the circularity is dizzying. To restate the
                                                               and void, should be determined by their [**37] initial
argument: if the agreement was unconscionable in viola-
                                                               expectations and the actual consequences, not on hyper-
tion of rule 1.04 of the Texas Disciplinary Rules of Pro-
                                                               bolic hypothesizing in hindsight. As the comment to rule
fessional Conduct, it gave Hoover Slovacek an interest
                                                               1.04 states:
[**35] in Walton's claim prohibited by rule 1.08(h),
which excepts only interests created by an agreement
                                                                          [F]ee arrangements normally are made
valid under rule 1.04, which this agreement was not, if
                                                                      at the outset of representation, a time when
indeed it wasn't. If the termination fee was not uncon-
                                                                                                                 Page 10
                                     206 S.W.3d 557, *; 2006 Tex. LEXIS 1129, **;
                                                 50 Tex. Sup. J. 125

       many uncertainties and contingencies ex-                     But the Court may not be serious. It may be that to-
       ist, while claims of unconscionability are             day's decision will be limited to this one particular fee
       made in hindsight when the contingencies               agreement in this one isolated situation, portending
       have been resolved. . . . Except in very               nothing for fee agreements in general. 9 If so, then the
       unusual situations, therefore, the circum-             rules governing fee agreements will merely have a minor
       stances at the time a fee arrangement is               exception, and only the Court's authority to articulate
       made should control in determining a                   general rules will suffer. Of course, the careful lawyer on
       question of unconscionability. 7                       a contingent fee can simply charge what the law allows
                                                              for termination of representation without good cause: the
                                                              full fee. The client will be penalized for changing lawyers
Agreements are unconscionable when they are not or            and will pay for services not rendered, but it will not be
cannot be proper, not when it is merely possible for them     unconscionable.
to be improper.
                                                                     9 See County of Cameron v. Brown, 80 S.W.3d
       6 Ante at        .                                            549, 565-566, 45 Tex. Sup. Ct. J. 680 (Tex. 2002)
       7 TEX. DISCIPLINARY R. PROF'L CONDUCT                         (Hecht, J., dissenting) ("It may be, however -- one
       1.04 cmt. 7; see also RESTATEMENT (THIRD)                     cannot always tell for sure -- that the Court does
       OF THE LAW GOVERNING LAWYERS § 34 cmt.                        not really mean what it says. . . . [I]t may be that
       c ("Although reasonableness is usually assessed as            this case is just another 'restricted railroad ticket,
       of the time the contract was entered into, later              good for this day and train only.'" (citing Smith v.
       events might be relevant. . . . [E ]vents not known           Allwright, 321 U.S. 649, 669, 64 S. Ct. 757, 88 L.
       or contemplated when the contract was made can                Ed. 987 (1944) (Roberts, J., dissenting))).
       render the contract unreasonably favorable to the
                                                                    [**40] We have taken as given that the only fee a
       lawyer or, occasionally, to the client. . . . To de-
                                                              Texas lawyer is prohibited from charging is one that is
       termine what events client and lawyer contem-
                                                              illegal or unconscionable because that is what rule 1.04(a)
       plated, their contract must be construed in light of
                                                              of the Texas Disciplinary Rules of Professional Conduct
       its goals and circumstances and in light of the
                                                              provides. 10 In most states, lawyers cannot charge unrea-
       possibilities discussed with the client . . . .").
                                                              sonable fees; 11 not so in Texas. In Texas, a lawyer is
      [**38] Again, it matters not whether the parties        [*572] prohibited only from charging a fee that a com-
have behaved admirably throughout. [*571] Walton              petent lawyer could not reasonably believe to be reason-
does seem to have had an inflated view of the value of his    able. 12 Of course, Texas law does not award lawyers
claims (about 900%), though perhaps no more than many         unreasonable fees, so one could argue that notwithstand-
clients, and he may not have had good cause to discharge      ing rule 1.04(a), a lawyer suing to collect a fee must prove
Hoover Slovacek -- at least he could not convince a jury      that it is reasonable, not merely that it is not uncon-
he did. And Hoover Slovacek may have been overly ag-          scionable. In matters other than lawyer discipline, the
gressive, at first in pursuing the defendants (demanding $    Disciplinary Rules of Professional Conduct have been
58.5 million to settle a $ 900,000 claim) and then in pur-    held to "provide guidelines and suggest the relevant con-
suing Walton (demanding millions for a legal fee worth $      siderations" without supplying the rule of decision, 13 and
257,940). But Hoover Slovacek's lawyers are not here on       one could argue that the role of rule 1.04(a) in enforcing
disciplinary charges, and Walton is not applying for Cli-     fee agreements is similarly limited. 14 But none of the
ent of the Year. An agreement is not unconscionable           parties here does.
because a party acts unconscionably -- and there is cer-
tainly no evidence that Walton or Hoover Slovacek did.               10 TEX . DISCIPLINARY R. PROF'L CON-
                                                                     DUCT 1.04 (a) ("A lawyer shall not enter into an
     If the Court is serious about today's analysis, many
                                                                     arrangement for, charge, or collect an illegal fee or
more fee agreements and other contracts will be uncon-
                                                                     unconscionable fee.").
scionable. The Court says that "[h]ourly fee agreements . .
                                                               [**41]
. do not implicate the [same] concerns" it has about the
                                                                     11     ALASKA R. PROF'L CONDUCT Rule
agreement in this case, 8 but they do. Fees based on hourly
                                                                     1.5(a); ARIZ. R. PROF'L CONDUCT ER 1.5(a);
rates seemingly reasonable at the outset could end up
                                                                     ARIZ. R. PROF'L CONDUCT, ER 1.5(a); ARK.
being excessive in easily imaginable circumstances,
                                                                     R. PROF'L CONDUCT, Rule 1.5(a), (e)(3);
[**39] but that mere potential does not invalidate an
                                                                     COLO. R. PROF'L CONDUCT Rule 1.5(a), (f);
agreement.
                                                                     COLO. R. CIV. P. Ch. 23.3 (contingent fees),
                                                                     Rules 3, 7; CONN. R. PROF'L CONDUCT, Rule
       8    Ante at    .
                                                                     1.5(a); DEL. R. PROF'L CONDUCT, Rule 1.5(a);
                                                                                                   Page 11
                         206 S.W.3d 557, *; 2006 Tex. LEXIS 1129, **;
                                     50 Tex. Sup. J. 125

D.C. R. PROF'L CONDUCT Rule 1.5(a); GA. R.              GOVERNING LAWYERS §§ 34-35 (contingent
PROF'L CONDUCT Rule 4-102, Rule 1.5(a);                 fees, incorporating § 34) (2000).
HAW. R. PROF'L CONDUCT Rule 1.5(a);               [**42]
IDAHO R. PROF'L CONDUCT Rule 1.5(a); ILL.               12 See supra note 2.
R. PROF'L CONDUCT Rule 1.5(a); IND. R.                  13 In re Users System Services, Inc., 22 S.W.3d
PROF'L CONDUCT Rule 1.5 (a); KAN. R.                    331, 334, 42 Tex. Sup. Ct. J. 812 (Tex. 1999); In re
PROF'L CONDUCT Rule 1.5(a), (e) (court re-              EPIC Holdings, Inc., 985 S.W.2d 41, 48, 42 Tex.
view); KY. R. PROF'L CONDUCT SCR                        Sup. Ct. J. 235 (Tex. 1998); National Medical
3.130(1.5(a)); LA. R. PROF'L CONDUCT Rule               Enterprises, Inc. v. Godbey, 924 S.W.2d 123, 132,
1.5(a), (f)(5) (unearned fee/expense depos-             39 Tex. Sup. Ct. J. 698 (Tex. 1996); Henderson v.
it/retainer provision); MD. R. PROF'L CON-              Floyd, 891 S.W.2d 252, 254, 38 Tex. Sup. Ct. J.
DUCT Rule 1.5(a); MINN. R. PROF'L CON-                  166 (Tex. 1995) (per curiam); Spears v. Fourth
DUCT Rule 1.5(a); MISS. R. PROF'L CONDUCT               Court of Appeals, 797 S.W.2d 654, 656, 34 Tex.
Rule 1.5(a); MO. R. PROF'L CONDUCT Rule                 Sup. Ct. J. 66 (Tex. 1990); Ayres v. Canales, 790
4-1.5(a); MONT. R. PROF'L CONDUCT Rule                  S.W.2d 554, 556 n.2, 33 Tex. Sup. Ct. J. 504 (Tex.
1.5(a); NEV. R. PROF'L CONDUCT Rule 155.1;              1990).
N.J. RULES PROF'L CONDUCT RPC 1.5(a);                   14 Cf. Johnson v. Brewer & Pritchard, P.C., 73
N.M. R. PROF'L CONDUCT RULE 16-105(A);                  S.W.3d 193, 205, 45 Tex. Sup. Ct. J. 470 (Tex.
N.D. R. PROF'L CONDUCT Rule 1.5(a); OKLA.               2002) (referring to Rule 1.04 to determine a per-
R. PROF'L CONDUCT Rule 1.5(a); R.I. R.                  missible referral fee); Bocquet v. Herring, 972
PROF'L CONDUCT Rule 1.5(a); S.C. R. PROF'L              S.W.2d 19, 21, 41 Tex. Sup. Ct. J. 650 (Tex. 1998)
CONDUCT Rule 1.5(a); S.D. R. PROF'L                     (referring to Rule 1.04 for factors indicating rea-
CONDUCT Rule 1.5(a); TENN. R. PROF'L                    sonableness of attorney fee); Arthur Andersen &
CONDUCT Rule 1.5(a); VT. R. PROF'L CON-                 Co. v. Perry Equip. Corp., 945 S.W.2d 812, 818,
DUCT Rule 1.5(a); VA. R. PROF'L CONDUCT                 40 Tex. Sup. Ct. J. 591 (Tex. 19 97) (same).
Rule 1.5(a); WASH. R. PROF'L CONDUCT Rule
                                                      The Court remands the case to the court of appeals to
1.5(a); W. VA. R. PROF'L CONDUCT Rule
                                                 review the sufficiency of the evidence regarding the jury's
1.5(a); WIS. R. PROF'L CONDUCT SCR
                                                 failure to find that Walton discharged Hoover Slovacek
20:1.5(a); and WYO. R. PROF'L CONDUCT
                                                 [**43] for good cause. In the end, Hoover Slovacek may
Rule 1.5(a). See also ABA MODEL RULES OF
                                                 recover as much or more without the termination fee
PROFESSIONAL CONDUCT Rule 1.5(a) (no
                                                 provision. This is certainly an odd way of applying
"unreasonable" fees or expenses) (1983); ABA
                                                 unconscionability. I would enforce the termination fee
ETHICS 2000 REVISED MODEL RULES OF
                                                 agreement. Accordingly, I respectfully dissent.
PROFESSIONAL CONDUCT Rule 1.5(a), (e)(3)
(2003); and RESTATEMENT OF THE LAW                   Nathan L. Hecht
                                                     Justice
                                                                                                              Page 1
                               977 S.W.2d 798, *; 1998 Tex. App. LEXIS 5352, **




                                   IN RE THE CITY OF DALLAS, TEXAS

                                                NO. 2-98-207-CV

                   COURT OF APPEALS OF TEXAS, SECOND DISTRICT, FORT WORTH

                                  977 S.W.2d 798; 1998 Tex. App. LEXIS 5352


                                           August 25, 1998, Delivered

DISPOSITION:        [**1] Dallas's petition for writ of
                                                               The question presented in this mandamus proceeding
mandamus denied.
                                                          is whether the trial court abused its discretion in denying
                                                          the City of Dallas's motion to transfer venue to Dallas
                                                          County under the mandatory venue provision of section
COUNSEL: SAM A. LINDSAY AND LINDA
                                                          65.023(a) of the Texas Civil Practice and Remedies Code.
LAWSON GAITHER, CITY OF ATTORNEYS OF
                                                          Specifically, we have been asked to decide whether the
DALLAS, TEXAS AND CARRINGTON, COLEMAN,
                                                          primary relief sought in the underlying suit filed by the
SLOMAN, AND BLUMENTHAL, L.L.P. AND JAMES
                                                          City of Fort Worth is the issuance of a permanent injunc-
E. COLEMAN, JR., ELIZABETH D. WHITAKER,
                                                          tion, which would require that the suit be tried in Dallas
LYNDON F. BITTLE, AND AMY K. HUNT OF
                                                          County, or the rendition of a declaratory judgment, which
DALLAS, TEXAS.
                                                          would allow the suit to be tried in Tarrant County. We
                                                          hold that the primary relief sought by Fort Worth is de-
KELLY, HART & HALLMAN, P.C. AND DEE J.
                                                          claratory, not injunctive, and that venue in Tarrant County
KELLY, MARSHALL M. SEARCY, AND BRIAN S.
                                                          is proper. Accordingly, we hold that the trial court did not
STAGNER OF FORT WORTH, TEXAS.
                                                          abuse its discretion in denying the motion to transfer
                                                          venue and we deny Dallas's petition for writ of manda-
RANDALL W. WILSON AND THOMAS W.
                                                          mus.
PATERSON OF HOUSTON, TEXAS AND E.
LAWRENCE VINCENT, JR. OF DALLAS TEXAS.
                                                          BACKGROUND
HARRIS, FINLEY & BOGLE, P.C. AND BILL F.                       In 1968, after years of conflict between the cities of
BOGLE AND RUSSELL R. BARTON OF FORT                       Dallas and Fort Worth over airport development, the cities
WORTH, TEXAS AND LOCKE, PURNELL, RAIN,                    [**2] reached an agreement for the development of a
HARRELL, P.C. AND MORRIS HARRELL, MICHAEL                 new regional airport, DFW Airport. The city managers of
V. POWELL, CYNTHIA KEELY TIMMS, AND                       Dallas and Fort Worth signed a "Contract and Agreement"
ELIZABETH E. MACK OF DALLAS, TEXAS.                       (the Contract), effective April 15, 1968, and the city
                                                          councils adopted a "1968 Regional Airport Concurrent
JUDGES: PANEL M, CAYCE, C.J.; DAUPHINOT and               Bond Ordinance" (the Joint Bond Ordinance), effective
BRIGHAM, JJ.                                              November 12, 1968. 1 In the Contract, the cities created a
                                                          joint venture for the construction, development, and op-
OPINION BY: JOHN CAYCE                                    eration of DFW airport. 2 As contemplated by the Con-
                                                          tract, the cities both passed the Joint Bond Ordinance to
OPINION                                                   provide for issuance of bonds to finance DFW Airport.
                                                          Dallas and Fort Worth further agreed to phase out inter-
    [*800] ORIGINAL PROCEEDING
                                                          state commercial passenger air service from their respec-
                                                          tive local airports, transfer such service [*801] to DFW
OPINION
                                                          Airport, and refrain from any future acts or policies that
                                                          would compete with DFW Airport. The cities also agreed
                                                                                                                     Page 2
                                    977 S.W.2d 798, *; 1998 Tex. App. LEXIS 5352, **


that they would, "through every legal and reasonable            aircraft, as long as the total number of passenger seats is
means promote the optimum development of the lands              limited to 56 or less. 5
and Facilities comprising the Regional Airport at the
earliest practicable date . . . ."                                       4 See Act of Oct. 27, 1997, Pub. L. No. 105-66,
                                                                         § 337(b), 1997 U.S.C.C.A.N. (111 Stat. 1447); see
         1 We shall sometimes collectively refer to the                  also H.R. REP. No. 105-313, at 45 (1997), re-
         Contract and the Joint Bond Ordinance as the                    printed in 1997 U.S.C.C.A.N. 1991, 2005.
         1968 agreement.                                         [**5]
 [**3]                                                                   5 See Act of Oct. 27, 1997, Pub. L. No. 105-66,
         2 The Contract provides that the duration of the                § 337(a).
         joint venture shall be perpetual, "unless sooner
                                                                     Soon after the passage of the Shelby Amendment,
         terminated and dissolved by operation of law or by
                                                                Dallas city officials took the public position that federal
         mutual agreement of the Cities of Dallas and Fort
                                                                law mandates that Dallas expand Love Field service in
         Worth; provided, however, that the same shall not
                                                                accordance with the loosened restrictions of the Shelby
         be dissolved by mutual agreement of the parties if
                                                                Amendment and began to explore the possibility of ex-
         such action would violate the terms or provisions
                                                                panding passenger air service out of Love Field. Antici-
         of any outstanding joint revenue bonds relating to
                                                                pating that Dallas would eventually allow commercial
         the Project."
                                                                flights outside the scope of the 1968 agreement, Fort
     Following the deregulation of the airline industry in      Worth filed the underlying suit against Dallas, naming the
1978, Congress enacted the Wright Amendment, which              Dallas/Fort Worth International Airport Board (the DFW
dictated that passenger planes could fly from Love Field        Board) and Legend Airlines, Inc. (Legend), among others,
only to cities in Texas and four bordering states: New          as co-defendants. 6
Mexico, Oklahoma, Arkansas, and Louisiana. 3 Since its
passage, this federal legislation has been integral in fur-              6 In addition to Dallas, the DFW Board and
thering the cities' 1968 agreement to protect DFW Airport                Legend, Fort Worth sued Jeffrey P. Fegan, the
from expanded interstate competition with Love Field.                    DFW Board's executive director, and Astraea
                                                                         Aviations Services, Inc. d/b/a Dalfort Aviation.
         3 See Act of Feb. 15, 1980, Pub. L. No. 96-192,                 American Airlines, Inc. later intervened in the suit
         § 29(c), 1980 U.S.C.C.A.N. (94 Stat. 48); see also              on Fort Worth's side.
         S. REP. No. 96-329, reprinted in U.S.C.C.A.N.
                                                                      [**6] The gravamen of Fort Worth's complaint is
         54, 86-87. For a summary of the historical back-
                                                                that Dallas continues to be bound by the 1968 agreement,
         ground concerning the development of DFW
                                                                notwithstanding the loosened flight restrictions for Love
         Airport, see City of Dallas v. Continental Airlines,
                                                                Field allowed by the Shelby Amendment. Fort Worth
         Inc., 735 S.W.2d 496, 497-500 (Tex. App.--Dallas
                                                                requests a declaratory judgment under the Uniform De-
         1987, writ denied).
                                                                claratory Judgments Act (the Declaratory Judgments Act)
                                                                7
      [**4] Both cities have repeatedly reaffirmed the            to construe the 1968 agreement and asks the trial court
1968 agreement since its execution. In 1992, the Dallas         for a "declaration" that Dallas is prohibited under the 1968
and Fort Worth city councils enacted a joint resolution         agreement from expanding commercial flight operations
confirming their ongoing commitment to DFW Airport              into and out of Love Field.
and to the covenants they made in the 1968 agreement. As
recently as last year, the cities passed the "Twenty Ninth               7 See TEX. CIV. PRAC. & REM. CODE ANN.
Supplemental Regional Airport Concurrent Bond Ordi-                      §§ 37.001-.011 (Vernon 1997).
nance," authorizing the issuance of DFW Regional Air-
                                                                     On October 31, 1997, Dallas and Legend each moved
port joint revenue refunding bonds, one of the many sup-
                                                                to transfer venue of the underlying suit to Dallas County.
plemental bond ordinances the cities have passed over the
                                                                Among the grounds asserted for changing venue, Dallas
past thirty years.
                                                                and Legend contended that Fort Worth's suit is primarily a
     The relations between the two cities began to change,      request for a permanent injunction, and not for a declar-
however, in October 1997, when Congress passed a bill           atory judgment. Therefore, Dallas and Legend asserted
called the Shelby Amendment. This legislation amended           the case is governed by section 65.023(a) of the Texas
the Wright Amendment to allow turn-around passenger             Civil Practice and Remedies Code, [*802] which pro-
air travel from Love Field to three additional states:          vides [**7] that venue in a suit for an injunction is
Kansas, Alabama, and Mississippi. 4 The Shelby                  mandatory in the county of the defendant's residence. 8
Amendment also removed much of the Wright Amend-
ment's prohibition against the use of reconfigured jet
                                                                                                                        Page 3
                                   977 S.W.2d 798, *; 1998 Tex. App. LEXIS 5352, **


       8 See TEX. CIV. PRAC. & REM. CODE ANN.                           1968 agreement. When declaratory relief is
       § 65.023(a) (Vernon 1997); see also TEX. CIV.                    sought, all persons or entities who have or claim
       PRAC. & REM. CODE ANN. § 15.016 (Vernon                          any interest that would be affected by the decla-
       1986) ("An action governed by any other statute                  ration must be made parties. See TEX. CIV. PRAC.
       prescribing mandatory venue shall be brought in                  & REM. CODE ANN. § 37.006(a) (Vernon
       the county required by that statute.").                          1997).
                                                                        14     See In re Continental Airlines, Inc., No.
     In May 1998, Continental Airlines, Inc. and Conti-
                                                                        2-98-184-CV (Tex. App.--Fort Worth June 23,
nental Express, Inc. (collectively, Continental) announced
                                                                        1998, orig. proceeding) (not designated for pub-
that Continental would begin scheduled interstate pas-
                                                                        lication), pet. pending, No. 98-0598 (Tex. July 3,
senger service between Love Field and Cleveland, Ohio
                                                                        1998); In re Legend Airlines, Inc., No.
on July 1, 1998. In an apparent reaction to this an-
                                                                        2-98-189-CV (Tex. App.--Fort Worth June 23,
nouncement, Fort Worth amended its pleadings to name
                                                                        1998, orig. proceeding) (not designated for pub-
Continental as a defendant to the suit. 9 Continental then
                                                                        lication), pet. pending, No. 98-0599 (Tex. July 3,
moved to transfer venue to Dallas County on the same
                                                                        1998).
bases as Legend.
                                                                             After we denied Continental's and Legend's
       9    Fort Worth also joined Mesa Airlines, Inc.                  requests for mandamus relief, both parties filed
                                                                        mandamus proceedings in the Supreme Court of
      [**8] On June 15, 1998, Fort Worth applied for a
                                                                        Texas. The supreme court has set those petitions
temporary restraining order (TRO) and a temporary in-
                                                                        for oral argument on September 9, 1998.
junction to prevent Continental from scheduling passen-
ger flights between Love Field and Cleveland in contra-               [**10] We write in this proceeding to address the
vention of the cities' 1968 agreement, until final resolution   merits of Dallas's petition because, unlike the temporary
of the underlying lawsuit. After a four-day hearing that        ancillary relief Fort Worth sought and obtained against
began on June 29, the trial court granted a temporary           Continental to preserve the status quo until the dispute
injunction against Continental. 10 That ruling is the subject   below is resolved, the principal and primary relief Fort
of a separate appeal to this court. 11                          Worth seeks in the underlying suit is directly against
                                                                Dallas; 15 that is, a declaration by the trial court that Dallas
       10 Fort Worth seeks no relief, injunctive or             is prohibited by the 1968 agreement from allowing Con-
       otherwise, against Legend.                               tinental, Legend, and other defendants to schedule ex-
       11 Continental Airlines, Inc. v. City of Fort            panded passenger flights from Love Field. The issue we
       Worth, Texas, No. 2-98-211-CV.                           must decide is whether the relief Fort Worth seeks against
                                                                Dallas is primarily injunctive in nature, as Dallas claims,
    Meanwhile, on June 19, 1998, a hearing was held on
                                                                or declaratory, as Fort Worth asserts. If Dallas is correct,
Dallas, Continental, and Legend's motions to transfer
                                                                the case must be transferred to Dallas County. Otherwise,
venue. The trial court denied the motions, and Continental
                                                                the case may remain in Tarrant County. Dallas does not
and Legend filed separate petitions for writs of mandamus
                                                                complain that it would not [*803] receive a fair and
with this court.
                                                                impartial trial if the case remains in Tarrant County. 16
     Departing somewhat from its position in the trial
court, Continental contended in this court that venue is                15 Fort Worth does not seek any direct relief
mandatory in Harris County, 12 or, [**9] in the alterna-                against either Continental or Legend.
tive, Dallas County. Continental claimed that Fort Worth's              16 A defendant may obtain a change of venue
suit is purely injunctive in nature because Continental has             by alleging and proving that it cannot obtain an
no contract with Fort Worth to construe by declaratory                  impartial trial in the county where the action is
judgment, 13 and because the only relief Fort Worth seeks               pending. See TEX. R. CIV. P. 257(c).
against Continental is coercive--a TRO and a temporary
injunction. Legend also contended that Fort Worth's suit         [**11] STANDARD OF REVIEW
was purely injunctive because Fort Worth did not seek
                                                                     In deciding whether a writ of mandamus is appro-
damages or other noninjunctive relief. On June 23, 1998,
                                                                priate, we recognize that mandamus will issue only to
we denied those petitions without written opinion. 14
                                                                correct a clear abuse of discretion or the violation of a
                                                                duty imposed by law when there is no other adequate
       12    Continental's principal office is in Harris
                                                                remedy at law. See Republican Party v. Dietz, 940 S.W.2d
       County.
                                                                86, 88 (Tex. 1997) (orig. proceeding). A trial court clearly
       13    Continental is a proper party to the suit
                                                                abuses its discretion when it reaches a decision so arbi-
       notwithstanding the fact that it is not a party to the
                                                                trary and unreasonable as to amount to a clear and preju-
                                                                                                                        Page 4
                                      977 S.W.2d 798, *; 1998 Tex. App. LEXIS 5352, **


dicial error of law. See Walker v. Packer, 827 S.W.2d               proper venue, we only look to the express relief sought in
833, 839 (Tex. 1992) (orig. proceeding). A trial court has          the allegations and prayer of the plaintiff's petition. See
no discretion in determining what the law is or in applying         Renwar Oil Corp. v. Lancaster, 154 Tex. 311, 276 S.W.2d
the law to the facts. See Walker, 827 S.W.2d at 840. Thus,          774, 775 (1955). When those pleadings show that the
a clear failure by the trial court to analyze or apply the law      issuance of a permanent injunction is the primary and
correctly will constitute an abuse of discretion and may            principal [**14] relief sought in the lawsuit, venue is
result in mandamus. See id.                                         mandatory in the county of the defendant's domicile. See
                                                                    Brown v. Gulf Television Co., 157 Tex. 607, 306 S.W.2d
     A defendant raises the question of proper venue by
                                                                    706, 708 (1957) (construing the predecessor statute to
objecting to a plaintiff's venue choice through a motion to
                                                                    section 65.023(a)); Guion v. Gibson, 439 S.W.2d 715, 716
transfer venue. See TEX. R. CIV. P. 86; Wilson v. Texas
                                                                    (Tex. Civ. App.--Houston [14th Dist.] 1969, no writ). On
Parks & Wildlife Dep't, 886 S.W.2d 259, 260 (Tex.1994).
                                                                    the other hand, if a review of the allegations and the
The fact that mandatory venue lies in another county
                                                                    prayer in the plaintiff's petition shows that issuance of a
provides one basis for a venue transfer. See [**12] TEX.
                                                                    permanent injunction would be merely ancillary to a
R. CIV. P. 86(3)(b). If the plaintiff's chosen venue rests on
                                                                    judgment awarding declaratory relief, the requirement
a permissive venue statute and the defendant files a mer-
                                                                    that the suit be brought in the county of the defendant's
itorious motion to transfer based on a mandatory venue
                                                                    domicile does not apply. See Brown, 306 S.W.2d at 708;
provision, the trial court must grant the motion. See
                                                                    Guion, 439 S.W.2d at 716.
Wichita County v. Hart, 917 S.W.2d 779, 781 (Tex. 1996);
Langdeau v. Burke Inv. Co., 163 Tex. 526, 358 S.W.2d
                                                                     [*804] INJUNCTIVE VS. DECLARATORY RE-
553, 556 (1962). An erroneous denial of such a motion is
                                                                    LIEF
reviewable by mandamus. See TEX. CIV. PRAC. & REM.
CODE ANN. § 15.0642 (Vernon Supp. 1998). In such a                       An injunction is coercive and equitable in nature. See
situation, the relator does not have to show an inadequate          Valley Oil Co. v. City of Garland, 499 S.W.2d 333, 335
remedy at law -- only that the trial court erroneously re-          (Tex. Civ. App.--Dallas 1973, no writ). The function of
fused to enforce a mandatory venue provision. See KJ                injunctive relief is to restrain motion and to enforce inac-
Eastwood Inv., Inc. v. Enlow, 923 S.W.2d 255, 258 (Tex.             tion. See Boston v. Garrison, 152 Tex. 253, 256 S.W.2d
App.--Fort Worth 1996, orig. proceeding).                           67, 70 (1953); R.I.O. Sys., Inc. v. Union Carbide Corp.,
                                                                    780 S.W.2d 489, 493 (Tex. App.--Corpus Christi 1989,
MANDATORY VENUE UNDER SECTION 65.023(a)                             writ denied).
     Section 65.023 provides:                                            To be entitled to injunctive relief, a plaintiff [**15]
                                                                    must prove the existence of a wrongful act, imminent
     [A] writ of injunction against a party who is a resident
                                                                    harm, irreparable injury, and the absence of an adequate
of this state shall be tried in a district or county court in the
                                                                    legal remedy. See Morris v. Collins, 881 S.W.2d 138, 140
county in which the party is domiciled.
                                                                    (Tex. App.--Houston [1st Dist.] 1994, writ denied). Fear
     TEX. CIV. PRAC. & REM. CODE ANN.                      §        or apprehension of the possibility of injury is not suffi-
65.023(a) (Vernon 1997). The important right provided to            cient; the plaintiff must prove that the defendant has at-
a defendant under this statute to defend a suit for perma-          tempted or intends to harm the plaintiff in the future. See
nent injunction in the [**13] county of the defendant's             State v. Morales, 869 S.W.2d 941, 946-47 (Tex. 1994);
domicile originated with our first state legislature in 1846,       Frey v. DeCordova Bend Estates Owners Ass'n, 647
and it has been preserved since that time by all successive         S.W.2d 246, 248 (Tex. 1983); Morris, 881 S.W.2d at 140.
legislatures. 17
                                                                         In contrast, a declaratory judgment is one that simply
                                                                    declares the rights, status, or other legal relations of the
        17 See Act approved May 13, 1846, 1st Leg., §
                                                                    parties without ordering anything to be done. See TEX.
        152, 1846 Tex. Gen. Laws 363, 406, reprinted in 2
                                                                    CIV. PRAC. & REM. CODE ANN. § 37.003(a), (b)
        H.P.N. GAMMEL, THE LAWS OF TEXAS
                                                                    (Vernon 1997) (trial court has "power to declare rights,
        1838-1846, at 1669, 1712 (Austin, Gammel Book
                                                                    status, and other legal relations whether or not further
        Co. 1898); TEX. CIV. STAT. art. 2996 (1895);
                                                                    relief is or could be claimed," and the declaration "has the
        TEX. REV. CIV. STAT. ANN. art. 4656 (Vernon
                                                                    force and effect of a final judgment or decree"); Harris
        1952), repealed by Act of May 17, 1985, 69th
                                                                    County Tax Assessor-Collector v. Reed, 210 S.W.2d 852,
        Leg., R.S., ch. 959, § 9, 1985 Tex. Gen. Laws
                                                                    854 (Tex. Civ. App.--Austin 1948, no writ) (holding that
        3242, 3322 (current version at TEX. CIV. PRAC.
                                                                    when party brings a declaratory judgment action, no relief
        & REM. CODE ANN. § 65.023 (Vernon 1997)).
                                                                    [**16] other than declaratory judgment need be sought).
    In determining whether a lawsuit constitutes a suit for         The purpose of a declaratory judgment is to settle and to
permanent injunction for the purpose of determining                 afford relief from uncertainty and insecurity with respect
                                                                                                                       Page 5
                                   977 S.W.2d 798, *; 1998 Tex. App. LEXIS 5352, **


to these rights, statuses, and other legal relations. See       Worth's request for a declaratory judgment. The reserva-
TEX. CIV. PRAC. & REM. CODE ANN. § 37.002(b).                   tion of Fort Worth's statutory right to obtain supplemental
Actual injury or harm is not a prerequisite to a declaratory    injunctive relief to enforce the requested declaratory
judgment lawsuit; a trial court may construe a contract in      judgment, if necessary, does not transform the primary
a declaratory judgment action before a breach occurs. See       objective of Fort Worth's suit from a declaratory judgment
id. § 37.004(b); Hasty, Inc. v. Inwood Buckhorn Joint           into a permanent injunction.
Venture, 908 S.W.2d 494, 499 (Tex. App.--Dallas 1995,
writ denied).                                                           18 See TEX. CIV. PRAC. & REM. CODE ANN.
                                                                        § 37.011.
     The law presumes that the defendant will recognize
and respect the rights declared by a declaratory judgment             Dallas also singles out two phrases in the 24-page
and will abide by the judgment in carrying out its duties.      body of the petition as proof that Fort Worth is primarily
See Valley Oil Co., 499 S.W.2d at 335-36. However,              seeking [**19] to enjoin Dallas--"irreparable harm is
ancillary injunctive relief may be obtained when the evi-       imminent" and "the status quo will be changed." Dallas's
dence shows that the defendant will not comply with the         reliance on this language is misplaced. First, when read in
judgment. See Texas Education Agency v. Leeper, 893             context, it is clear that the phrase "irreparable harm is
S.W.2d 432, 446 (Tex. 1994); Commissioners' Court v.            imminent" was inserted in the petition merely to introduce
Rayburn, 264 S.W.2d 552, 555 (Tex. Civ.                         a series of paragraphs explaining why Fort Worth believes
App.--Beaumont 1954, no writ). The Declaratory Judg-            it is necessary to sue Dallas for a declaratory judgment.
ments Act itself expressly authorizes a party to obtain         These allegations properly advise the trial court that the
supplemental ancillary [**17] relief, including a per-          controversy is ripe for adjudication. 19 Nor does the alle-
manent injunction, to enforce a declaratory judgment. See       gation that "the status quo will be changed" if Dallas
Valley Oil Co., 499 S.W.2d at 336 (holding that declara-        breaches the 1968 agreement change the nature of the
tory judgment does not bar subsequent proceeding for            primary relief sought by Fort Worth to a permanent in-
coercive relief to enforce rights established by judgment       junction. The Declaratory Judgments Act expressly au-
where losing party contravenes judgment); see also TEX.         thorizes a party to ask the trial court to construe the party's
CIV. PRAC. & REM. CODE ANN. § 37.011 ("Further                  rights under a written contract before a breach of the
relief based on a declaratory judgment or decree may be         contract occurs. 20 In such a case, it is customary and
granted whenever necessary or proper. The application           proper to describe, as Fort Worth has done, the alleged
must be by petition to a court having jurisdiction to grant     consequences that may flow from a future breach of the
the relief.").                                                  contract.

FORT WORTH'S PETITION ONLY REQUESTS                                    19 A declaratory judgment is appropriate only if
DECLARATORY RELIEF                                                     a real and substantial controversy exists between
                                                                       the parties. See Bonham State Bank v. Beadle, 907
     Dallas contends that the language in Fort Worth's
                                                                       S.W.2d 465, 467 (Tex. 1995). Declaratory judg-
prayer asking the trial court to declare that Dallas is
                                                                       ment actions are frequently attacked on grounds
"prohibited, under the Contract and the Joint Bond Ordi-
                                                                       that the claims are hypothetical or abstract and
nance" from expanding commercial flights to and from
                                                                       therefore do not present a justiciable controversy.
Love Field, when read in the context of other language in
                                                                       See, e.g., Firemen's Ins. Co. v. Burch, 442 S.W.2d
the body of Fort Worth's petition, compels us to find that
                                                                       331, 332-35 (Tex. 1968); Lane v. Baxter
the primary relief sought by Fort Worth against Dallas is a
                                                                       Healthcare Corp., 905 S.W.2d 39, 41-42 (Tex.
permanent injunction. We disagree. None of the cited
                                                                       App.--Houston [1st Dist.] 1995, no writ); Powell
language, either standing alone or combined with other
                                                                       v. Estelle, 580 S.W.2d 169, 171 (Tex. Civ.
allegations in Fort Worth's petition, supports a finding that
                                                                       App.--Austin 1979, writ ref'd n.r.e.), cert. denied,
Fort Worth's suit against Dallas [**18] is primarily in-
                                                                       444 U.S. 892, 62 L. Ed. 2d 129, 100 S. Ct. 198
junctive in nature.
                                                                       (1970).
     Nowhere in its petition or prayer for relief does Fort      [**20]
Worth request that the trial court order Dallas, or any                20 See TEX. CIV. PRAC. & REM. CODE ANN.
other defendant, to do [*805] or not to do anything.                   § 37.004(b).
Rather, the petition and prayer request seven elements of
                                                                    Finally, Dallas asserts that Fort Worth's suit is merely
relief, each of which consists only of a declaration. Alt-
                                                                a well-masked request for a permanent injunction and
hough the last, standardized phrase of Fort Worth's prayer
                                                                urges us to look beyond the live pleadings to divine an-
reserves the right to seek "further relief," including in-
                                                                other motive and intent for this suit that is not found in the
junctive relief, this remedy is expressly authorized by the
                                                                pleadings. We refuse to engage in such speculation. 21
Declaratory Judgments Act 18 and is ancillary to Fort
                                                                                                                       Page 6
                                     977 S.W.2d 798, *; 1998 Tex. App. LEXIS 5352, **


There is no indication in the record before us that, con-                nio 1962, no writ) (undisputed that primary and
trary to the explicit allegations in its pleadings, Fort                 ultimate purpose of lawsuit was permanent in-
Worth is actually seeking an injunction to permanently                   junction).
enjoin Dallas from operating Love Field in a manner
inconsistent with the 1968 agreement. The record plainly          CONCLUSION
shows that Fort Worth is only seeking a "declaration"
                                                                       The primary relief Fort Worth seeks against Dallas is
from the trial court that, among other things, Love Field
                                                                  declaratory in nature, not injunctive. The fact that a de-
service remains restricted by the 1968 agreement. The
                                                                  claratory judgment [*806] adverse to Dallas's position
issuance of a permanent injunction in the underlying case
                                                                  may, if Dallas abides by [**22] the judgment, have the
would be necessary and proper if, and only if, it were
                                                                  effect of restricting passenger air service out of Love Field
shown that a party intended to contravene the trial court's
                                                                  to that allowed by the 1968 agreement does not transform
final decision. See Leeper, 893 S.W.2d at 446. We are
                                                                  Fort Worth's declaratory judgment action into a suit for a
confident that the parties in this case will abide by the trial
                                                                  permanent injunction for venue purposes.
court's declarations, whatever [**21] they may ulti-
mately be.                                                             Because we hold that the primary relief sought in Fort
                                                                  Worth's suit is a declaratory judgment, section 65.023 of
        21 We are also unaware of any Texas case in               the Texas Civil Practice and Remedies Code does not
        which a court has construed a plaintiff's pleadings       apply. Accordingly, we hold that the trial court did not
        as impliedly seeking primarily injunctive relief          abuse its discretion in denying Dallas's motion to transfer
        when the plaintiff only expressly asked for a de-         venue, and we deny the relief requested in Dallas's peti-
        claratory judgment. In those cases where courts           tion for writ of mandamus.
        have construed a suit for declaratory relief as one
        primarily seeking injunctive relief, the plaintiff            JOHN CAYCE
        expressly requested the issuance of a permanent               CHIEF JUSTICE
        injunction. See Burton v. Rogers, 504 S.W.2d 404,
        405 (Tex. 1973) (plaintiff requested both perma-             PANEL M: CAYCE, C.J.; DAUPHINOT and
        nent injunction and declaratory judgment); Guion,         BRIGHAM, JJ.
        439 S.W.2d at 717 (request for permanent injunc-              DELIVERED AUGUST 25, 1998
        tion was undisputed); Rainbo Baking Co. v. Aiken,
        362 S.W.2d 660, 660 (Tex. Civ. App.--San Anto-
                 In re: DOW CORNING CORP., Debtor. BEAR STEARNS GOVERNMENT SE-
                CURITIES, INC., , et al., Appellants, v. DOW CORNING CORP., et al., Appellees.

                                                       05a0360p.06

                                                        No. 04-1916

                      UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

               419 F.3d 543; 2005 U.S. App. LEXIS 17967; 2005 FED App. 0360P (6th Cir.); 45 Bankr.
                                                   Ct. Dec. 46

                                                 July 27, 2005, Argued
                                                August 22, 2005, Decided
                                                 August 22, 2005, Filed

PRIOR HISTORY:             [**1] Appeal from the United        After the discussions reached an impasse over terms
States District Court for the Eastern District of Michigan     covering the consequences in the event settlement pay-
at Detroit. No. 01-71843--Denise Page Hood, District           ments were not timely, Dow Corning suggested a clause
Judge.                                                         requiring payments of $ 100 [**2] per day to each
                                                               plaintiff for any time during which settlement payments
                                                               were late. The plaintiffs agreed to this clause, and entered
COUNSEL: ARGUED: Abraham Singer, PEPPER                        into the settlement agreement, later selling their right to
HAMILTON, Detroit, Michigan, for Appellants.                   settlement payments to Appellant Bear Stearns. When
                                                               Dow Corning declared bankruptcy and began to miss
David L. Ellerbe, NELIGAN, TARPLEY, STRICKLIN,                 payments under the settlement agreement, Bear Stearns
ANDREWS & FOLEY, Dallas, Texas, for Appellees.                 attempted to enforce the clause via a bankruptcy claim.
                                                               The district court, on Dow Corning's motion for summary
ON BRIEF: Abraham Singer, Mary K. Deon, PEPPER                 judgment, held that the clause was a penalty unenforcea-
HAMILTON, Detroit, Michigan, for Appellants.                   ble under Texas law, and also found that a condition
                                                               precedent to the contractual provision of liquidated
David L. Ellerbe, NELIGAN, TARPLEY, STRICKLIN,                 damages had not been met. Bear Stearns now appeals,
ANDREWS & FOLEY, Dallas, Texas, for Appellees.                 arguing that the condition precedent was in fact met, and
                                                               that Dow Corning should be estopped from asserting that
JUDGES: Before: MOORE and COLE, Circuit Judges;                the clause is a penalty. Because the clause is a penalty
and WISEMAN, District Judge. *                                 unenforceable under Texas law, and because Texas courts
                                                               preclude parties from being estopped from asserting an
       *     The Honorable Thomas A. Wiseman, Jr.,             illegality defense, we AFFIRM the decision below.
       United States District Judge for the Middle Dis-
       trict of Tennessee, sitting by designation.             I.
                                                                    Following revelations that many of Dow Corning's
OPINION BY: Ransey Guy Cole
                                                               silicone-based breast implants were faulty, numerous
                                                               suits were filed against Defendant-Appellee Dow Corning
OPINION
                                                               Corp. ("Dow Corning"). [**3] Twenty-seven Texas
      [*546] [***2]         R. GUY COLE, JR., Circuit          residents ("Plaintiffs") filed suit in Texas state court in
Judge. Twenty-seven Texas plaintiffs seeking recovery          1994, alleging various claims against Dow Corning. Dow
for injuries resulting from allegedly faulty breast implants   Corning found itself "under significant pressure" to settle
engaged in settlement negotiations with the implants'          these twenty-seven cases, especially since any findings of
manufacturer, Dow Corning Corp., a Michigan company.           fact made in these cases (the "Texas cases") could have
                                                                                                                      Page 2
                                   419 F.3d 543, *; 2005 U.S. App. LEXIS 17967, **;
                               2005 FED App. 0360P (6th Cir.), ***; 45 Bankr. Ct. Dec. 46

significant adverse effects upon Dow Corning's position                   In the event that [Dow Corning] fails to
in a related multi-district case and related global settle-            make any payment in accordance with
ment discussions then pending in federal court in Ala-                 [the] Agreement, and Plaintiff must seek
bama. Dow Corning was also motivated to settle because                 enforcement of the judgment to obtain the
of its view that the Texas cases were filed in a "plain-               amounts due, then [Dow Corning] will pay
tiff-friendly" forum. Dow Corning thus hired Ken Fein-                 to Plaintiff, as liquidated damages, the sum
berg, a noted expert in settlement practice, to engage in              of One Hundred Dollars ($ 100.00) per day
settlement negotiations with the Plaintiffs.                           for each day that payment is not made
                                                                       from the date payment was due until the
      [*547] But for one sticking point, the negotiations
                                                                       date Plaintiff receives the full amount due
went smoothly. Both parties agreed that Texas law would
                                                                       and owing under the terms of this agree-
control the settlement agreement. Dow Corning would
                                                                       ment. These liquidated damages shall be in
pay the Plaintiffs a total of $ 17 million over the course of
                                                                       addition to the assessment [**6] of costs
several years, in a series of seven installments. This
                                                                       and interest as provided in the agreed
payment would be secured by an "Agreed Judgment" filed
                                                                       judgment and the acceleration of install-
in Texas court, though the judgment would be enforced
                                                                       ment payments as provided in [] the
only if Dow Corning failed to make a timely settlement
                                                                       Agreement.
payment. Plaintiffs' counsel [**4] would be responsible
for determining what portion of the $ 17 million each
individual Plaintiff would receive. Further, if Dow
                                                                The Plaintiffs' attorneys noted at that time that if the new
Corning ever were late on an installment payment, the
                                                                provision provided for a "penalty," the provision would
entire settlement amount would come due. However, near
                                                                not be enforceable under Texas law.
the end of negotiations, Plaintiffs' counsel insisted on a
clause (the "no credit clause") which provided that if Dow           The parties agreed on this language, and inserted the
Corning ever failed to make a timely payment, it would          clause into each settlement agreement. Dow Corning paid
not receive credit against the judgment for previously          the first installment payment, totalling $ 4 million, on
made payments. For example, under this clause, if Dow           December 1, 1994. However, on May 15, 1995, Dow
Corning failed to make a required final payment of $            Corning filed for bankruptcy in the Eastern District of
200,000 to a particular Plaintiff, that Plaintiff would be      Michigan, and thereafter failed to make any further pay-
able to enforce the "agreed judgment" against Dow               ments under the settlement agreement -- the second in-
Corning for the full settlement amount of $ 1,400,000,          stallment having been due on July 1, 1995. All of the
rather than merely for the $ 200,000 portion of the judg-       Plaintiffs timely filed claims in bankruptcy court for the
ment remaining unpaid. This would occur despite the fact        amounts due under the settlement agreement. In February
that the Plaintiff in this example would already have re-       1997, while the bankruptcy [*548] case was pending,
ceived $ 1,200,000 of the $ 1,400,000 due. Plaintiffs'          the Plaintiffs all sold their claims to Appellant Bear
counsel justified this clause by stating that it would pro-     Stearns Investment Products, Inc., and related entities
vide a significant incentive for Dow Corning to pay             (collectively, "Bear Stearns"). Bear Stearns was then
scheduled payments on time.                                     substituted for the Plaintiffs in the bankruptcy case.
     Not wishing to place itself in a position where it could        Years later, a reorganization plan was approved for
potentially be required to "double-pay" a significant [**5]     Dow Corning. The plan included payment [**7] to Bear
portion of the settlement, Dow Corning steadfastly ob-          Stearns of the full remaining settlement amount of $ 13
jected to the no credit [***3] clause. However, Dow             million, plus post-petition interest of $ 9.6 million. 1
Corning by its own admission at this time felt "a tre-          During bankruptcy proceedings, Bear Stearns also
mendous sense of urgency to finalize the settlement."           claimed liquidated damages in the amount of $ 8.75 mil-
Accordingly, Dow Corning's attorneys proposed replac-           lion pursuant to the settlement agreement. Dow Corning
ing the no credit clause in each Plaintiff's agreement with     filed an objection to this portion of Bear Stearns's claim,
language requiring a "penalty" of $ 100 to be paid for each     and the bankruptcy court, without any written findings,
day that Dow Corning was late in paying a particular            sustained the objection and disallowed the liquidated
Plaintiff. After insisting that all uses of "penalty" be        damages portion of the claim. Bear Stearns appealed to
changed to "liquidated damages," and after making some          the district court. Since Dow Corning was fully solvent
insignificant stylistic changes, Plaintiffs' attorneys agreed   and had agreed to pay whatever the district court deter-
to insert the following language proposed by Dow Corn-          mined was due, the court allowed the confirmed plan to
ing:                                                            become effective while the liquidated damages appeal
                                                                was pending. As a result, just after the plan's effective
                                                                date, on June 1, 2004, Bear Stearns was paid the $ 22.6
                                                                                                                   Page 3
                                   419 F.3d 543, *; 2005 U.S. App. LEXIS 17967, **;
                               2005 FED App. 0360P (6th Cir.), ***; 45 Bankr. Ct. Dec. 46

million both parties agreed was due under the plan.             case, we agree with the parties and the district court, and
Meanwhile, Bear Stearns and Dow Corning each had filed          apply Texas law in determining the enforceability of the
a motion for summary judgment in district court with            subject contract terms.
regard to the additional liquidated damages. The district
                                                                     Since the instant claims were brought in bankruptcy
court denied Bear Stearns's motion, and granted summary
                                                                court pursuant to federal bankruptcy jurisdiction, federal
judgment to Dow Corning, finding that the liquidated
                                                                procedural rules apply. Therefore, we review the district
damages clause was a penalty unenforceable [**8] un-
                                                                court's legal conclusions de novo. In re Batie, 995 F.2d
der Texas law, and that even if it were not, a condition
                                                                85, 88 (6th Cir. 1993); In re Dow Corning Corp., 280
precedent to any award of liquidated damages had not
                                                                F.3d 648, 656 (6th Cir. 2002). In applying state law, we
been met. The district court then certified the grant of
                                                                anticipate how the relevant state's highest court would
summary judgment as final, under Fed. R. Civ. P. 54(b),
                                                                rule in the case and are bound by controlling decisions of
since the ruling conclusively resolved all claims with
                                                                that court. Allstate Ins. Co. v. Thrifty Rent-A-Car Sys.,
regard to the liquidated damages clause. This timely ap-
                                                                Inc., 249 F.3d 450, 454 (6th Cir. 2001). Intermediate state
peal followed.
                                                                appellate courts' decisions are also viewed as persuasive
                                                                unless it is shown that the state's highest court would
       1 Bear Stearns is also an appellant in another
                                                                decide the issue differently. Id.
       Dow Corning appeal currently pending before this
       Court. All parties agree that the legal issues pre-           Under federal procedural law, in deciding a motion
       sented by the two appeals are effectively unrelated      for summary judgment in a bankruptcy proceeding, this
       and that Dow Corning will pay additional                 Court must determine [**11] if "the pleadings, deposi-
       post-petition interest on all money due under the        tions, answers to interrogatories, and admissions on file,
       settlement agreement if such additional interest is      together with the affidavits, if any, show that there is no
       awarded to Bear Stearns as a result of the other         genuine issue as to any material fact and that the moving
       appeal.                                                  party is entitled to a judgment as a matter of law." Fed R.
                                                                Civ. P. 56(c); see also Fed. R. Bankr. P. 7056 ("Rule 56
     [***4] II.
                                                                F.R.Civ.P. applies in adversary proceedings."). As usual,
    A. Choice of Law and Standard of Review                     we view the evidence in the light most favorable to the
                                                                non-moving party. See, e.g., Matsushita Elec. Indus. Co.
     Both parties agree that, pursuant to the settlement
                                                                v. Zenith Radio Corp., 475 U.S. 574, 586-88, 89 L. Ed. 2d
agreement's choice-of-law provision, the construction and
                                                                538, 106 S. Ct. 1348 (1986). However, since the instant
enforcement of terms of the settlement agreement is
                                                                appeal is from both the grant of summary judgment to
governed [**9] by the laws of Texas. Though there is a
                                                                Dow Corning and the denial of summary judgment to
circuit split over what choice-of-law provisions a federal
                                                                Bear Stearns, it is appropriate to consider the evidence in
court exercising bankruptcy jurisdiction should apply,
                                                                the light most favorable to each party.
compare, e.g., Liberty Tool, & Mfg. v. Vortex Fishing
Sys., Inc. (In re Vortex Fishing Sys., Inc.), 277 F.3d 1057,         Finally, under Texas law, the determination of
1069 (9th Cir. 2002) (requiring use of federal                  whether a contract term is properly a liquidated damages
choice-of-law principles) with, e.g., In re Gaston &            provision or instead an unenforceable penalty is purely a
Snow, 243 F.3d 599, 604-07 (2d Cir. 2001) (describing           question of law. See, e.g., Valence Operating Co. v.
this split in great detail and requiring use of the forum       Dorsett, 164 S.W.3d 656, 664, 48 Tex. Sup. Ct. J. 671
state's choice-of-law principles); see also, e.g., In re        (Tex. 2005) [**12] ("Whether a contract term is a liq-
Southwest Equip. Rental, 1992 U.S. Dist. LEXIS 21396,           uidated damages provision is a question of law for the
No. CIV 1-90-62, 1992 WL 684872, at *9 n.48 (E.D. Tenn          court to decide."); S. Union Co. v. CSG Sys., 2005 Tex.
Jul. 9, 1992), both Michigan choice-of-law rules and            App. LEXIS 564, No. 03-04-00172-CV, 2005 WL 171349,
general equitable choice-of-law policies support enforc-        at *4 (Tex. Ct. App. Jan. 27, 2005) ("Whether the liqui-
ing parties' agreed-upon choice-of-law clauses absent any       dated damages provision is enforceable is a question of
strong public policy concerns to the contrary. See, e.g.,       law."). "Sometimes, however, factual issues must be re-
Mill's Pride, Inc. v. Cont'l Ins. Co., 300 F.3d 701, 705 (6th   solved before the legal question can be decided. For ex-
Cir. 2002) ("Michigan choice of law rules . . . require a       ample, to show that a liquidated damages provision is
court to balance the expectations of the parties to a con-      unreasonable because the actual damages incurred were
tract with the interests of the states involved to determine    much less than the amount contracted for, a defendant
which state's law to apply." (citations omitted)); Re-          may be required to prove what the actual damages were."
statement (Second) of Conflicts of Law [*549] § 302             Phillips v. Phillips, 820 S.W.2d 785, 788, 35 Tex. Sup. Ct.
[**10] (1971) (suggesting similar principles in the             J. 220 (Tex. 1991).
non-state-specific context). As we are aware of no public
policy disfavoring application of Texas law in the instant       [***5] B. Liquidated Damages
                                                                                                                      Page 4
                                  419 F.3d 543, *; 2005 U.S. App. LEXIS 17967, **;
                              2005 FED App. 0360P (6th Cir.), ***; 45 Bankr. Ct. Dec. 46

      Bear Stearns first argues that the $ 100 per day pro-   be easy to estimate. For this proposition, the district court
vision is a valid liquidated damages clause. Under Texas      relied significantly on language from Langever v. R.G.
law, a "liquidated damages" term is treated as a penalty,     Smith & Co., 278 S.W. 178, 179 (Tex. Ct. App. 1925):
unenforceable for reasons of public policy, except when
all three of the following conditions are met:                            In determining the intention of the par-
                                                                      ties to such stipulation, certain
          First, [(1)] the anticipated damages for a                  well-recognized [**15] rules of con-
       breach must be difficult or impossible to                      struction enter into the consideration, an
       estimate. Also, [(2)] the amount of liqui-                     important one of which is, the certainty or
       dated damages must be a reasonable                             uncertainty of the actual damages which a
       forecast of the [**13] amount necessary                        breach will occasion, and the ease or dif-
       to render just compensation. In addition,                      ficulty of ascertaining or proving such
       [(3)] 'liquidated damages must not be dis-                     damages; hence, in a case of a contract for
       proportionate to actual damages,' as                           the payment of money simply, a stipula-
       measured at the time of the breach. Thus, if                   tion to pay a fixed sum, in default of per-
       the liquidated damages are disproportion-                      formance, will be regarded as an agree-
       ate [*550] to the actual damages, the                          ment for a penalty and not as a covenant
       clause will not be enforced and recovery                       for liquidated damages--the reason for this
       will be limited to the actual damages                          rule being that, for the nonpayment of
       proven.                                                        money, the law awards damages measured
                                                                      by interest, and hence there is no difficulty
                                                                      in ascertaining the damages in such a case.
 Thanksgiving Tower Partners v. Anros Thanksgiving
Partners, 64 F.3d 227, 232 (5th Cir. 1995) (footnotes
omitted) (quoting Baker v. Int'l Record Syndicate, 812        Id. While this passage from Langever, taken alone, is
S.W.2d 53, 55 (Tex. Ct. App. 1991)). Further, "the party      supportive of the district court's holding, the district court
seeking to prevent enforcement bears the burden of proof      ignored the fact that this was only one factor to be con-
on these [three] issues." Id.; see also Fluid Concepts,       sidered under Texas law. The plaintiff in Langever al-
Inc. v. DA Apartments Ltd. P'ship, 159 S.W.3d 226, 231        leged that, due to non-payment on the contract at issue, he
(Tex. Ct. App. 2005) (concluding that trial court had erred   had lost significant profits (as, presumably, he was in-
in granting summary judgment to defendant where de-           tending to reinvest the money once received), and that the
fendant had presented no evidence supporting denial of        liquidated damages term had been an attempt to estimate
liquidated damages, despite plaintiff's failure to provide    the result of his not having been paid. [***6] Despite
any proof in support of such damages). Accordingly, to        the dicta cited by the district [**16] court in the instant
defeat Bear Stearns's motion for summary judgment and         case, the Langever court went on to state first that, "Where
to prevail on its own summary judgment motion, Dow            it is certain that damages will flow, and where it is certain
Corning bore the burden of [**14] proving that any one        they cannot be accurately measured, or where it appears
of the preceding conditions had not been met. Finally,        their ascertainment, if possible, will be difficult, the best
Texas law grants strong deference to enforcement of           reasons exist for respecting the agreement of the parties in
contract terms, including liquidated damages terms,           advance upon a sum mutually satisfactory." Id. The
shown to be mutually bargained for by equally competent       Langever [*551] court then granted enforcement of the
parties. S. Union, 2005 Tex. App. LEXIS 564, 2005 WL          clause, despite its dicta, noting that "Any effort to estab-
171349, at *5 (citing Shel-al Corp. v. Am. Nat'l Ins. Co.,    lish the actual damages for a breach of a contract such as
492 F.2d 87, 94 (5th Cir. 1974)). The district court ruled    the one under consideration here would be attended with
against Bear Stearns, finding that none of the prongs of      such unusual considerations and surrounded with such
the liquidated damages test were met.                         uncertainty and difficulties as to take the case out of the
                                                              usual class of cases of mere default in the payment of
     1. Were Future Damages Stemming From Breach
                                                              money, and thus to afford fair grounds for sustaining an
Difficult to Estimate?
                                                              agreement for liquidated damages." Id.
    Bear Stearns first argues that the district court erred
                                                                   Accordingly, Langever merely stands for Texas's
when it determined that all liquidated damages clauses in
                                                              consistent law that liquidated damages clauses in con-
contracts for the payment of money are unenforceable
                                                              tracts for payment of money are unenforceable except
penalties. The district court concluded that since interest
                                                              when damages are particularly difficult to estimate. Bear
can be paid to offset any delay in receiving money due
                                                              Stearns argues that the liquidated damages clauses in the
under a contract, damages for such contracts will always
                                                              instant case were intended to compensate for difficulties
                                                                                                                   Page 5
                                  419 F.3d 543, *; 2005 U.S. App. LEXIS 17967, **;
                              2005 FED App. 0360P (6th Cir.), ***; 45 Bankr. Ct. Dec. 46

[**17] encountered by the Plaintiffs were they not to          resulting from non-payment of settlement monies, in-
receive the settlement monies they were expecting to           cluding inability to meet future medical and other obliga-
receive. According to Plaintiffs' attorneys, such damages      tions, would be easy to calculate. Obviously, the twen-
specifically included losses sustained by the Plaintiffs'      ty-seven Plaintiffs would each face differing levels of
inabilities to meet obligations they had made based on the     such damages, and in this particular case, no party has
promise of Dow Corning to make payments under the              argued that the Plaintiffs' medical or other obligations
settlement agreement. Bear Stearns alleges that such dif-      were uniform or predictable. Accordingly, Dow Corning
ficulties would have been particularly difficult to estimate   has failed to show that the anticipated damages would not
here, because Plaintiffs' difficulties included damages        be difficult to estimate.
beyond the usual "lost investment opportunities" and
                                                                    [***7] 2. Was the Liquidated Damages Clause a
inabilities to make house and car payments. Rather, Bear
                                                               Reasonable Forecast of Just Compensation for Such
Stearns asserts that the clause was also intended to com-
                                                               Damages?
pensate for difficulties resulting from a failure to be able
to meet future obligations incurred in expectation of re-            The district court also gave two reasons for con-
ceiving settlement payments, including obligations such        cluding that Bear Stearns [**20] ought to lose on prong
as future (and inherently unpredictable) medical services      two, regarding whether the amount of liquidated damages
required due to illness caused by the allegedly faulty         was a reasonable forecast of the amount necessary to
implants, and also Plaintiffs' "decisions to discontinue       render just compensation. Unsurprisingly, Dow Corning
working if they could afford to do so."                        agrees with both. First, the district court found that the $
                                                               100 per day simply was not a forecast of compensation for
     On this prong, Dow Corning raises two arguments in
                                                               any damages, but rather was initially intended as a pen-
addition to that relied upon by the district court. First,
                                                               alty. Second, the district court concluded that even if the
Dow Corning argues that the items Bear Stearns [**18]
                                                               Plaintiffs' attorneys had intended this clause as compen-
claims would be "damages" following non-payment are
                                                               sation for damages, there was no evidence that the likely
actually damages that the initial settlement itself had
                                                               amount of such damages was ever estimated at all or that
contemplated, and thus the liquidated damages clause
                                                               it was compared with $ 100 per day, nor was any evidence
effectively would double-pay for these amounts. Bear
                                                               provided that any negotiations over what amount would
Stearns responds by noting that the liquidated damages
                                                               be reasonable compensation had ever occurred. The dis-
provision was not intended to cover medical expenses
                                                               trict court concluded that the clause thus was not a "rea-
resulting from the faulty implants, but rather to compen-
                                                               sonable forecast of just compensation."
sate for additional costs associated with receiving late
payments from Dow Corning. We agree with Bear Stearns               Bear Stearns argues that the burden was on Dow
that this conclusion is reasonable in light of Langever,       Corning to prove that the clause was not a reasonable
which specifically allowed liquidated damages in a situa-      forecast, and that Dow Corning simply has not presented
tion in which future damages resulting from non-payment        any evidence that the clause was not a reasonable forecast
were likely to be more than the time-value of monies           of damages. However, this argument both discounts the
owed under the original contract.                              evidence Dow Corning has presented and overstates Dow
                                                               Corning's burden. Dow Corning [**21] has presented
     Dow Corning's second argument is that the parties
                                                               evidence that the parties did not discuss potential uncer-
simply were not anticipating any additional damages from
                                                               tain damages resulting from breach, and has also pre-
non-payment, difficult to calculate or otherwise. Dow
                                                               sented evidence that the clause was initially proposed as a
Corning cites to the fact that the liquidated damages
                                                               penalty untied to any potential damages.
clause was initially proposed as a "penalty," and that none
of the attorneys in the case from either side could re-             Bear Stearns argues that the district court unfairly
member any discussions regarding difficult-to-calculate        shifted the burden of proof to Bear Stearns. However,
damages. In contrast, Bear Stearns notes that at least one     such a shifting was not improper in light of evidence
of [**19] the Plaintiffs' attorneys stated specifically that   presented by Dow Corning that is probative of a lack of
"the liquidated damages provision was to recognize that        both intent to provide just compensation and the existence
[Plaintiffs] would have losses sustained by their inability    of any consideration of any estimates of what just com-
to meet the obligations that they had made based on the        pensation would be. Bear Stearns's only statement to
promise of Dow Corning to make payments under this             counter Dow Corning's evidence of a lack of connection
Agreement." These duelling assertions, however, go to          between the clause and any estimate of damages is that
the question of whether the provision was actually a just      "given the large number of individual Plaintiffs and the
forecast of any damages, and not to whether such dam-          difficulty in estimating each Plaintiff's actual damages in
ages, if contemplated, would be difficult to calculate.        the event of a breach by Dow, the $ 100 per day figure was
Dow Corning does not argue that the damages [*552]             a reasonable estimate of those damages." This argument
                                                                                                                    Page 6
                                   419 F.3d 543, *; 2005 U.S. App. LEXIS 17967, **;
                               2005 FED App. 0360P (6th Cir.), ***; 45 Bankr. Ct. Dec. 46

may reasonably rebut one of Dow Corning's other argu-                3. Are the Liquidated Damages Disproportionate to
ments, that the damages were not reasonably predictive of       the Actual Damages Incurred by Plaintiffs?
damages potentially or actually incurred by any one spe-
                                                                     Because Dow Corning has met its burden of proving
cific Plaintiff. Regardless, however, the fact that there are
                                                                that the clause was not a reasonable estimation of any
numerous Plaintiffs or that [**22] each Plaintiff's dam-
                                                                anticipated damages, the entire three-part test must be
ages were uncertain does not logically imply that $ 100
                                                                resolved in its favor. See, e.g., Baker, 812 S.W.2d at 55.
per day was a reasonable estimate of damages.
                                                                Therefore, we need not determine whether the "liquidated
     Bear Stearns further argues that "having proposed the      damages" under the clause would be disproportionate to
$ 100 per day figure, Dow clearly believed it was rea-          any actual damages incurred by Plaintiffs.
sonable at the time." However, such an inference cannot
be made. When Dow Corning proposed the $ 100 figure,            C. Quasi-Estoppel and Unenforceable Liquidated
the uncontradicted evidence shows that it intended the          Damages Clauses
figure as a penalty, and not as a reasonable estimation of
                                                                     Under Texas law, the illegality of a liquidated dam-
some set of damages. Bear Stearns cites no evidence tying
                                                                ages clause is an affirmative defense that must be asserted
the $ 100 figure to any of the types of damages it claims
                                                                by a defendant when it is not clear from the face of the
Plaintiffs were estimated to face [*553] post-breach,
                                                                agreement that the clause is illegal. See, e.g., Phillips v.
while Dow Corning cites evidence probative of an ab-
                                                                Phillips, 820 S.W.2d 785, 789-90, 35 Tex. Sup. Ct. J. 220
sence of a concern for whether $ 100 was just compensa-
                                                                (Tex. 1991). Bear Stearns argues that the doctrine of
tion. For this reason alone, Bear Stearns's arguments fail.
                                                                quasi-estoppel should prevent [**25] Dow Corning
See, e.g., Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
                                                                from being able to assert this affirmative defense, and
252, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986) (requiring a
                                                                therefore that the liquidated damages clause should be
party defending against a motion for summary judgment
                                                                enforced. Quasi-estoppel is appropriate where "it would
to provide more than a "scintilla" of evidence to support
                                                                be unconscionable to allow a person to maintain a position
the conclusion that there is a genuine issue of material fact
                                                                inconsistent with one to which he acquiesced, or from
for trial).
                                                                which he accepted a benefit." Lopez v. Munoz, Hockema
     The district court also held that the $ 100 per day        & Reed, L.L.P., 22 S.W.3d 857, 864, 43 Tex. Sup. Ct. J.
provision was not a reasonable estimate of just compen-         806 (Tex. 2000) (citing Atkinson Gas Co. v. Albrecht,
sation [**23] for the anticipated damages because such          878 S.W.2d 236, 240 (Tex. Ct. App. 1994)). Bear Stearns
liquidated damages would constitute double recovery for         argues that since Dow Corning proposed the clause in
damages already compensated by the base settlement              order to induce settlement with the Plaintiffs, thereby
payments. See, e.g., Eberts v. Businesspeople Personnel         avoiding costly litigation, Dow Corning cannot now assert
Servs., Inc., 620 S.W.2d 861 (Tex. Ct. App. 1981) (disal-       that the clause is illegal. However, regardless of whether
lowing double recovery via liquidated damages); Robert          quasi-estoppel would be appropriate here,           [*554]
G. Beneke & Co., Inc. v. Cole, 550 S.W.2d 321 (Tex. Ct.         Texas courts have clearly stated that one cannot be es-
App. 1977) (same). However, Bear Stearns properly notes         topped from arguing that a contract term is illegal for
that the damages for which it is claiming liquidated            public policy reasons. See, e.g., In re Kasschau, 11
damages are not damages contemplated by the underlying          S.W.3d 305, 312-14 (Tex. Ct. App. 1999); see also In re
contract, since the [***8] damages at issue here are            Calderon, 96 S.W.3d 711, 719-20 (Tex. Ct. App. 2003).
those resulting from a breach of the settlement agreement       Accordingly, under Texas law, Dow Corning simply
itself (e.g. difficulties or other costs resulting from ina-    cannot be estopped from asserting the affirmative defense
bility to pay medical bills or other bills which Plaintiffs     [**26] of illegality, even if quasi-estoppel would oth-
had incurred relying on the availability of settlement          erwise be applicable. Because Dow Corning did indeed
money), and not those for which the settlement payments         assert this defense, and because we conclude that this
are supposed to compensate the Plaintiffs (e.g. expenses        defense has merit, Bear Stearns's argument fails.
resulting directly from potentially faulty implants). Ac-
cordingly, the district court should not have concluded         III.
that enforcement of the liquidated damages clause would
                                                                     Because we conclude that Dow Corning met its
constitute double recovery. Nonetheless, because [**24]
                                                                burden of showing that the liquidated damages clause at
Dow Corning provided evidence that the provisions were
                                                                issue is a penalty clause unenforceable under Texas law
not actually reasonable estimations of any anticipated
                                                                for reasons of public policy, we need not address whether
damages from breach, the second prong of the liquidated
                                                                a condition precedent to enforcement of the clause was
damages test, and thus the result of the entire test, was
                                                                met. We therefore AFFIRM both the district court's de-
properly resolved in Dow Corning's favor.
                                                                nial of Bear Stearns's summary judgment motion and the
                                                                grant of summary judgment to Dow Corning.
                                                                                                                     Page 1




                                    IN RE RICHARD ALLEN KASSCHAU, Relator

                                                    NO. 14-99-00737-CV

                   COURT OF APPEALS OF TEXAS, FOURTEENTH DISTRICT, HOUSTON

                                         11 S.W.3d 305; 1999 Tex. App. LEXIS 9300


                                             December 16, 1999, Opinion Filed

PRIOR HISTORY:       [**1] Appeal from 312TH                    BACKGROUND
DISTRICT COURT, Harris County; James D. Squier,
                                                                     Luckmi Kasschau ("Luckmi"), the real party in in-
Judge.
                                                                terest, sued the relator, Richard Allan Kasschau ("Rich-
    This Opinion Substituted on Overrule of Rehearing           ard"), for divorce in the 312th District Court of Harris
for Withdrawn Opinion of November 10, 1999, Previ-              County. In her petition, Luckmi sought not only dissolu-
ously Reported at: 1999 Tex. App. LEXIS 8399.                   tion of the marriage, but also conservatorship and support
                                                                [**2] of their two children and division of the commu-
DISPOSITION:          Petition Denied.                          nity estate. Richard answered the suit with a general de-
                                                                nial, a plea for confirmation of his separate property, and a
                                                                request for reimbursement, attorney's fees, and expenses.
COUNSEL: Linda Marshall - of Houston, TX, for rela-             The parties subsequently agreed to mediation. The parties
tor.                                                            settled all issues at mediation and the court approved the
                                                                settlement. 1
Shawn Russel Casey - of Houston, TX, for respondent.
                                                                       1 The copy of the mediated settlement agree-
JUDGES: Panel consists of Justices Yates, Fowler and                   ment provided by Richard is neither file-stamped
Frost.                                                                 nor signed by the court. Nevertheless, the report-
                                                                       er's record from a later hearing establishes that the
OPINION BY: KEM THOMPSON FROST                                         court signed and approved the agreement.
                                                                      Before the court entered judgment, however, Luckmi
OPINION
                                                                nonsuited her divorce petition. Unaware of the nonsuit,
                                                                Richard filed an "original counter-petition" for divorce. In
[*308] ORIGINAL PROCEEDING WRIT OF
                                                                his counter-petition, Richard sought enforcement of the
MANDAMUS OPINION ON REHEARING
                                                                mediated settlement agreement, denied paternity of the
     The motion for rehearing of relator, Richard Allen         second child born during the marriage, and asserted var-
Kasschau, is overruled. The court's opinion of November         ious tort claims against Luckmi and Shivi Kumar Pawa
10, 1999, is withdrawn and this opinion is substituted in       ("Shivi"), the alleged father of the second child. [**3]
its place.                                                      Luckmi subsequently filed in the same court a new peti-
                                                                tion for divorce, seeking the same relief sought in her first
     In this original proceeding, the relator seeks a writ of
                                                                suit. Luckmi also denied Richard's paternity of the second
mandamus directing the trial court to vacate two orders in
                                                                child and sought various temporary orders.
the underlying divorce case: (1) denying reinstatement of
an "original counter petition" for divorce, and (2) setting         Meanwhile, back in the first suit, Richard filed a
aside a mediated settlement agreement. Because the first        motion to reinstate his counter-petition for divorce and to
order is not reviewable by mandamus and the second              consolidate the two divorce actions. He also asked the
order was not a clear abuse of discretion, we deny the writ.    court to enter judgment on the mediated settlement
                                                                agreement. Luckmi opposed the motion for judgment,
                                                                                                                    Page 2
                                    11 S.W.3d 305, *; 1999 Tex. App. LEXIS 9300, **


asserting that: (1) certain conditions precedent to judg-       trial court clearly abuses its discretion by making an ar-
ment had not been satisfied; namely, Shivi had not filed an     bitrary and unreasonable decision that amounts to a clear
intervention as contemplated [*309] by the settlement           and prejudicial error of law. See Johnson v. Fourth Court
agreement, and (2) the settlement agreement was void            of Appeals, 700 S.W.2d 916, 917 (Tex. 1985). Richard
because it required Richard to turn over certain audiotape      complains the trial court violated a duty imposed by law
recordings of Luckmi for destruction by the parties' at-        by refusing to reinstate his counter-petition and declining
torneys, an act Luckmi claimed would be illegal. See TEX.       to enter judgment on the mediated settlement agreement.
PEN. CODE ANN. §§ 16.02(b)(1), 37.09(a)(1) (Vernon              We address each of these complaints and the question of
1994).                                                          whether Richard has an adequate remedy by appeal.
     At a hearing on these motions, the trial court granted
                                                                Reinstatement of the Counter-Petition
the motion to consolidate the two divorce actions based on
its conclusion that Luckmi's nonsuit did not defeat the              Richard first contends the trial court violated a min-
mediated settlement agreement. The court, however,              isterial duty by refusing to reinstate his "original coun-
denied Richard's motion to reinstate the [**4] coun-            ter-petition," even though it was filed after Luckmi's
ter-petition, finding that only Richard's claim for attor-      nonsuit. Under Texas Rule of Civil Procedure 162, a
ney's fees survived the nonsuit. The court withdrew its         plaintiff has an absolute, unqualified right to take a non-
approval of the mediated settlement agreement, finding          suit before she introduces all her [**6] evidence, as long
the agreement void and unenforceable because it required        as the defendant has not made a claim for affirmative
performance of an illegal act. The court put its first two      relief. See BHP Petroleum Co., Inc. v. Millard, 800
rulings in writing by order signed the same day as the          S.W.2d 838, 840 (Tex. 1990); General Land Office v. Oxy
hearing.                                                        U.S.A., Inc., 789 S.W.2d 569, 570 (Tex. 1990); Greenberg
                                                                v. Brookshire, 640 S.W.2d 870, 871 (Tex. 1982) (per
      After the hearing, Richard filed a request to enforce
                                                                curiam). The trial court's refusal to grant a nonsuit in the
the terms of the mediated settlement agreement, except
                                                                absence of a defendant's claim for affirmative relief vio-
for the allegedly illegal provision. In the meantime, Shivi
                                                                lates a ministerial duty and can be corrected by manda-
filed an intervention seeking to establish paternity, con-
                                                                mus. See Quanto Int'l Co., Inc. v. Lloyd, 897 S.W.2d 482,
servatorship and support of the second child. After the
                                                                485 (Tex. App.--Houston [1st Dist.] 1995, orig. pro-
trial court signed an order setting aside the entire mediated
                                                                ceeding). Similarly, the trial court's reinstatement of a
settlement agreement, Richard filed this petition for writ
                                                                case after the court has lost jurisdiction because of a
of mandamus. 2
                                                                nonsuit may also be reviewed by [*310] mandamus.
                                                                See id. (citing Johnson v. Harless, 651 S.W.2d 259, 260
       2 Luckmi objects to the documents included in
                                                                (Tex. 1983). Neither of these situations is present here.
       the appendix to the petition. These were the only
       documents provided in support of mandamus re-                 The trial court did not refuse to grant a nonsuit nor
       lief. A petition for writ of mandamus must contain       did it attempt to reinstate the case without jurisdiction to
       an appendix, which must include "a certified or          do so. Instead, the court merely refused to consider
       sworn copy of any order complained of, or any            Richard's counter-petition for divorce. We can see no
       other document showing the matter complained             reason to remedy the court's ruling by mandamus [**7]
       of." See TEX. R. APP. P. 52.3(j). The orders of          rather than by an appeal. The requirement that a person
       which Richard complains are included in the ap-          seeking mandamus relief establish the lack of an appellate
       pendix and appear to be signed by the trial court,       remedy is a "fundamental tenet" of mandamus practice.
       but are not file-stamped. The verification of            See In re Masonite Corp., 42 Tex. Sup. Ct. J. 789, 793 (
       Richard's counsel states only "that the pleadings        June 17, 1999 ) (J. Baker dissenting) (and cases cited
       contained in the appendix are true and correct           therein). An appellate remedy is not inadequate merely
       copies." While the verification makes no mention         because it may involve more expense or delay than ob-
       of "orders, motions or other documents," we con-         taining mandamus. See id. Although, on rare occasions,
       strue "pleadings" in this instance to include all the    exceptional circumstances may justify mandamus relief
       documents in the appendix.                               despite the presence of a generally adequate appellate
                                                                remedy, such circumstances do not exist when a trial
 [**5] MANDAMUS                                                 court's ruling is merely incidental to the trial process and
                                                                does not permanently deprive a party of substantial rights.
     Mandamus relief is available if the trial court violates
                                                                See id. at 793. Furthermore, the mere fact that a trial
a duty imposed by law or clearly abuses its discretion,
                                                                court's erroneous order will result in an eventual reversal
either in resolving factual issues or in determining legal
                                                                on appeal does not mean that trial will be a "waste of
issues when there is no adequate remedy at law. See
                                                                judicial resources." See id. Rather, mandamus should
Walker v. Packer, 827 S.W.2d 833, 839-40 (Tex. 1992). A
                                                                                                                   Page 3
                                   11 S.W.3d 305, *; 1999 Tex. App. LEXIS 9300, **


issue only in situations involving manifest and urgent        a ministerial duty in this case. One of the two reported
necessity and not for grievances to which other remedies      cases addressing section 153.0071 of the Family Code
may apply. See id. at 792. Because Richard neglects to        holds that subsection (e) requires the trial court to enter
explain why the court's ruling on his motion to reinstate     judgment on a mediated settlement agreement that meets
cannot be [**8] remedied by an appeal, we decline to          the requirements of subsection (d). See Alvarez v. Reiser,
address the court's ruling by mandamus.                       958 S.W.2d 232, 234 (Tex. App.--Eastland 1997, writ
                                                              denied). 3 In Alvarez, the husband sued the wife for di-
Judgment on the Mediated Settlement Agreement                 vorce. 958 S.W.2d at 233. The wife answered and filed a
                                                              cross-petition for divorce. See id. At mediation, the parties
     Richard also contends the trial court violated a min-
                                                              reached a settlement agreement that complied with the
isterial duty by refusing to enter judgment on the mediated
                                                              requirements of section 153.071(d). See id. The trial court
settlement agreement. Sections 6.602(b) and 153.0071(d)
                                                              entered judgment on the mediated settlement agreement
of the Family Code state that "a mediated settlement
                                                              even though the wife had withdrawn her consent to the
agreement is binding on the parties if the agreement: (1)
                                                              agreement. See id. The wife appealed and the appellate
provides in a separate paragraph that the agreement is not
                                                              court affirmed, concluding that: (1) a party's unilateral
subject to revocation; (2) is signed by each party to the
                                                              withdrawal of consent does not negate the enforceability
agreement; and (3) is signed by the parties' attorney, if
                                                              of a mediated settlement [**11] agreement that complies
any, who is present at the time the agreement is signed."
                                                              with section 153.0071(d), and (2) "a separate suit for
Section 157.0071(d) adds the requirement of "an under-
                                                              enforcement of a contract is not necessary." Id. at 234.
lined statement that the agreement is not subject to revo-
cation." Finally, subsections (c) and (e) of these statutes
                                                                     3     Spinks v. Spinks, 939 S.W.2d 229 (Tex.
provide that "a party is entitled to judgment" on a medi-
                                                                     App.--Houston [1st Dist.] 1997, no writ) is the
ated settlement agreement that meets the above require-
                                                                     only other reported case addressing section
ments "notwithstanding Rule 11 . . . or another rule of
                                                                     153.0071. In that case, the court held that a party
law."
                                                                     could revoke a mediated settlement agreement that
     It is undisputed that the mediated settlement agree-            did not comply with section 153.071(d). See id. at
ment in the underlying case meets the requirements of                230.
sections 6.602(b) and 153.0071(d). Relying on these
                                                                   Here, the issue is not whether Luckmi could revoke
Family Code provisions, Richard argues that Luckmi
                                                              her consent to the mediated settlement agreement, but
could [**9] not revoke her consent to the agreement by
                                                              whether the agreement itself was valid and enforceable.
nonsuiting her divorce action and that the trial court vio-
                                                              Notably, the lower court did not rule that Luckmi had
lated a ministerial duty by refusing to enter judgment on
                                                              revoked her consent to the mediated settlement agreement
the agreement. Citing the noted arbitration case, Jack B.
                                                              by taking a nonsuit. To the contrary, in consolidating the
Anglin v. Tipps, 842 S.W.2d 266, 271-73 (Tex. 1992),
                                                              two divorce actions, the court expressly stated that
Richard also argues that without mandamus relief, he will
                                                              Luckmi's nonsuit did not defeat the agreement. Instead of
be deprived of the rapid, inexpensive alternative to liti-
                                                              immediately entering judgment on the mediated settle-
gation provided by the Family Code. We need not com-
                                                              ment agreement, however, the trial court reviewed [**12]
pare mediated settlement agreements under the Family
                                                              the agreement and concluded it was void.
Code to arbitration agreements. Instead, we conclude that
Richard lacks an adequate remedy from the trial court's            Neither the plain language of the Family Code nor the
ruling because he will be deprived of the settlement's        holding in Alvarez foreclose the court's action. First, as
benefits if forced to expend further time and resources       noted, sections 6.602 and 153.0071 of the Family Code
litigating a suit that may have been settled. See, e.g.,      provide that "a party is entitled to judgment" on a medi-
Mantas v. Fifth Court of Appeals, 925 S.W.2d 656, 659         ated settlement agreement if certain requirements of those
(Tex. 1996) (holding that relator who settled case on ap-     statutes are met. Where, as here, the legislature has not
peal lacked adequate remedy for appellate court's refusal     defined the terms in the statute, we must apply their or-
to abate appeal pending suit to enforce settlement            dinary meaning. See In re Clark, 977 S.W.2d 152, 156
agreement); see also Harris County Appraisal Dist. v.         (Tex. App.--Houston [14th Dist.] 1998, orig. proceeding).
Johnson, 889 S.W.2d 531, 533-34 (Tex. App.--Houston           "Entitle" means in part "to grant a legal right to or qualify
[14th Dist.] 1994, orig. proceeding) (mandamus [*311]         for." See BLACK'S LAW DICTIONARY 553 (7th ed.
is appropriate [**10] to compel a district judge to pro-      1999). That a party has a "right to" judgment, or "qualifies
ceed to trial and judgment).                                  for" judgment on a mediated settlement agreement does
                                                              not deprive the court of discretion to review an agreement
    While we find the court's refusal to enter judgment on
                                                              before entering judgment. Second, while Alvarez pre-
the mediated settlement agreement is a proper subject for
                                                              cludes a party from revoking consent to a mediated set-
mandamus, we conclude that the trial court did not violate
                                                                                                                    Page 4
                                    11 S.W.3d 305, *; 1999 Tex. App. LEXIS 9300, **


tlement agreement that complies with section 153.0071, it       court." See Lewis, 199 S.W.2d at 149. Here, the trial court
does not hold that the court's duty to enter judgment on        concluded from the facts before it that the settlement
such an agreement is ministerial. A court's duty to enter       agreement called for the performance of an illegal act. See
judgment on a settlement agreement becomes ministerial          TEX. PEN. CODE ANN. § 16.02(a)(1) (Vernon 1994) (" a
only [**13] after it has first rendered judgment on that        person commits an offense if he intentionally intercepts . .
agreement. See In re Bland, 960 S.W.2d 123, 124 (Tex.           . a wire, oral, or electronic communication").
App. Houston [1st Dist.] 1997, orig. proceeding) (J. O'
                                                                     At the hearing on Richard's motions, the court heard
Connor dissenting) (citing Dunn v. Dunn, 439 S.W.2d
                                                                uncontroverted testimony that Richard secretly tape rec-
830, 832 (Tex. 1969)); see also In the Marriage of Bea-
                                                                orded Luckmi's phone conversations with various third
vers, 648 S.W.2d 729, 732 (Tex. App.-- Amarillo 1983, no
                                                                persons. 4 Aware of these tape recordings at the time of
writ). Here, the trial court approved the settlement
                                                                mediation, the parties put the following provision in their
agreement, but never rendered judgment on the agree-
                                                                settlement agreement:
ment. See, e.g., S & A Restaurant Corp. v. Leal, 892
S.W.2d 855, 857-58 (Tex. 1995) (holding that approval of             Husband ordered to deliver all tape recordings of
a settlement does not necessarily constitute a rendition of     Wife and transcripts and all copies thereof to Linda
judgment in the absence of a clear intent to render judg-       Marshall [husband's attorney] by 5:00 p.m., five days
ment). As a [*312] result, the court had no ministerial         [**16] after entry of decree. Attorneys to meet, inspect,
duty to enter judgment and thus, did not violate such a         and destroy all of same. Parties enjoined from dissemi-
duty.                                                           nating or distributing a copy of tapes or transcripts.
     Notwithstanding this legal conclusion, the facts of the
                                                                       4 Luckmi testified that after filing for divorce,
underlying case demonstrate that the parties did not intend
                                                                       she discovered a recording device attached to a
for the court to immediately enter judgment on the set-
                                                                       phone in the garage of the house where she and
tlement agreement. Specifically, the mediated settlement
                                                                       Richard lived. She testified that the device also
agreement expressly contemplates certain contingencies
                                                                       contained a tape of her conversations with others
in connection with Shivi's intervention. It states that the
                                                                       including, her mother, Shivi, and friends. Luckmi
court would likely require an [**14] intervention to
                                                                       testified that she was unaware of the recording
resolve certain issues regarding the second child and that
                                                                       device or the tape and that she did not give per-
entry of a decree would be delayed, and agreed temporary
                                                                       mission to anyone to record her conversations.
orders entered while these issues were resolved. Thus, the
                                                                       Luckmi also testified that when she confronted
facts of this case establish the trial court's discretion to
                                                                       Richard, he acknowledged installing the device
review the agreement before entering judgment. Ac-
                                                                       and making the recordings. When Richard was
cordingly, we hold that the trial court did not violate a
                                                                       questioned on this topic, his counsel invoked the
ministerial duty by refusing to enter judgment on the
                                                                       Fifth Amendment on Richard's behalf and in-
mediated settlement agreement.
                                                                       structed him not to answer.
Legality of the Mediated Settlement Agreement                        Taking into account that Shivi and others might urge
                                                                authorities to bring criminal charges against Richard, the
     Finally, Richard contends the trial court clearly
                                                                court concluded that this provision illegally required
abused its discretion by setting aside the entire mediated
                                                                [**17] the parties to destroy evidence in a potential
settlement agreement on grounds of illegality. "A contract
                                                                criminal proceeding brought at the instance of non-parties
to do a thing which cannot be performed without violation
                                                                to the settlement agreement. 5 Section 37.09(d)(1) of
of the law" violates public policy and is void. See Lewis v.
                                                                [*313] the Penal Code states that "a person commits an
Davis, 145 Tex. 468, 199 S.W.2d 146, 148-149 (1947); see
                                                                offense if the person knowing that an offense has been
also Montgomery v. Browder, 930 S.W.2d 772, 778 (Tex.
                                                                committed, alters, destroys, or conceals any record,
App.--Amarillo 1996, writ denied). The rationale behind
                                                                document or thing with intent to impair its verity, legibil-
the rule is not to protect or punish either party to the con-
                                                                ity or availability as evidence in any subsequent investi-
tract, but to benefit and protect the public. See Mont-
                                                                gation or official proceeding." TEX. PEN. CODE ANN. §
gomery, 930 S.W.2d at 778; see also Plumlee v. Paddock,
                                                                37.09(d)(1) (Vernon Supp. 1999) (emphasis added). This
832 S.W.2d 757, 759 [**15] (Tex. App.-Fort Worth
                                                                statute makes it a crime to alter or destroy evidence of a
1992, writ denied). Because of the presumption in Texas
                                                                crime even before the commencement of a criminal pro-
that contracting parties are knowledgeable of the law and
                                                                ceeding. Richard argues the provision in question is legal
contract accordingly, courts will generally leave the par-
                                                                because it does not require immediate destruction of the
ties as they find them. See id. Thus, "where the illegality
                                                                tapes and correspondingly prohibits dissemination of
does not appear on the face of the contract, it will not be
                                                                them. The Penal Code does not provide a time after which
held void unless facts showing its illegality are before the
                                                                a person, knowing that an offense has been committed,
                                                                                                                       Page 5
                                     11 S.W.3d 305, *; 1999 Tex. App. LEXIS 9300, **


may legally destroy evidence. Richard contends, howev-           Haby, 589 S.W.2d 521, 524 (Tex. App.--Austin 1979, writ
er, that "if they waited until the statute of limitations ex-    ref'd n.r.e.). The issue is whether the parties would have
pired . . . the agreement would be fully and lawfully per-       entered into the agreement absent the illegal parts. See
formed." We reject the notion that once the statute of           Rogers, 763 S.W.2d at 925; see also McFarland, 589
limitations on the state wire tap [**18] law runs, de-           S.W.2d at 524. Therefore, we must determine the central
struction of the tapes would no longer violate §                 and essential purpose of the settlement agreement.
37.09(d)(1), and, therefore, could not be characterized as
                                                                      Richard argues that the resolution of the various is-
an illegal act. 6 Richard's argument incorrectly assumes
                                                                 sues related to divorce, not the destruction of the tapes,
that the mere passage of time transforms an illegal act into
                                                                 was the essential purpose of the settlement agreement. In
a legal one. The statute of limitations is an affirmative
                                                                 contrast, Luckmi argues that the destruction [*314] of
defense; it does not bar prosecution for violation of a
                                                                 the tapes was the consideration for her release of claims
statute. See Proctor v. State, 967 S.W.2d 840, 844 (Tex.
                                                                 against Richard and, thus, was an essential purpose of the
Crim. App. 1998) (defense created by statute of limita-
                                                                 agreement. Given the structure of the settlement agree-
tions is forfeited if not asserted before the guilt/innocence
                                                                 ment and its interrelated terms and provisions, we cannot
stage of trial). An act prohibited by § 37.09(d)(1) does not
                                                                 say that the trial court acted without reference to guiding
magically become legal upon the expiration of the statute
                                                                 rules and principles in concluding that the agreement is
of limitations. While the running of the limitations period
                                                                 entire and indivisible. Because the court found part of the
provides the accused with a potential defense to any
                                                                 consideration for the settlement [**21] agreement ille-
prosecution for violation of the statute, it does not change
                                                                 gal, it was justified in finding the entire agreement void
the nature or character of the act. For this reason, we are
                                                                 and unenforceable. Therefore, we find the trial court did
unable to find that the trial court committed a clear and
                                                                 not abuse its discretion by declaring the entire agreement
prejudicial error of law by declaring the settlement
                                                                 void and refusing to enforce it.
agreement illegal and unenforceable based on its finding
that the agreement, on its face, called for a violation of §          Lastly, Richard argues that Luckmi is estopped from
37.09(d)(1).                                                     questioning the agreement's validity because she accepted
                                                                 a $ 1000 cash payment under its terms. A void contract
       5 These non-parties include Shivi. Under the              cannot be rendered enforceable by estoppel. See Reyes v.
       settlement agreement, Richard agreed to release           Storage & Processors, Inc., 995 S.W.2d 722, 725 n.3
       Shivi of all claims, except for child support.            (Tex. App.--San Antonio 1999, pet. filed) (holding that
       However, the release was conditioned on Shivi             employee who accepted benefits of void agreement lim-
       releasing claims against Richard.                         iting worker's compensation benefits was not estopped
 [**19]                                                          from complaining about agreement). Thus, Luckmi is not
       6 We note that § 37.09(d)(1) applies to the de-           estopped from questioning the agreement's validity.
       struction of evidence that might be used in "any          Therefore, we find no clear abuse of discretion by the trial
       subsequent investigation or official proceeding"          court in setting aside the entire agreement.
       and is not limited to a violation of the state wire
       tap laws.                                                 CONCLUSION
     Nevertheless, Richard argues the court abused its                In conclusion, we recognize that there are competing
discretion in refusing to eliminate any illegal provision        public policy interests at stake here. On the one hand,
and enforce the remainder of the settlement agreement. As        courts are responsible for carrying out this state's policy of
a general rule, where part of the consideration for an           encouraging the peaceable resolution of disputes involv-
agreement is illegal, the entire agreement is void if the        ing the parent-child relationship through voluntary set-
contract is entire and indivisible. See Montgomery, 930          tlement [**22] procedures. See TEX. CIV. PRAC. &
S.W.2d at 778. The doctrine of severability is an exception      REM. CODE ANN. §§ 154.002, 154.003 (Vernon 1997).
that applies in circumstances in which the original con-         On the other hand, public policy prohibits courts from
sideration for the contract is legal, but incidental promises    enforcing illegal contracts. See Lewis, 199 S.W.2d at 151;
within the contract are found to be illegal. See id. In such a   see also Montgomery, 930 S.W.2d at 778. Here, we are
case, the court may sever the invalid provision and uphold       unable to find the trial court violated the public policy
the valid portion, provided the invalid provision does not       encouraging settlements by refusing to enforce a settle-
constitute the main or essential purpose of the agreement.       ment agreement that it found contained an illegal provi-
See Rogers v. Wolfson, 763 S.W.2d 922, 925 (Tex.                 sion. Accordingly, because the trial court neither violated
App.--Dallas 1989, writ denied). Severability of the con-        a duty imposed by law nor clearly abused its discretion by
tract [**20] is determined by the intent of the parties as       refusing to enter judgment on the mediated settlement
evidenced by the language in the contract. See Mont-             agreement, we deny mandamus relief.
gomery, 930 S.W.2d at 778-79; see also McFarland v.
                                                                                              Page 6
                         11 S.W.3d 305, *; 1999 Tex. App. LEXIS 9300, **


/s/ Kem Thompson Frost                                 Petition Denied and Opinion filed December 16,
                                                   1999
Justice
                                                                                                             Page 1




                 In The Matter Of: OCA, INC, formerly doing business as Orthodontic Center of
                  America; ORTHALLIANCE NEW IMAGE; ORTHODONTIC CENTERS OF
              TEXAS INC; PEDOALLIANCE INC; ORTHOALLIANCE, INC, a Delaware Cor-
              poration, Debtors; DOUG CROSBY, DDS, DONALD B DOAN, DDS, GLENWOOD
                 JORDAN, DDS, ELGIN E WELLS; Plaintiffs-Appellees, OCA INC, A Delaware
                 Corp; PEDOALLIANCE INC; Plaintiffs-Appellants; RICHARD R WOEHRLE,
                DDS, MS; MICHAEL M DILLINGHAM DDS PC, a Texas Professional Corpora-
               tion; MICHAEL M. DILLINGHANI, DDS; AUSTIN ORTHODONTIC SPECIAL-
                   ISTS; ROBERT P. BUCK; BUCK ORTHODONTICES ASSOCIATES PC;
                STEPHEN N COLE; BAY AREA ORTHODONTICES PC, Plaintiffs-Appellees v.
                 ORTHALLIANCE NEW IMAGE; ORTHONDONTIC CENTERS, OF TEXAS
              INC; Defendants-Appellants; DUDLEY M HODGKINS; DUDLEY M HODGKINS,
              DDS, MSD, PC, A Texas Professional Corp; WILLIAM R IZZARD; RUBY IZZARD
              DDS PC, Defendants-Appellee, ORTHOALLIANCE INC, a Delaware Corporation;
              Defendant-Appellant, RON RISINGER, D.D.S.; RON RISINGER, DDS PC, Movants
              -Appellees; ROBERT PACKARD; PACKARD ORTHODONTICS PA, Amicus Cu-
                                                    riae

                                                   No. 07-30430

                     UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

                        552 F.3d 413; 2008 U.S. App. LEXIS 26509; 50 Bankr. Ct. Dec. 277


                                             December 12, 2008, Filed

PRIOR HISTORY: [**1]                                       For MICHAEL M DILLINGHAM DDS PC, a Texas
   Appeal from the United States Bankruptcy Court for      Professional Corporation, MICHAEL M DILLINGHAM,
the Eastern District of Louisiana.                         DDS, AUSTIN ORTHODONTIC SPECIALISTS, Plain-
Penny v. Orthalliance, Inc., 255 F. Supp. 2d 579, 2003     tiffs - Appellees: J David Forsyth, Sessions, Fishman &
U.S. Dist. LEXIS 4719 (N.D. Tex., 2003)                    Nathan, New Orleans, LA; Peter Charles Forbes, Horo-
                                                           witz Forbes LLP, Denver, CO.
DISPOSITION:        AFFIRMED.
                                                           For ROBERT P BUCK, BUCK ORTHODONTICS
                                                           ASSOCIATES P C, STEPHEN N COLE, BAY AREA
COUNSEL: For DOUG CROSBY, DDS, DONALD B                    ORTHODONTICS P C, Plaintiffs - Appellees: Bruce A
DOAN, DDS, GLENWOOD JORDAN, ELGIN E                        Cranner, Michael H Pinkerton, David Phillip Curtis, Frilot
WELLS, Plaintiffs - Appellees: William C Gambel,           LLC, New Orleans, LA.
Milling Benson Woodward, New Orleans, LA.
                                                           For       ORTHALLIANCE           NEW       IMAGE,
For OCA INC, A Delaware Corp, PEDOALLIANCE                 ORTHONDONTIC CENTERS OF TEXAS INC,
INC, Plaintiffs - Appellants: Robert John Clary, William   ORTHOALLIANCE INC, a Delaware Corporation, De-
L Foreman, Owens, Clary & Aiken, Dallas, TX; Warren        fendants - Appellants: Robert John Clary, William L
Horn, Heller, Draper, Hayden, Patrick & Horn, New          Foreman, Owens, Clary & Aiken, Dallas, TX; Warren
Orleans, LA.                                               Horn, Heller, Draper, Hayden, Patrick & Horn, New
                                                           Orleans, [**2] LA.
                                                                                                                Page 2
                                  552 F.3d 413, *; 2008 U.S. App. LEXIS 26509, **;
                                                50 Bankr. Ct. Dec. 277

For DUDLEY M HODGKINS, DUDLEY M                                     A. Woodworth, D.D.S.; Woodworth Orthodon-
HODGKINS DDS, MSD, PC, A Texas Professional                         tics, P.A.. Lisa L. Kerns; Lisa Loomis Kerns,
Corp, Defendants - Appellees: Kell Corrigan Mercer,                 D.D.S., P.C., a Texas Professional Corporation;
Brown McCarroll, Austin, TX.                                        William F. Terhune; William F. Terhune, D.M.D.,
                                                                    P.C., a Texas Professional Corporation; and
For WILLIAM R IZZARD, RUDY IZZARD DDS PC,                           Richard R. Woehrle, D.D.S., M.S. were dismissed
Defendants - Appellees: William C Gambel, Milling                   as parties to this appeal before oral argument be-
Benson Woodward, New Orleans, LA.                                   cause they reached a settlement with OCA.

For RON RISINGER, D.D.S. R, RON RISINGER, DDS                FACTS AND PROCEEDINGS [**4] BELOW
PC, Movants - Appellees: Joseph Naus, Michael Allyn
                                                                  This case arises out of a dispute over various BSAs,
Stroud, Wiener, Weiss & Madison, Shreveport, LA.
                                                             which OCA had entered into with Orthodontists in the
                                                             state of Texas. 2 According to the terms of the BSAs, OCA
For ROBERT PACKARD, PACKARD ORTHODON-
                                                             purchased or leased office space and purchased equip-
TICS PA, Amicus Curiaes: Sean Joseph McCaffity, Ro-
                                                             ment for each office. OCA was also responsible for billing
chelle Hutcheson & McCullough, Plano, TX.
                                                             patients, filing insurance claims, hiring nondental per-
                                                             sonnel, setting dress codes, and managing a bank account
JUDGES: Before GARWOOD,                CLEMENT,       and
                                                             through which the dental practice's funds flowed. The
ELROD, Circuit Judges.
                                                             Orthodontists were not authorized to withdraw funds from
                                                             the operating account, so OCA periodically transferred
OPINION BY: GARWOOD
                                                             money from these accounts to pay the Orthodontists their
                                                             compensation. In exchange, the Orthodontists agreed to
OPINION
                                                             work a minimum number of hours each week at the prac-
     [*416] GARWOOD, Circuit Judge:                          tice and not to perform orthodontic work outside that
                                                             office. The Orthodontist would receive an hourly rate for
     Debtors-appellants OCA, Inc., formerly doing busi-
                                                             seeing patients, and OCA would receive an hourly man-
ness as Orthodontic Centers of America, Inc.;
                                                             agement fee in addition to being reimbursed for its over-
OrthAlliance New Image, Inc.; Orthodontic Centers of
                                                             head. Profits were then split according to the respective
Texas, Inc.; PedoAlliance, Inc.; and OrthAlliance, Inc.
                                                             ownership interests of OCA and the Orthodontists. The
(collectively "OCA") directly appeal the January 17, 2007
                                                             BSAs were to be in force for long periods of time, some
interlocutory order of the bankruptcy court granting par-
                                                             up to forty years, and their terms severely restricted the
tial summary judgment and holding that the Business
                                                             Orthodontists' ability to terminate [**5] or assign them.
Services Agreements or Management Agreements (col-
lectively the "BSAs") that OCA entered with a number of
                                                                    2 OCA entered into contracts with orthodontists
orthodontists and their professional corporations (collec-
                                                                    in many states, but this appeal only deals with
tively the "Orthodontists) 1 were [**3] illegal under
                                                                    contracts between OCA and orthodontists prac-
Texas law. We affirm.
                                                                    ticing in Texas.
       1 The following dentists and professional cor-             The Orthodontists entered this case at various points
       porations were parties to this appeal: Doug           in the litigation stream. Appellee orthodontist Buck ini-
       Crosby, D.D.S.; Donald B. Doan, D.D.S.; Elgin E.      tially brought suit against Orthalliance, Inc. in [*417]
       Wells; Dudley M. Hodgkins; Dudley M.                  Texas state court seeking an accounting and a declaration
       Hodgkins, D.D.S., M.S.D., P.C., a Texas Profes-       that his BSA was void for illegality under Texas law. The
       sional Corporation; Lisa L. Kerns; Lisa Loomis        case was removed to federal court and later transferred to
       Kerns, D.D.S., P.C., a Texas Professional Corpo-      the United States District Court for the Northern District
       ration; William F. Terhune; William F. Terhune,       of Texas on November 11, 2002. Appellee orthodontist
       D.M.D., P.C., a Texas Professional Corporation;       Cole brought a similar suit that was eventually consoli-
       William R. Izzalrd; Rudy Izzard, D.D.S., P.C.;        dated with Buck's case and others in Penny v.
       Richard R. Woehrle, D.D.S., M.S.; Michael M.          OrthAlliance, Inc. ("Penny"), Case No. 3:01-CV-1569-N,
       Dillingham, D.D.S., P.C., a Texas Professional        in the Northern District of Texas, in June 2004. 3 The
       Corporation; Michael M. Dillingham, D.D.S.;           district court severed Cole's and Buck's cases from the
       Austin Orthodontic Specialists, Inc.; Robert P.       Penny litigation in July 2005. OCA's filing for chapter 11
       Buck; Buck Orthodontics Associates, P.C.; Ste-        protection in the proceedings below in the Eastern District
       phen N. Cole; Bay Area Orthodontics, P.C.; Ron        of Louisiana stayed Cole's and Buck's cases on March 6,
       Risinger, D.D.S.; Ron Risinger, D.D.S., P.C.; Don     2006. The bankruptcy court, however, lifted the stay for
                                                                                                                     Page 3
                                   552 F.3d 413, *; 2008 U.S. App. LEXIS 26509, **;
                                                 50 Bankr. Ct. Dec. 277

the purpose of allowing the Northern District of Texas                 tify the bankruptcy court's January 17, 2007 order
district court to rule on whether [**6] Buck's and Cole's              for direct appeal with respect to Woodworth.
BSAs were void for illegality under Texas law. On No-
vember 20, 2006, the district court for the Northern Dis-       [*418] JURISDICTION
trict of Texas held that the BSAs were void for illegality
                                                                    OCA directly appealed to this court the bankruptcy
because they were nearly identical to the contracts in
                                                               court's January 17, 2007 interlocutory order pursuant to
Penny that were held to be illegal under Texas Occupation
                                                               28 U.S.C. § 158(d)(2). This statute was enacted to provide
Code § 251.003(a)(4). The district court then transferred
                                                               for direct review of bankruptcy court judgments, orders,
the remainder of the case to the bankruptcy court for the
                                                               or decrees by the applicable court of appeals in cases
Eastern District of Louisiana.
                                                               where the bankruptcy court or the district court certify that
                                                               there is no controlling decision from the Supreme Court or
       3 See Penny v. Orthalliance, Inc., 255 F. Supp.
                                                               circuit court, the case involves a matter of public im-
       2d 579 (N.D. Tex. 2003).
                                                               portance, there are conflicting precedents, or an immedi-
     Appellee orthodontist Izzard terminated his BSA in        ate appeal may materially advance the progress of the
April 2005, before OCA filed for bankruptcy. Appellees         bankruptcy proceeding. 28 U.S.C. § 158(d)(2)(A)(i)--(iii).
orthodontists Wells, Doan, Dillingham, Crosby, Jordan,         If this certification is made, the applicable court of ap-
Hodgkins, and Woodworth were still performing under            peals has jurisdiction if it authorizes the direct appeal. Id.
their respective BSAs when OCA filed for bankruptcy.           § 158(d)(2)(A).
     After filing for chapter 11 protection, OCA, as debtor         On March 7, 2007, the bankruptcy court certified that
in possession, commenced adversary proceedings in the          this case met the requirements for direct appeal because it
bankruptcy court against Hodgkins and Izzard seeking a         involved a question of law on which [**9] there was no
declaration that their BSAs were not void for illegality       controlling decision by the Fifth Circuit or the Supreme
under Texas law. Appellees orthodontists Doan, Crosby,         Court, it involved a matter of public importance, and a
Wells, and Dillingham brought adversary proceedings            direct appeal would materially advance the progress of the
seeking to have their BSAs declared void for illegality. In    case. A panel from this court granted OCA's petition for
a contested proceeding, appellee [**7] orthodontist            leave to appeal under section 158(d). The only question is
Woodworth filed a motion for summary judgment, which           whether section 158(d)(2) permits this court to hear direct
sought to have his BSA declared void for illegality. The       appeals from interlocutory orders of bankruptcy courts. 5
bankruptcy court held a joint hearing to determine the
legality of all of the Texas BSAs on January 10, 2007. At              5 Prior to the adoption of section 158(d)(2), this
this hearing, the bankruptcy court announced from the                  court generally lacked jurisdiction to review in-
bench that it was granting the Orthodontists' motions for              terlocutory orders of bankruptcy courts. Prome-
partial summary judgment and holding that the BSAs                     nade Nat'l Bank v. Phillips (In re Phillips), 844
were void for illegality under Texas law based on several              F.2d 230, 231 (5th Cir. 1988).
prior Texas federal district court rulings in similar cases.
                                                                     The text of the statute grants the courts of appeals
The bankruptcy court entered its Order Granting Partial
                                                               "jurisdiction of appeals described in the first sentence of
Summary Judgment on January 17, 2007.
                                                               subsection (a)." Id. § 158(d)(2)(A) (emphasis added). The
     On January 19, 2007, OCA moved to have the                first sentence of section 158(a) grants district courts ju-
bankruptcy court certify its interlocutory judgment for        risdiction over bankruptcy appeals from interlocutory
direct appeal under 28 U.S.C. § 158(d)(2), and the Or-         orders or decrees if granted leave by the district court. Id.
thodontists moved to have the January 17, 2007 order           § 158(a)(3). Since interlocutory orders are included in the
made final. On March 7, 2007, the bankruptcy court             first sentence of subsection (a) and all of the other juris-
granted OCA's motion and certified that the requirements       dictional prerequisites of section 158(d)(2) are met, this
to directly appeal its January 17, 2007 order to the Fifth     court has jurisdiction to hear OCA's [**10] direct appeal
Circuit were present. It also denied the Orthodontists'        from the bankruptcy court. 6
motions to make its earlier judgment final." 4 CA filed its
petition for direct review of the bankruptcy court's inter-            6     Woodworth argues that his appeal is not
locutory order with the Fifth Circuit on March; [**8] 16,              properly before this court because the certification
2007. The petition was granted on May 15, 2007.                        for direct appeal of his case was not signed until
                                                                       March 9, 2007, which was more than 30 days after
       4 On March 9, 2007, the bankruptcy court sep-                   the judgment was entered on January 17, 2007. At
       arately denied Woodworth's motion to make his                   oral argument Woodworth argued that his case
       judgment final and granted OCA's motion to cer-                 was distinguishable from the other orthodontists
                                                                       because his was a contested proceeding, not an
                                                                                                                      Page 4
                                   552 F.3d 413, *; 2008 U.S. App. LEXIS 26509, **;
                                                 50 Bankr. Ct. Dec. 277

       adversarial proceeding, and his judgment is final.
       Assuming arguendo that Woodworth is correct             I. Standard of Review; Applicable Law
       and his judgment is final, his argument still fails
                                                                    When directly reviewing an order from a bankruptcy
       because a party may request certification for direct
                                                               court, findings of fact are reviewed for clear error and
       appeal up 60 days after the entry of the judgment,
                                                               conclusions of law are reviewed de novo. FED. R.
       order, or decree. 28 U.S.C. § 158(d)(2)(E). This 60
                                                               BANKR. P. 8013; Drive Fin. Servs., L.P. v. Jordan, 521
       day limit applies regardless of whether the judg-
                                                               F.3d 343, 346 (5th Cir. 2008). A lower court's grant of
       ment, order, or decree is final or interlocutory.
                                                               summary judgment presents a question of law reviewed
       OCA received certification for direct appeal on
                                                               de novo. Since all of the BSA's in this appeal involved the
       March 9, 2007, which is within 60 days of the
                                                               practice of dentistry in Texas, Texas law governs their
       entry of the judgment or order to be appealed on
                                                               enforceability. See Butner v. United States, 440 U.S. 48,
       January 17, 2007. Therefore, the appeal was
                                                               99 S.Ct. 914, 918, 59 L. Ed. 2d 136 (1979) ("Property
       timely filed. Additionally, Woodworth argued that
                                                               interests are created and defined by state law. . [**13] . .
       his case was not properly included in OCA's peti-
                                                               [T]here is no reason why such interests should be ana-
       tion for leave to appeal to the Fifth Circuit. After
                                                               lyzed differently simply because an interested party is
       reviewing the record, however, we [**11] con-
                                                               involved in a bankruptcy proceeding.")
       clude that OCA did properly include Woodworth
       in its petition for direct appeal, so this court does        II. Are Corporations "Persons" for Purposes of Sec-
       have jurisdiction over his appeal.                      tion 251.003(a)(4)
     Since this is an appeal from an interlocutory order            Legislation governing the operations of dentists is
from the bankruptcy court regarding a question of law on       codified in the Texas Occupations Code (the "Code").
which there is no controlling precedent, we will treat this    When the Code was recodified in 1999, the legislature
appeal essentially as we treat certified questions from        added section 1.002, which provides that the "Govern-
district courts. See 28 U.S.C. § 1292(b).                      ment Code (Code Construction Act), applies to the con-
                                                               struction of each provision in this code except as other-
DISCUSSION                                                     wise expressly provided by this code." Tex. Occ. Code §
                                                               1.002. The Texas Government Code defines the term
      The Texas Occupations Code prohibits a person from
                                                               "person" to include corporations "unless the statute or
practicing dentistry without a [*419] license. Tex. Occ.
                                                               context in which the word or phrase is used requires a
Code § 256.001. Texas defines practicing dentistry as
                                                               different definition." Tex. Gov't Code § 311.005(2).
engaging in any one of ten different activities. See Tex.
Occ. Code § 251.003(a). In this case, the bankruptcy court          Section 251.003(a) does not contain its own defini-
granted the Orthodontists' motions for partial summary         tion of "person," but nevertheless, OCA argues that the
judgment and held that the BSAs between OCA and the            term should not be read to include corporations. The basis
Orthodontists were void for illegality because they ena-       of its argument is that the recodification of the Code was
bled OCA, which is unlicensed, to practice dentistry           not meant to enact substantive change in the law and the
without a licence by owning, maintaining, or operating a       prior version of section 251.003(a)(4) did not itself ex-
place of business in which it employed or engaged by           pressly include corporations in its definition of person.
contract someone else to practice dentistry. Tex. Occ.         [**14] See Tex. Occ. Code § 1.001(a) (stating that the
Code § 251.003(a)(4). 7 OCA argues that this ruling was        revisions were not meant to make any substantive
erroneous because it is a corporation and is hence not a       changes).
"person" under section 251.003(a)(4), [**12] the bank-
                                                                   The previous version of section 251.003(a)(4) pro-
ruptcy court should have permitted the parties to use the
                                                               vided that anyone who engaged in the following conduct
severability clause in the BSAs to cure the BSAs' illegal-
ity, and the bankruptcy court failed to consider whether an    was engaged in dentistry:
assignment of part of OCA's rights or obligations under
                                                                         "(4) Any one who owns, maintains or
the BSAs to an affiliate would have rendered the BSAs
                                                                      operates any office or place of business
legal.
                                                                      where he employs or engages under any
                                                                      [*420] kind of contract whatsoever, any
       7 Section 251.003(a)(4) provides "(a) For pur-
       poses of this subtitle, a person practices dentistry           other person or persons to practice dentis-
       if the person: . . . (4) owns, maintains, or operates          try as above defined shall be deemed to be
                                                                      practicing dentistry himself, and shall
       an office or place of business in which the person
                                                                      himself be required to be duly licensed to is
       employs or engages under any type of contract
                                                                      practice dentistry as hereinabove defined
       another o person to practice dentistry; . . . ."
                                                                      and shall be subject to all of the other
                                                                                                                       Page 5
                                    552 F.3d 413, *; 2008 U.S. App. LEXIS 26509, **;
                                                  50 Bankr. Ct. Dec. 277

       provisions of this Chapter, even though the              corporation." Article 23(2) Revised Civil Statutes of
       person or persons so employed or engaged                 Texas, 1925, repealed by Acts 1985, 69th Leg. ch. 479, §
       by him shall be duly licensed to is practice             224. This provision was essentially replaced by the above
       dentistry as hereinabove defined." Tex.                  referenced provision of TEX. GOV'T CODE § 311.005(2),
       Rev. Civ. Stat. art. 4551a(4) (1935) (em-                likewise enacted by Acts 1985, 69th Leg., ch. 479, § 1.
       phasis added) ("Article 4551a(4)").                      See also, e.g., James N. Tardy Co v. Tarver, 120 Tex. 591,
                                                                39 S.W.2d 848, 850 (Tex. 1931) ("person" in Texas civil
                                                                statute includes corporation under Article [**17] 23);
OCA argues that the references to he, himself, and him          Wyche v. Wichita Engineering Co., 374 S.W.2d 728, 732
limit the definition of "person" to natural persons.            (Tex. Civ. App.-Dallas 1964, writ ref'd n.r.e.) (same);
                                                                United States v. Texas Construction Co., 237 F.2d 705,
     OCA also notes that Article 4551a(4) was passed in
                                                                706 (5th Cir. 1955) (same; not citing Article 23).
1935 along with an identical criminal statute, Tex. Penal
Code art. 754a(4) (1935) ("Article 754a(4)"), which only             Assuming arguendo that OCA's argument is correct,
applied to natural persons. OCA argues that the [**15]          we would have to determine how to apply recodified
doctrine of in pani materia requires the civil statute and      section 251.003(a)(4) [*421] when, on the one hand,
the penal statute to be read in harmony because they were       there is the general legislative directive that the recodifi-
adopted by the same legislature regarding the same sub-         cation was not meant to make substantive changes to the
ject matter. See Garrett v. Mercantile Nat'l Bank at Dal-       law, Tex. Occ. Code § 1.001(a), and, on the other hand,
las, 140 Tex. 394, 168 S.W.2d 636, 637 (Tex. 1943);             the current statutory definition of "person" includes cor-
Braun v. State, 40 Tex. Crim. 236, 49 S.W. 620, 622-23          porations "unless the statute or context in which the word
(Tex. Crim. App. 1899). Consequently, the civil statute         or phrase is used requires a different definition." Tex.
should be read to only apply to natural persons because         Gov't Code § 311.005(2). When presented with a similar
the criminal statute's application was limited to natural       situation, the Texas Supreme Court held that a legislative
persons.                                                        statement that an amendment did not make substantive
                                                                changes to a law does not overcome the unambiguous
     One problem with this argument is that when these
                                                                language of a recodified statute that the legislature enacts,
statutes were passed Texas did not subject corporations to
                                                                even if the language in the new statute does change the
criminal liability. See Robert W. Hamilton, Corporate
                                                                prior law. Fleming Foods of Tex., Inc. v. Rylander, 6
Criminal Liability in Texas, 47 TEX. L. REV. 60, 60
                                                                S.W.3d 278, 283-84 (Tex. 1999). In reaching this decision,
(1968) (noting that Texas did not subject corporations to
                                                                the Texas Supreme Court noted that if the [**18] general
criminal prosecutions at that time); see also Linda C.
                                                                statement that none of the changes made during the re-
Anderson, Corporate Criminal Liability for Specific In-
                                                                codification was allowed to overturn the current plain
tent Crimes and Offenses of Criminal Negligence--The
                                                                language in the statute, no citizen would be able to know
Direction of Texas Law, 15 ST. MARY'S L.J. 231, 233
                                                                what the current law was without combing through vol-
(1984) (stating that the Texas Penal Code was revised in
                                                                umes of session laws. Id. at 284-85. That was deemed to
1974, and that revision incorporated many of Professor
                                                                be an unacceptable result. Id. at 285. Given the holding in
Hamilton's suggestions and imposed criminal liability on
                                                                Rylander, the only remaining question would be whether
corporations). Since Texas did not subject corporations to
                                                                the current statutory language unambiguously includes
criminal [**16] prosecution before 1974, the fact that
                                                                corporations within the definition of person. As stated
Article 754a(4) did not apply to corporations tells us little
                                                                above, the Code's definition of person includes corpora-
about whether Article 4551(a)(4), a civil statute, was
                                                                tions unless the statute's text or context requires a different
meant to apply to corporations. 8
                                                                definition. Tex. Gov't Code § 311.005(2). The text of the
                                                                statute does not require a deviation for the general defi-
       8 Furthermore, Texas courts apply the doctrine
                                                                nition because its wording does not refer exclusively to a
       of in pari materia to resolve contradictions be-
                                                                natural person. Tex. Occ. Code § 251.003(a)(4).
       tween two statutes that cover similar subjects. S.
       Pac. Co. v Sorey, 104 Tex. 476, 140 S.W. 334, 336             This construction is supported by another subsection
       (Tex. 1911). But it is not contradictory for a civil     of the statute and a revisor's note. Following the definition
       sanction to be broader than a criminal sanction for      of what constitutes practicing dentistry, the statute spe-
       the same conduct.                                        cifically excludes a number of persons from that defini-
                                                                tion. 9 Tex. Occ. Code § 251.004(a). In this section, Dental
     That still leaves OCA's argument that the previous
                                                                Health Service Corporations incorporated under the Texas
iteration of section 251.003(a)(4) did not apply to corpo-
                                                                Non-Profit [**19] Corporation Act are specifically ex-
rations. However, since at least 1925 it has been the law in
                                                                cluded. Id. § 251.004(a)(8). 10 If corporations were not
Texas that in civil statutes "unless a different meaning is
                                                                "persons" under section 251.003(a), there would have
apparent from the context" the word 'Person' includes a
                                                                                                                    Page 6
                                   552 F.3d 413, *; 2008 U.S. App. LEXIS 26509, **;
                                                 50 Bankr. Ct. Dec. 277

been no reason for the legislature to specifically exclude     F. Supp. 2d 579, 581-83 (N.D. Tex. 2003); Becka v. Or-
these particular entities. Additionally, the section 251.003   thodontic Ctrs. of Am., Inc., No. 4:03-CV-80, 2005 U.S.
revisor's note four comments that the previous version of      Dist. LEXIS 46904, *10-11 (E. D. Tex. Mar. 31, 2005);
section 251.003(a)(5) [Article 4551a section (5)] referred     Buck v. OrthAlliance, Inc., No. 3:05-CV-1485-N, 2006
to a "person, firm, group, association, or corporation," but   U.S. Dist. LEXIS 98128, *5 (N.D. Tex. Nov. 20, 2006);
that was replaced with "person" because "under Section         Turner v. OCA, Inc., No. M0-05-CV-091, 2006 U.S. Dist.
311.005(2), Government Code (Code Construction Act),           LEXIS 98129, *11 (W.D. Tex. Dec. 5, 2006). 11 OCA or its
'person' is defined to include a corporation or any other      subsidiaries were the defendants in each of those cases,
legal entity. That definition applies to the revised law."     and OCA has not argued that the BSAs at issue in this case
Tex. Occ. Code § 251.003(a) revisor's note 4 (for the 1999     are materially different from those at issue in Penny,
revision of Article 4551a into the Occupations Code).          Becka, or Turner. A review of the record confirms that
OCA argues that the revisor's note is inapplicable because     their terms are Substantially similar.
it refers to section 251.003(a)(5) (relating to dental ap-
pliance fitting etc.), not section 251.003(a)(4). This ob-            11 The opinion in Becka was later vacated
jection is misplaced, however, because "person" has the               upon the agreement of the parties. Packard v.
same meaning throughout section 251.003(a).                           OCA, Inc., No. 4:05-CV-273, 2007 U.S. Dist.
                                                                      LEXIS 98064, *12 (E.D. Tex. Feb. 23, 2007)
       9 These exclusions were added in 2001, after                   (magistrate judge). [**22] Since the bankruptcy
       the recodification.                                            court ruled on January 17, 2007, two other Texas
       10 Section 251.004(a)(8) provides: "(a) A per-                 federal district courts have held that other very
       son does not practice dentistry as provided                    similar BSAs, which are not a part of this appeal,
       [**20] by Section 251.003 if the person is: . . . (8)          violated Texas law. Packard 2007 U.S. Dist.
       a Dental Health Service Corporation chartered                  LEXIS 98064, at *13-14; Orthodontic Ctrs. of
       under Section A(1), Article 2.01, Texas                        Tex., Inc. v. Wetzel, No. 1-06-CA-626-LY, slip op.
       Non-Profit Corporation Act (Article 1396-2.01,                 at 5-8 (W.D. Tex. Jul. 10, 2007);
       Vernon's Texas Civil Statutes); . . . ."
                                                                    OCA does not directly dispute that the terms of the
     Since the plain language of the Code unambiguously        BSAs enable it to practice dentistry under section
includes corporations in its definition of "person," that      251.003(a)(4) . Instead, it argues that the BSAs do not run
language must be given effect even if the previous version     afoul of various regulations promulgated by the Texas
of section 251.003(a)(4) did not apply to corporations.        State Board of Dental Examiners. This argument, how-
                                                               ever, is irrelevant, because the regulations cited by OCA
     [*422] III. Are the BSAs illegal
                                                               were promulgated to define whether a "person" was
      Under Texas law, a contract is illegal, and thus void,   "practicing dentistry" under section 251.003(a)(9), not
if the contract obligates the parties to perform an action     section 251.003(a)(4), of the Code. See Tex. Occ. Code §
that is forbidden by the law of the place where the action     254.0011. 12
is to occur. Miller v. Long-Bell Lumber Co., 148 Tex. 160,
222 S.W.2d 244, 246 (Tex. 1949). Contracts are pre-                   12    Section 251.003(a)(9) provides that
sumptively legal, so the party challenging the contract
carries the burden of proving illegality. Franklin v.                            "a person practices dentistry if
Jackson, 847 S.W.2d 306, 310 (Tex. App.--El Paso 1992,                        the person: . . .
writ denied). "When two constructions of a contract are
                                                                                   (9) controls, influences, at-
possible, preference will be given to that which does not
                                                                              tempts to control or influence, or
result in violation of law." Lewis v. Davis, 145 Tex. 468,
                                                                              otherwise interferes with the exer-
199 S.W.2d 146, 149 (Tex. 1947).
                                                                              cise of a dentist's independent
     The bankruptcy court, relying on decisions from                          professional judgment regarding
various federal district courts for the Northern, Eastern,                    the diagnosis or treatment of a
and [**21] Western districts of Texas interpreting sim-                       dental disease, disorder, or physi-
ilar BSAs, granted partial summary judgment in favor of                       cal condition; . . . ."
the Orthodontists and held that the BSAs were illegal
                                                                                   Section 251.003(a)(9) is mod-
under Texas Occupation Code § 251.003(a)(4) because,
                                                                              ified by § 251.003(b) [**23]
as written, they allowed OCA to practice dentistry without
                                                                              which provides:
a license by owning, maintaining, or operating a place of
business in which OCA engaged someone else in the                                 "(b) The practice of dentistry
practice of dentistry. See Penny v. Orthalliance, Inc., 255                   under Subsection (a)(9) does not:
                                                                                                                    Page 7
                                   552 F.3d 413, *; 2008 U.S. App. LEXIS 26509, **;
                                                 50 Bankr. Ct. Dec. 277

                    (1) require an entity to pay for           IV. Severance
               services that are not provided for in
                                                                    OCA next argues that the bankruptcy court erred by
               an agreement; or
                                                               holding that the BSAs were void for illegality because
                    (2) exempt a dentist who is a              they contained severability and modification clauses, so
               member of a hospital staff from                 the bankruptcy court should have severed or modified the
               following hospital bylaws, medical              illegal portions of the BSAs in order to cure any defects
               staff bylaws, or established poli-              instead of voiding them for illegality. [**25] To support
               cies approved by the governing                  its argument, OCA cites a case in which this court held
               board and the medical and dental                that an indemnity agreement was not void for illegality
               staff of the hospital."                         merely because one provision of the agreement was ille-
                                                               gal. Transamerica Ins. Co. v. Avenell, 66 F.3d 715,
                    Section 254.0011 provides:
                                                               721-22 (5th Cir. 1995). The Orthodontists respond by
                    (a) The board may adopt rules              arguing that reformation is not applicable in this situation
               relating to the practice of dentistry           because the portion of the contract that is illegal is the
               as     described      by     Section            main or essential purpose of the agreement, not merely an
               251.003(a)(9) to prohibit a dentist             incidental promise. See Williams v. Williams, 569 S.W.2d
               from engaging in contracts that                 867, 871 (Tex. 1978).
               allow a person who is not a dentist
                                                                    We first note that in the proceedings below, OCA did
               to influence or interfere with the
                                                               not raise this severability argument in its motion for par-
               exercise of the dentist's independ-
                                                               tial summary judgment. It only raised this contention
               ent professional judgment.
                                                               orally at the hearing to determine whether the BSAs were
                    (b) Rules adopted by the board             facially illegal, and at that time, OCA's position was that,
               under this subtitle may not pre-                if the bankruptcy court held that the BSAs were illegal, it
               clude a dentist's right to contract             should then hold an additional hearing, before certifying
               with a management service organ-                the issue for appeal, to consider whether provisions could
               ization. Rules affecting contracts              be severed to cure the illegality. In response, the bank-
               for provision of management ser-                ruptcy court stated that it would not hold a "reformation
               vices apply the same to dentists                hearing until some higher court decides whether they're
               contracting with management ser-                illegal or not." OCA acquiesced [**26] to that decision,
               vice organizations and to dentists              and never filed a motion to hold a reformation hearing. It
               otherwise contracting for man-                  is only on appeal that OCA argued that Texas law requires
               agement services.                               a court to consider severability before voiding a contract
                                                               for illegality. However, this court generally does not
                                                               consider arguments first raised on appeal. See Kinash v.
                                                               Callahan, 129 F.3d 736, 739 n.10 (5th Cir. 1997).
      [*423] By failing to argue why it believes that the
bankruptcy court's holding that the BSAs violated section           Furthermore, while Texas law does allow a severa-
251.003(a)(4) was erroneous, OCA has failed to raise an        bility clause to save a contract that contains illegal provi-
issue [**24] that would merit reversing the bankruptcy         sions, the existence of a severability clause does not
court's judgment. Furthermore, given the pervasiveness of      guarantee that a contract will always thus be saved from
the involvement in the practice of dentistry that the BSAs     illegality. Williams makes it clear that severability is only
require OCA to engage in, the fact that every district court   [*424] appropriate when the illegal provision is not an
that has considered whether similar BSAs violate Texas         essential part of the contract. 569 S.W.2d at 871. Even
law has held that they were void for illegality, and the       OCA's cited precedent acknowledges this limitation.
longstanding tradition in Texas preventing [A> con-            Avenell, 66 F.3d at 722 ("'[W]here the subject matter of
demning <A] unlicensed individuals or corporations             the contract is legal, but the contract contains an illegal
(other than professional corporations in the relevant pro-     provision . . . the illegal provision may be severed and the
fession) from in substance owning a controlling equity         valid portion of the contract enforced."' (quoting Pana-
interest in the practice of a licensed learned health pro-     sonic Co. v. Zinn, 903 F.2d 1039, 1041 (5th Cir. 1990))
fessional, see, e.g., Garcia v. Texas Board of Medical         (emphasis added)). In this case, the illegal portions of the
Examiners, 384 F. Supp. 434, 437-440 (W.D. Tex. 1974);         BSA are not simply incidental provisions.
Flynn Bros. Inc. v. First Medical Associates, 715 S.W.2d
                                                                    As written, the [**27] BSAs create an interlocking
782, 784-85 (Tex. App.--Dallas 1986, writ ref'd n.r.e.), we
                                                               set of obligations that required OCA to exercise consid-
hold that the bankruptcy court did not err.
                                                               erable control over the Orthodontists' practices. For in-
                                                                                                                   Page 8
                                   552 F.3d 413, *; 2008 U.S. App. LEXIS 26509, **;
                                                 50 Bankr. Ct. Dec. 277

stance, OCA conducted the financial and marketing ac-          of section 251.003(a)(4). See Pan E. Exploration Co. v.
tivity of the practices, and it maintained the facilities,     Hufo Oils, 855 F.2d 1106, 1132-33 (5th Cir. 1988)
equipment, and support personnel required to operate the       (holding that Texas low permitted disregarding the cor-
practices. The BSAs also stipulated how much each Or-          porate form because the corporation was established
thodontist was required to work, and greatly restricted        [*425] to circumvent a statute); see also Flynn Bros.,
their ability to perform services outside of the BSAs. In      Inc., 715 S.W.2d at 785 (holding that it was illegal to form
exchange for these services, OCA charged a fee that was        a corporation to avoid the Texas Medical Practice Act's
tied to the profits of the practices. The BSAs provided        restrictions against unlicensed persons practicing medi-
little to no ability for the Orthodontists to oversee any of   cine). Moreover, OCA has provided no legal basis to
OCAs decisions related to their practice. Ultimately, the      support its conclusion that since it could have assigned its
Orthodontists were essentially only left with control over     obligations, the contracts are not void for illegality.
diagnosing and treating their patients. Accordingly, the
                                                                    OCA cites an Illinois case in which a court rejected a
subject matter of the agreement runs afoul of section
                                                               claim that a contract was void for illegality because the
251.003(a)(4)'s prohibition of unlicensed persons from
                                                               contract had been assigned and the assignment cured the
owning, operating, or maintaining a premises at which
                                                               illegality. Heller Equity Capital Corp. v. Clem Envtl.
those persons also employ or engage another person to
                                                               Corp., 232 Ill. App. 3d 173, 596 N.E.2d 1275, 1280, 173
practice dentistry.
                                                               Ill. Dec. 396 (Ill. App. 1992). [**30] Heller is distin-
     OCA has never attempted to identify any specific          guishable, however, because in that case the curing as-
provisions of the BSAs that could be severed to make the       signment had already occurred. Heller, 596 N.E.2d at
BSAs compliant with section 251.003(a)(4). [**28]              1280. Here OCA has not alleged that it has even attempted
Instead, OCA repeatedly states that since the statute only     to have any of its obligations under the BSA actually
prohibits both owning, operating, or maintaining a prem-       assigned to one of its affiliates. 13
ise and engaging someone else in the practice of dentistry,
this court could sever provisions so that OCA would only              13 OCA has not attempted to make any as-
be performing one of these functions. Even if that might              signments to cure the defects in the BSAs even
be possible (and we do not hold that it is), nevertheless             though four separate federal district court judg-
OCA's failure to identify specific provisions of the BSAs             ments have voided similar BSAs for illegality
to be severed, renders this court unable to determine                 under Texas law.
whether such severance would cure the BSAs' illegality.
                                                                    OCA also cites Texas cases, which stand for the
     As a result, we decline to reverse the judgment of the    general proposition that a contract that could have been
bankruptcy court on 'the basis of OCA's argument that          performed in a legal manner should not be voided because
provisions of the BSAs could be severed to cure the ille-      it was performed in an illegal manner. See Lewis, 199
gality.                                                        S.W.2d at 149; Signal Peak Enters. of Tex., Inc. v. Bettina
                                                               Invs., Inc., 138 S.W.3d 915, 921 (Tex. App.--Dallas 2004,
V. Assignment                                                  pet. struck). Lewis and Signal Peak are also not on point
                                                               because both of those cases dealt with contracts that were
     Finally, OCA contends that the bankruptcy court
                                                               not facially illegal, meaning there was a way for the par-
should not have held that the BSAs were void for illegal-
                                                               ties to legally fulfill their obligations under the express
ity because the BSAs grant OCA the power to assign its
                                                               terms of the contract. In this case, the bankruptcy court
obligations, without the consent of the Orthodontists, if
                                                               correctly held that the BSAs, as written, cannot be per-
the assignee is a controlled affiliate of OCA. The Ortho-
                                                               formed legally by the current parties.
dontists counter that OCA never raised this argument in
the bankruptcy court, so it is waived.                              Without knowing [**31] which obligations would
                                                               be assigned to which affiliates, it is impossible for this
     A thorough review of the record confirms that OCA
                                                               court to determine whether the assigned BSA could be
did not raise the issue of assignment in the bankruptcy
                                                               performed legally. For this reason and because OCA
court. At oral argument, OCA [**29] also admitted that
                                                               failed to raise this argument below, we decline to reverse
it had not raised the assignment issue below. Since this
                                                               the judgment of the bankruptcy court on this ground.
issue was not properly presented to the bankruptcy court,
it cannot be raised now for the first time on appeal. See
                                                               CONCLUSION
Kinash, 129 F.3d at 739 n.10.
                                                                   For the foregoing reasons, the judgment of the
     Additionally, it is unclear whether Texas corporate
                                                               bankruptcy court is AFFIRMED.
law would allow OCA to assign its obligations to one of
its controlled affiliates in order to avoid the requirements
                                                                                                                 Page 1




                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

                                         SUPREME COURT OF TEXAS

              262 S.W.3d 337; 2008 Tex. LEXIS 770; 51 Tex. Sup. J. 1237; 28 I.E.R. Cas. (BNA) 140;
                                         156 Lab. Cas. (CCH) P60,669

                                            January 25, 2006, Argued
                                        August 29, 2008, Opinion Delivered

SUBSEQUENT HISTORY:               Released for Publica-    dissenting opinion. JUSTICE WILLETT did not partici-
tion October 10, 2008.                                     pate in the decision.

PRIOR HISTORY: In re Luna, 175 S.W.3d 315, 2004            OPINION BY: Harriet O'Neill
Tex. App. LEXIS 8241 (Tex. App. Houston 1st Dist., 2004)
                                                           OPINION
                                                              [*344]      ON PETITION FOR WRIT OF MAN-
COUNSEL: For Poly-America, L.P., RELATOR: Ms.
                                                           DAMUS
Erica W. Harris, Susman Godfrey L.L.P., Houston, TX.;
Mr. Craig T. Enoch, Winstead PC, Austin, TX.; Mr.               In this retaliatory-discharge case, the employee's
Adam Brian Ross, Poly-America, LP, Grand Prairie, TX.      employment contract contains an arbitration agreement
                                                           that requires the employee to split arbitration costs up to a
For Mr. Johnny Luna, REAL PARTIES: Mr. G. Scott            capped amount, limits discovery, eliminates punitive
Fiddler, Law Office of G. Scott Fiddler, P.C., Houston,    damages and reinstatement remedies available under the
TX.                                                        Workers' Compensation Act, and imposes other condi-
                                                           tions on the arbitration process. We must decide whether
For Texas Association of Business, AMICUS CURIAE:          any or all of these provisions are unconscionable and, if
Mr. Jeffrey C. Londa, Ogletree Deakins Nash Smoak &        they are, whether the contract's severability clause pre-
Stewart, P.C., Houston, TX.                                serves the arbitration right. We hold that the trial court did
                                                           not abuse its discretion in allowing the arbitrator to assess
For Society for Human Resource Management Texas            the unconscionability of the agreement's fee-splitting and
State Council, AMICUS CURIAE: Ms. Audrey Elaine            discovery-limitation provisions as applied in the course of
Mross, Davis Munck Butrus, P.C., Dallas, TX.               arbitration. We further hold that the arbitration agree-
                                                           ment's provisions precluding remedies under the Workers'
For The Texas Trial Lawyers Association, AMICUS            Compensation Act are substantively [**2] unconscion-
CURIAE: Mr. Kirk L. Pittard, Durham & Pittard, LLP,        able and void under Texas law. However, those provi-
Dallas, TX.; Mr. Peter M. Kelly, Law Office of Peter M.    sions are not integral to the parties' overall intended pur-
Kelly, P.C., Houston, TX.                                  pose to arbitrate their disputes and, pursuant to the
                                                           agreement's severability clause, are severable from the
JUDGES: [**1] JUSTICE O'NEILL delivered the                remainder of the arbitration agreement, which we con-
opinion of the Court, in which CHIEF JUSTICE               clude is otherwise enforceable. Accordingly, we condi-
JEFFERSON, JUSTICE HECHT, JUSTICE WAIN-                    tionally grant the petition for mandamus.
WRIGHT, JUSTICE MEDINA, JUSTICE GREEN, and
JUSTICE JOHNSON joined. JUSTICE BRISTER filed a            I. Facts
                                                                                                                      Page 2
                                      262 S.W.3d 337, *; 2008 Tex. LEXIS 770, **;
                                      51 Tex. Sup. J. 1237; 28 I.E.R. Cas. (BNA) 140

     Johnny Luna began his employment with Pol-Tex              CODE § 451.001-.003. Claiming that Poly-America acted
International, d/b/a Poly-America, L.P., in October 1998.       with malice, ill will, spite, or specific intent to cause in-
Upon his hiring, Luna signed an agreement to submit "all        jury, Luna sought both reinstatement and the imposition
claims or disputes" to arbitration. Approximately four          of punitive damages. He additionally sought a declaratory
years later, Luna signed an amended agreement to arbi-          judgment that the arbitration agreement was unenforcea-
trate that contained substantially the same provisions.         ble [**5] because, among other reasons, its provisions
Both the 1998 and 2002 agreements provide that they are         violated public policy and were unconscionable. Luna
governed by the Federal Arbitration Act (FAA). 9 U.S.C.         submitted two affidavits -- his own, and that of an expert
§§ 1-14. Additionally, both agreements contain a series of      witness -- in support of his claims. Poly-America re-
requirements for the arbitration between the parties. All       sponded with a motion to compel arbitration which, after
claims must be asserted within a maximum of one year            a hearing, the trial court granted.
from the occurrence of the event from which the claim
                                                                     Luna sought a writ of mandamus in the court of ap-
arises. Fees associated with arbitration -- including but not
                                                                peals, reasserting his argument that provisions of the
limited to mediation fees, the arbitrators' fees, court re-
                                                                arbitration agreement were substantively unconscionable.
porter fees, and fees to secure a place [**3] for a hearing
                                                                The court of appeals held that, in light of the fee-splitting
-- are to be split between the parties, with the employee's
                                                                provisions and limitations on remedies, the arbitration
share capped at "the gross compensation earned by the
                                                                agreement as a whole was substantively unconscionable.
Employee in Employee's highest earning month in the
                                                                175 S.W.3d 315, 318. Poly-America sought review in this
twelve months prior to the time the arbitrator issues his
                                                                Court. We hold that the arbitration agreement's provision
award." Each side is permitted limited forms of discovery:
                                                                that eliminates available remedies under the Workers'
twenty-five interrogatories (including sub-parts), twen-
                                                                Compensation Act is unenforceable, but we find that
ty-five requests for production or inspection of documents
                                                                provision severable from the arbitration agreement as a
or tangible things, and one oral deposition of no more than
                                                                whole and conditionally grant Poly-America's writ of
six hours. Parties may not use written depositions or re-
                                                                mandamus.
quests for admission; the agreement prohibits discovery
of either party's financial information except for the em-
                                                                II. Standard of Review
ployee's earnings if the employee seeks lost wages, back
pay, and/or front pay; and all aspects of the arbitration are         Mandamus is the proper means by which to seek re-
deemed confidential. Finally, the arbitrator is stripped of     view of an order compelling arbitration under the FAA. In
authority to award punitive, exemplary, or liquidated           re Am. Homestar of Lancaster, Inc., 50 S.W.3d 480, 483
damages, or to order reinstatement of employment.               (Tex. 2001). In In re Palacios, we recognized [**6] that
                                                                it is "important for federal and state law to be as consistent
     In December 2002, Luna suffered a work-related
                                                                as possible" in enforcement and review of provisions
neck injury when he accidentally hit his head on a pipe.
                                                                under the FAA. 221 S.W.3d 564, 565 (Tex. 2006) (per
Poly-America's company doctor examined Luna and
                                                                curiam) (quoting In re Kellogg Brown & Root, Inc., 166
diagnosed him with an acute cervical spine flexion injury.
                                                                S.W.3d 732, 739 (Tex. 2005)). Federal courts may not
Luna subsequently filed a workers' compensation claim
                                                                review orders compelling arbitration and staying litigation
and began receiving [**4] physical therapy. Approxi-
                                                                ("compel-and-stay orders") by interlocutory appeal. See 9
mately two weeks later, Luna returned to work on a re-
                                                                U.S.C. § 16(b)(1) ("[A]n appeal may not be taken from an
lease for light duty; however, Luna continued to suffer
                                                                interlocutory order . . . granting a stay of any action under
pain and utilized previously scheduled vacation time to
                                                                Section 3 of this title."). Accordingly, as we noted in
recover from his injury. After being warned by the com-
                                                                Palacios, it would be inappropriate to exercise our own
pany doctor that he needed to return to work and get off of
                                                                mandamus power in a manner inconsistent with the fed-
workers' compensation if he wanted to keep his job,
                                                                eral courts' practice. See Palacios, 221 S.W.3d at 565.
[*345] Luna returned to work without restrictions on
                                                                Although mandamus review is generally available in
January 10, 2003. Upon his return, Luna noticed that
                                                                federal courts to review non-appealable interlocutory
another person was already being trained for his position,
                                                                rulings, mandamus is granted only in exceptional cases.
and he claims that his supervisor began to harass him. One
                                                                See generally Gulfstream Aerospace Corp. v. Mayacamas
month later, Luna told his supervisor that his neck con-
                                                                Corp., 485 U.S. 271, 288-90, 108 S. Ct. 1133, 99 L. Ed. 2d
tinued to bother him and that he needed to return to the
                                                                296 & n.13 (1988) (holding that, where a particular order
company doctor; the next day that Luna was scheduled to
                                                                is not appealable, mandamus is available and "will be
work, he was fired.
                                                                appropriate in exceptional cases"). As we acknowledged
     Luna filed this suit asserting claims for unlawful re-     in Palacios, federal courts have applied this template to
taliatory discharge under section 451.001 of the Labor          [**7] orders that cannot be appealed under the FAA,
Code ("the Workers' Compensation Act"). TEX. LAB.               although they almost never grant mandamus relief. 221
                                                                                                                    Page 3
                                    262 S.W.3d 337, *; 2008 Tex. LEXIS 770, **;
                                    51 Tex. Sup. J. 1237; 28 I.E.R. Cas. (BNA) 140

S.W.3d at 565-66 ("Even after Green Tree [Financial                  cumstances that the forum state would deem un-
Corp.--Alabama v. Randolph, 531 U.S. 79, 121 S. Ct. 513,             conscionable. Douglas, 495 F.3d at 1068.
148 L. Ed. 2d 373 (2000)], the Fifth Circuit has held that
                                                                  Although federal precedent in this area is not uni-
federal mandamus review of an order staying a case for
                                                             formly clear, it appears a federal court would be permitted
arbitration may still be available if a party can meet a
                                                             -- albeit not compelled -- to address the merits of the
'particularly [*346] heavy' mandamus burden to show
                                                             mandamus arguments in this case. If such review were
'clearly and indisputably that the district court did not
                                                             categorically unavailable and unconscionability deter-
have the discretion to stay the proceedings pending arbi-
                                                             minations the sole realm of arbitrators, as the dissenting
tration.'") (quoting Apache Bohai Corp. v. Texaco China,
                                                             Justice proposes, development of the law as to this
B.V., 330 F. 3d 307, 310-11 (5th Cir. 2003)). This general
                                                             threshold issue would be substantially hindered if not
rule has been broadly applied to unappealable ancillary
                                                             precluded altogether. Nevertheless, federal precedent
interlocutory orders in proceedings under the FAA, see,
                                                             counsels against granting relief unless the stringent re-
e.g., Georgiou v. Mobil Exploration & Prod. Servs., Inc.
                                                             quirements for mandamus are met. See Gulfstream, 485
U.S., 190 F.3d 538, 1999 WL 642871 at *3 (5th Cir. 1999)
                                                             U.S. at 289. Federal courts grant mandamus only upon
(dismissing appeal of order staying litigation in favor of
                                                             demonstration of a "clear and [**10] indisputable" right
arbitration proceeding in foreign forum, and denying
                                                             to issuance of the writ: "First, the party seeking the issu-
mandamus because plaintiffs failed to carry the "particu-
                                                             ance of the writ must have no other adequate means to
larly heavy burden" to warrant mandamus relief from
                                                             attain the relief he desires. . . . Second, the petitioner must
such an order); Cofab Inc. v. Phila. Joint Bd., Amalga-
                                                             satisfy the burden of showing that his right to issuance of
mated Clothing           & Textile      Workers    Union,
                                                             the writ is clear and indisputable. Third . . . the issuing
AFL-CIO-CLC, 141 F.3d 105, 110 (3d Cir. 1998); [**8]
                                                             court, in the exercise of its discretion, must be satisfied
and appears to also apply to compel-and-stay orders under
                                                             that the writ is appropriate under the circumstances."
section 16(b)(1), see Douglas v. U.S. Dist. Court, 495
                                                             Cheney v. U.S. Dist. Court, 542 U.S. 367, 380-81, 124 S.
F.3d 1062, 1065 (9th Cir. 2007) (granting mandamus
                                                             Ct. 2576, 159 L. Ed. 2d 459 (2004). Our own mandamus
relief from compel-and-stay order); Manion v. Nagin, 255
                                                             standard is similar, requiring a demonstration that
F.3d 535, 538-40 & n.4 (8th Cir. 2001) (dismissing appeal
                                                             [*347] the trial court clearly abused its discretion by
of various interlocutory orders, including order compel-
                                                             failing to correctly analyze or apply the law and a deter-
ling arbitration, and denying mandamus because Manion
                                                             mination that the benefits of mandamus outweigh the
had not made "any showing that he [was] entitled to such
                                                             detriments such that an appellate remedy is inadequate.
extraordinary relief"); McDermott Int'l, Inc. v. Under-
                                                             See In re Prudential Ins. Co. of Am., 148 S.W.3d 124,
writers at Lloyds Subscribing to Memorandum of Ins. No.
                                                             135-36 (Tex. 2004). Because arbitration is intended to
104207, 981 F.2d 744, 748 (5th Cir. 1993) ("This court
                                                             provide a lower-cost, expedited means to resolve disputes,
has recognized that [mandamus review of an order com-
                                                             mandamus proceedings will often, if not always, deprive
pelling arbitration] may be available [but] McDermott has
                                                             the parties of an arbitration agreement's intended benefits
failed to satisfy [the] demanding standard."). 1
                                                             when a compel-and-stay order is at issue; accordingly,
                                                             courts should be hesitant to intervene. With these stand-
       1 While it is true that several of these cases
                                                             ards in mind, we turn to the compel-and-stay [**11]
       pre-date the Supreme Court's decision in Green
                                                             order in this case.
       Tree, they do not pre-date the authority on which
       the Supreme Court relied in noting that an order
                                                             III. Unconscionability and the Federal Arbitration Act
       compelling arbitration and staying rather than
       dismissing the underlying litigation "would not be         Poly-America argues that the FAA's "strong pre-
       appealable." 531 U.S. at 87 n.2 (citing 9 U.S.C. §    sumption" favoring arbitration applies in this case, and
       16(b)(1)) (emphasis added). Unlike the present        furthermore that the FAA preempts all state public-policy
       case, the two cases in which the courts denied        grounds for finding the agreement to arbitrate unen-
       [**9] mandamus relief from compel-and-stay or-        forceable. See In re R&R Personnel Specialists of Tyler,
       ders did not involve claims that enforcement of the   Inc., 146 S.W.3d 699, 705 (Tex. 2004) (holding that the
       arbitration provisions would prevent the plaintiffs   FAA preempts "any public policy underlying the Texas
       from vindicating important statutory rights. See      workers' compensation statutes that is contrary to the
       Manion, 255 F.3d 535; McDermott Int'l, Inc., 981      enforceability of arbitration agreements"). Because nei-
       F.2d 744. In Douglas, the Ninth Circuit granted       ther this presumption nor federal preemption applies in a
       mandamus relief, concluding that a choice-of-law      state court's assessment of whether parties have entered
       provision in the arbitration agreement would not      into a valid and enforceable agreement to arbitrate under
       allow enforcement of the agreement under cir-         state contract law, we disagree.
                                                                                                                      Page 4
                                      262 S.W.3d 337, *; 2008 Tex. LEXIS 770, **;
                                      51 Tex. Sup. J. 1237; 28 I.E.R. Cas. (BNA) 140

     Section 2 of the FAA provides that arbitration             damages or restricting other remedies under the Workers'
agreements "shall be valid, irrevocable, and enforceable,       [**14] Compensation Act is generally unenforceable
save upon such grounds as exist at law or in equity for the     under Texas law, an arbitration contract with these same
revocation of any contract." 9 U.S.C. § 2 (emphasis             limitations will also be unenforceable.
added). Thus, an agreement to arbitrate is valid under the
                                                                     Nevertheless, under Texas law, as with any other
FAA if it meets the requirements of the general contract
                                                                contract, agreements to arbitrate are valid unless grounds
law of the applicable state. In re AdvancePCS Health L.P.,
                                                                exist at law or in equity for revocation of the agreement.
172 S.W.3d 603, 606 (Tex. 2005) (citing First Options of
                                                                The burden of proving such a ground -- such as fraud,
Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S. Ct.
                                                                unconscionability or voidness under public policy -- falls
1920, 131 L. Ed. 2d 985 (1995)). [**12] In determining
                                                                on the party opposing the contract. See FirstMerit Bank,
the validity of an agreement to arbitrate under the FAA,
                                                                52 S.W.3d at 756. Thus, while we reject Poly-America's
courts must first apply state law governing contract for-
                                                                assertions that we must apply a presumption favoring
mation. See 9 U.S.C. § 2; First Options, 514 U.S. at 944.
                                                                arbitration in assessing whether the parties entered into an
     The United States Supreme Court has repeatedly             enforceable agreement under Texas law and that the FAA
emphasized that "state law, whether of legislative or ju-       preempts Texas public policies that may make certain
dicial origin, is applicable [to the determination of the       contractual provisions generally unenforceable, Luna
validity of an agreement to arbitrate] if that law arose to     nevertheless bears the burden to establish that the chal-
govern issues concerning the validity, revocability, and        lenged provisions are unenforceable.
enforceability of contracts generally." Perry v. Thomas,
482 U.S. 483, 493 n.9, 107 S. Ct. 2520, 96 L. Ed. 2d 426        IV. Arbitration and Unconscionability Under Texas
(1987). Thus, courts "may not . . . invalidate arbitration      Law
agreements under state laws applicable only to arbitration
provisions." Doctor's Assocs., Inc. v. Casarotto, 517 U.S.      A. General Standard
681, 687, 116 S. Ct. 1652, 134 L. Ed. 2d 902 (1996); see
                                                                    Agreements to arbitrate disputes between employers
also Perry, 482 U.S. at 493 n.9 ("A state-law principle
                                                                and employees are generally enforceable under Texas
that takes its meaning precisely from the fact that a con-
                                                                law; there is nothing per se unconscionable about an
tract to arbitrate is at issue does not comport with [section
                                                                agreement to arbitrate employment disputes and, in fact,
2].").
                                                                Texas law has historically [**15] favored agreements to
     However, the purpose and language of the FAA re-           resolve such disputes by arbitration. See Advance PCS,
quire only that agreements to arbitrate be placed "upon the     172 S.W.3d at 608; EZ Pawn Corp. v. Mancias, 934
same footing as other contracts." Doctor's Assocs., 517         S.W.2d 87, 90 (Tex. 1996); Cantella & Co. v. Goodwin,
U.S. at 687 (quoting Scherk v. Alberto-Culver Co., 417          924 S.W.2d 943, 944 (Tex. 1996).
U.S. 506, 511, 94 S. Ct. 2449, 41 L. Ed. 2d 270 (1974))
                                                                     Unconscionable contracts, however -- whether re-
(emphasis added); see also H.R. REP. NO. [**13]
                                                                lating to arbitration or not -- are unenforceable under
68-96, at 1 (1924) (noting that by enacting section 2,
                                                                Texas law. A contract is unenforceable if, "given the
Congress sought to place agreements to arbitrate "upon
                                                                parties' general commercial background and the com-
the same footing as other contracts, where [they] be-
                                                                mercial needs of the particular trade or case, the clause
long[]"). Perry makes clear that state courts may not
                                                                involved is so one-sided that it is unconscionable under
fashion special rules regarding the enforceability [*348]
                                                                the circumstances existing when the parties made the
of arbitration contracts per se. See Perry, 482 U.S. at 492
                                                                contract." FirstMerit Bank, 52 S.W.3d at 757; see also In
n.9. Furthermore, once an enforceable contract to arbitrate
                                                                re Halliburton Co., 80 S.W.3d 566, 571 (Tex. 2002)
is found, there is a strong federal presumption in favor of
                                                                ("[S]ubstantive unconscionability . . . refers to the fairness
arbitration such that myriad doubts -- as to waiver, scope,
                                                                of the arbitration provision itself."). Unconscionability is
and other issues not relating to enforceability -- must be
                                                                to be determined in light of a variety of factors, which aim
resolved in favor of arbitration. See, e.g., In re FirstMerit
                                                                to prevent oppression and unfair surprise; in general, a
Bank, 52 S.W.3d 749, 752 (Tex. 2001); Prudential Sec.
                                                                contract will be found unconscionable if it is grossly
Inc. v. Marshall, 909 S.W.2d 896, 898-99 (Tex. 1995).
                                                                one-sided. See DAN B. DOBBS, 2 LAW OF REMEDIES
However, a state court must initially determine -- through
                                                                703, 706 (2d ed. 1993); see also RESTATEMENT (SE-
the neutral application of its own contract law -- whether
                                                                COND) OF CONTRACTS § 208, cmt. a (1979) ("The
an enforceable agreement exists in the first instance, and
                                                                determination that a contract or term is or is not uncon-
whether "generally applicable contract defenses . . . may
                                                                scionable [**16] is made in the light of its setting, pur-
be applied to invalidate arbitration agreements without
                                                                pose, and effect. Relevant factors include weaknesses in
contravening" the policies of the FAA. Doctor's Assocs.,
                                                                the contracting process like those involved in more spe-
517 U.S. at 687. Thus, in this case, if a contract limiting
                                                                cific rules as to contractual capacity, fraud, and other
                                                                                                                      Page 5
                                       262 S.W.3d 337, *; 2008 Tex. LEXIS 770, **;
                                       51 Tex. Sup. J. 1237; 28 I.E.R. Cas. (BNA) 140

invalidating causes; the policy also overlaps with rules         unenforceable even though included in an agreement to
which render particular [*349] bargains or terms un-             arbitrate. See Gilmer, 500 U.S. at 33 ("[A]rbitration
enforceable on grounds of public policy."). Although not         agreements are enforceable, 'save upon such grounds as
subject to precise doctrinal definition, see Sw. Bell Tel.       exist at law or in equity for the revocation of any con-
Co. v. DeLanney, 809 S.W.2d 493, 498 (Tex. 1991)                 tract.'") (quoting 9 U.S.C. § 2). To determine the permis-
(GONZALEZ, J., concurring), unconscionability -- as              sibility of restrictions on a particular worker's access to
delineated by the above principles -- has been recognized        statutory rights, we analyze the provisions of the actual
and applied by this Court for well over a century. See, e.g.,    statute at issue; thus, to analyze the enforceability of the
Flanagan v. Pearson, 61 Tex. 302, 307 (1884); Fowler v.          various restrictions and waivers in the employment con-
Stoneum, 11 Tex. 478, 493 (1854); Hemming v.                     tract at issue in this case, we turn to the retaliato-
Zimmerschitte, 4 Tex. 159, 166 (1849); Luckett v. Town-          ry-discharge provisions of the Texas Workers' Compen-
send, 3 Tex. 119, 131 (1848).                                    sation [**19] Act, TEX. LAB. CODE §§ 451.001-.003.
     Whether a contract is contrary to public policy or
                                                                 C. Purpose and Structure of the Texas Workers'
unconscionable at the time it is formed is a question of
                                                                 Compensation Act's Anti-Retaliation Provisions
law. Hoover Slovacek LLP v. Walton, 206 S.W.3d 557,
562 (Tex. 2006). Because a trial court has no discretion to            The Texas Workers' Compensation Act was enacted
determine what the law is or apply the law incorrectly, its      to protect Texas [*350] workers and employees. Fid. &
clear failure to properly analyze or apply the law of            Cas. Co. of N.Y. v. McLaughlin, 134 Tex. 613, 135 S.W.2d
unconscionability constitutes an abuse [**17] of discre-         955, 956 (Tex. 1940). The Texas Legislature enacted the
tion. See Walker v. Packer, 827 S.W.2d 833, 840 (Tex.            original Workers' Compensation Act in 1913 in response
1992).                                                           to the needs of workers who, despite a growing incidence
                                                                 of industrial accidents, were increasingly being denied
B. Arbitration and Statutory Rights                              recovery. Kroger Co. v. Keng, 23 S.W.3d 347, 350 (Tex.
                                                                 2000); Tex. Workers' Compensation Comm'n v. Garcia,
     An arbitration agreement covering statutory claims is
                                                                 893 S.W.2d 504, 510 (Tex. 1995). In order to ensure
valid so long as the arbitration agreement does not waive
                                                                 compensation for injured employees while protecting
the substantive rights and remedies the statute affords and
                                                                 employers from the costs of litigation, the Legislature
the arbitration procedures are fair, such that the employee
                                                                 provided a mechanism by which workers could recover
may "effectively vindicate his statutory rights." In re
                                                                 from subscribing employers without regard to the work-
Halliburton, 80 S.W.3d at 572. Federal courts, analyzing
                                                                 ers' own negligence, see Kroger, 23 S.W.3d at 351, while
the enforceability of arbitration provisions relating to
                                                                 limiting the employers' exposure to uncertain, possibly
federal statutory claims, have noted that such contracts are
                                                                 high damage awards permitted under the common law,
not enforceable when a party is forced to "forgo the sub-
                                                                 see Reed Tool Co. v. Copelin, 689 S.W.2d 404, 407 (Tex.
stantive rights afforded by the statute," as opposed to
                                                                 1985). In light of the purposes of the Workers' Compen-
merely "submit[ting] to resolution in an arbitral, rather
                                                                 sation Act as a whole, "[i]t is the settled policy of this
than a judicial, forum." Mitsubishi Motors Corp. v. Soler
                                                                 State [**20] to construe liberally the provisions of the . .
Chrysler-Plymouth, Inc., 473 U.S. 614, 628, 105 S. Ct.
                                                                 . [l]aw, in order to effectuate the purposes for which it was
3346, 87 L. Ed. 2d 444 (1985). In the context of federal
                                                                 enacted." Huffman v. S. Underwriters, 133 Tex. 354, 128
claims, either an expression of federal intent to exclude
                                                                 S.W.2d 4, 6 (Tex. 1939) (citations omitted). As we have
certain categories of claims from arbitration, see Gilmer v.
                                                                 recently noted, "[b]ecause we should liberally construe
Interstate/Johnson Lane Corp., 500 U.S. 20, 26, 111 S. Ct.
                                                                 the Workers' Compensation Act in favor of the injured
1647, 114 L. Ed. 2d 26 (1991), or the excessive waiver of
                                                                 worker, a strained or narrow construction of [the Act]
statutory rights, see Mitsubishi, 473 U.S. at 628, may
                                                                 would be improper. Moreover, it would be injudicious to
render a particular dispute un-arbitrable. State courts,
                                                                 construe the statute in a manner that supplies by implica-
bound by the FAA [**18] under the supremacy clause,
                                                                 tion restrictions on an employee's rights that are not found
have more limited power, as the FAA preempts state laws
                                                                 in . . . [the] plain language." Kroger, 23 S.W.3d at 349.
that specifically disfavor arbitration. Perry, 482 U.S. at
492 n.9; see Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266,             The Texas Workers' Compensation Act provides that
271 (Tex. 1992) (holding that the FAA preempts state             a subscriber to the workers'-compensation system may not
statutes to the extent they are inconsistent with the FAA's      "discharge or in any other manner discriminate against an
purpose to require courts to compel arbitration when the         employee because the employee has . . . filed a workers'
parties have so provided in their contracts).                    compensation claim in good faith." TEX. LAB. CODE §
                                                                 451.001-.001(1). The Legislature's purpose in enacting
     However, where a particular waiver of substantive
                                                                 section 451.001 was to protect persons entitled to benefits
remedies or other provision of a contract is unconsciona-
                                                                 under the Act and to prevent them from being discharged
ble -- independent of the agreement to arbitrate -- it will be
                                                                                                                       Page 6
                                        262 S.W.3d 337, *; 2008 Tex. LEXIS 770, **;
                                        51 Tex. Sup. J. 1237; 28 I.E.R. Cas. (BNA) 140

for seeking to collect those benefits. See Tex. Steel Co. v.       165, 167 (Tex. Civ. App.--Galveston 1939, writ dism'd)
Douglas, 533 S.W.2d 111, 115 (Tex. Civ. App.--Fort                 ("[T]he courts will not enforce contracts which are either
Worth 1976, writ ref'd n.r.e.). Since recovery [**21] of           expressly or impliedly prohibited by the [Workers'
benefits under the Workers' Compensation Act is the                Compensation] Act.").
exclusive remedy available to injured employees of sub-
                                                                        This case concerns the validity of a subscribing em-
scribing employers, see TEX. LAB. CODE § 408.001(a),
                                                                   ployer's use of an agreement that, in the course of re-
the availability of remedies for retaliatory discharge pro-
                                                                   quiring arbitration between the parties in work-related
tects employees' exercise of their statutory rights to
                                                                   disputes, imposes a series of procedural and substantive
compensation under the Act. See Padilla v. Carrier Air
                                                                   limits on the employee's rights. We must analyze the
Conditioning, 67 F. Supp. 2d 650, 664 (E.D. Tex. 1999);
                                                                   challenged limitations in light of the policies underlying
Mid-South Bottling Co. v. Cigainero, 799 S.W.2d 385,
                                                                   the Workers' Compensation Act, and the purposes of its
389 (Tex. App.--Texarkana 1990, writ denied). In ac-
                                                                   anti-retaliation provisions, to determine whether they
cordance with these principles, the anti-retaliation provi-
                                                                   improperly shift the cost of injury from a subscribing
sions of the Act must protect employees even before they
                                                                   employer onto its employees in contravention of the Act's
have actually filed a claim, because otherwise "the law
                                                                   provisions. Cf. Lawrence v. CDB Servs., Inc., 44 S.W.3d
would be completely useless and would not accomplish
                                                                   544, 550 (Tex. 2001) [**24] (noting that the agreements
the purpose for which it was enacted. . . . [A]ll the em-
                                                                   did not "shift the risk of on-the-job injuries to the em-
ployer would have to do in order to avoid the conse-
                                                                   ployees"); see also Gentry v. Superior Court, 42 Cal. 4th
quences of the statute would be to fire the injured work-
                                                                   443, 64 Cal. Rptr. 3d 773, 782, 165 P.3d 556 (Cal. 2007),
man before he filed the claim." Tex. Steel Co., 533 S.W.2d
                                                                   cert. denied 552 U.S. 1296, 128 S. Ct. 1743, 170 L. Ed. 2d
at 115.
                                                                   541 (2008) (noting that under California law, when an
     "The decisions of this State do not look with favor           employee is bound by a predispute arbitration agreement
upon contracts waiving rights arising under the Work-              to adjudicate nonwaivable statutory employment rights,
men's Compensation Law." Huffman, 128 S.W.2d at 6.                 the arbitration agreement may not limit damages, dis-
Such waivers affect not only the individual employee               covery must be sufficient to arbitrate the claim, there must
subject to the waiver, but also the public, which [**22]           be a written arbitration decision, and the employer must
bears the cost of the workers' compensation program. See           pay all costs "unique to arbitration").
Holt v. Cont'l Group, Inc., 708 F.2d 87, 91 (2d Cir. 1983)
("A retaliatory discharge carries with it the distinct risk        V. The Challenged Arbitration Provisions
that other employees may be deterred from protecting
their rights under the Act."). Therefore, we [*351] have           A. Limitation of Remedies
invalidated contracts that purport to relieve employers of
                                                                        The Workers' Compensation Act specifies that "[a]
their obligations under the Workers' Compensation Act.
                                                                   person who violates section 451.001 is liable for reason-
See James v. Vernon Calhoun Packing Co., 498 S.W.2d
                                                                   able damages incurred by the employee as a result of the
160, 162 (Tex. 1973) (noting that "[w]e are much im-
                                                                   violation," and that "[a]n employee discharged in viola-
pressed with the idea that there is a large element of public
                                                                   tion of section 451.001 is entitled to reinstatement in the
interest in the administration of [the Workers' Compen-
                                                                   former position of employment." TEX. LAB. CODE §
sation Act]"); Hazelwood v. Mandrell Indus. Co., 596
                                                                   451.002(a)--(b). We have previously explained that
S.W.2d 204, 206 (Tex. Civ. App.--Houston [1st Dist.]
                                                                   "reasonable damages" are not limited to actual damages,
1990, writ ref'd n.r.e.) ("If . . . this balance [established by
                                                                   see Azar Nut Co. v. Caille, 734 S.W.2d 667, 669 (Tex.
the Act] is tipped so that the employee's benefits under the
                                                                   1987), but may include future damages, as well as exem-
statute are substantially reduced, the clear intent of the
                                                                   plary or punitive damages when it is [**25] shown that
legislature is thwarted."). We have likewise held unen-
                                                                   the employer acted with actual malice in retaliating
forceable contracts that explicitly relieve employers of
                                                                   against the employee for filing a workers' compensation
tort liability, relying either on common law prohibitions
                                                                   claim. See Cont'l Coffee Prods. v. Cazarez, 937 S.W.2d
against such contracts, see Barnhart v. Kansas City M. &
                                                                   444, 454 (Tex. 1996); Carnation Co. v. Borner, 610
O. Ry. Co. of Tex., 107 Tex. 638, 184 S.W. 176, 179 (Tex.
                                                                   S.W.2d 450, 454-55 [*352] (Tex. 1980). The arbitration
1916), or upon the Workers' [**23] Compensation Act,
                                                                   agreement in this case eliminates two types of remedies
see Petroleum Cas. Co. v. Smith, 274 S.W.2d 150, 151
                                                                   available under the anti-retaliation provisions of the
(Tex. Civ. App.--San Antonio 1954, writ ref'd) (noting that
                                                                   Workers' Compensation Act, prohibiting the arbitrator
"[t]he right to workmen's compensation is statutory, and
                                                                   from ordering reinstatement or awarding punitive dam-
cannot be abridged by private agreements or special ap-
                                                                   ages. See TEX. LAB. CODE § 451.002 (providing for
plications for employment"); Clevenger v. Burgess, 31
                                                                   reinstatement and an award of reasonable damages). Luna
S.W.2d 675, 678 (Tex. Civ. App.--Beaumont 1930, writ
                                                                   contends these limitations render the agreement uncon-
ref'd); Tex. Employers Ins. Ass'n v. Peppers, 133 S.W.2d
                                                                                                                   Page 7
                                     262 S.W.3d 337, *; 2008 Tex. LEXIS 770, **;
                                     51 Tex. Sup. J. 1237; 28 I.E.R. Cas. (BNA) 140

scionable and unenforceable because they prevent him           by conditioning employment upon waiver of the very
from effectively vindicating his statutory rights in arbi-     provisions designed to protect employees who have been
tration, thus undercutting the basic assumptions of the        the subject of wrongful retaliation.
FAA. See Gilmer, 500 U.S. at 28 (noting that claims under
                                                                    Our decision in Lawrence, 44 S.W.3d 544, is fully
other federal statutes are appropriate for arbitration so
                                                               consistent with this view. There, employees of a
long as the litigant can effectively vindicate any statutory
                                                               non-subscribing employer [*353] elected, after they
rights). The court of appeals agreed with Luna. 175
                                                               were hired, to participate in an employer benefit plan that
S.W.3d at 323-24. Although it noted other courts' deci-
                                                               would provide injured employees with specified benefits
sions upholding punitive-damages waivers, id. at 323, and
                                                               in lieu of common law remedies. Id. at 545-46. We re-
further noted that preclusion of statutory [**26] reme-
                                                               fused to void the agreement on public-policy grounds,
dies may not always portend unconscionability, id., the
                                                               discerning "no clear legislative intent to prohibit agree-
court held that the preclusion of remedies here interfered
                                                               ments such as those presented." Id. at 545. We empha-
with Luna's ability to bring his retaliatory-discharge claim
                                                               sized that participation in the workers' compensation
under the Workers' Compensation Act and thus weighed
                                                               program is voluntary for employers in Texas, and that
toward the contract's unconscionability, id.
                                                               courts are ill equipped to weigh whether a
     Poly-America argues that the court of appeals' deci-      non-subscribing employer's particular benefits plan would
sion conflicts with Pony Express Courier Corp. v. Morris,      undermine the purposes of the Workers' Compensation
921 S.W.2d 817, 822 (Tex. App.--San Antonio 1996, no           Act. See id. at 551-53. 2 Our decision was specifically
writ), and decisions of other courts indicating that limita-   tailored to non-subscribing employers who elected not to
tions of remedies are permissible, e.g., Inv. Partners v.      participate in the workers' compensation program. Im-
Glamour Shots Licensing, Inc., 298 F.3d 314, 318 n.1 (5th      portantly, we distinguished cases involving contracts
Cir. 2002). Because we view the anti-retaliation provi-        imposed as a condition of employment, emphasizing that
sions of the Workers' Compensation Act as a                    "[t]he distinction between an employment [**29] con-
non-waivable legislative system for deterrence necessary       tract that requires a prospective employee, as a condition
to the nondiscriminatory and effective operation of the        of the receipt or retention of employment, to agree to limit
Texas Workers' Compensation system as a whole, we              the employer's liability . . . and a voluntary occupational
agree with Luna that the provisions eliminating key            insurance program, in which the employee has the option
remedies under the statute are unenforceable.                  to enroll . . . is decisive." Lawrence, 44 S.W.3d at 550
                                                               (quoting Brito v. Intex Aviation Servs., Inc., 879 F. Supp.
     An arbitration agreement covering statutory claims is
                                                               650, 654 (N.D. Tex. 1995)) (citing Clevenger, 31 S.W.2d
valid so long as "the arbitration agreement does not waive
                                                               at 678; Barnhart, 184 S.W. at 176)).
substantive rights and remedies of the statute and the
arbitration procedures are fair so that the employee may
                                                                      2 The Texas Legislature, exercising its poli-
effectively [**27] vindicate his statutory rights." In re
                                                                      cy-making role, responded immediately and out-
Halliburton, 80 S.W.3d at 572. "'[B]y agreeing to arbitrate
                                                                      lawed such plans. See TEX. LAB. CODE §
a statutory claim, a party does not forgo the substantive
                                                                      406.033(e).
rights afforded by the statute; it only submits to their
resolution in an arbitral, rather than a judicial, forum.'"         This case presents just such a liability-limiting pro-
Gilmer, 500 U.S. at 26 (quoting Mitsubishi, 473 U.S. at        vision, imposed as a condition of employment, which we
628). In this case, Luna contends Poly-America acted           suggested in Lawrence would violate public policy. See
with actual malice in unlawfully discharging him, a claim      id. Such waivers would allow subscribing employers to
for which the Workers' Compensation Act allows punitive        enjoy the Act's limited-liability benefits while exposing
damages. See TEX. LAB. CODE § 451.002; Azar Nut Co.,           workers to exactly the sort of costs -- of injuries paid for
734 S.W.2d at 668. Permitting an employer to contractu-        by the employee for fear of retribution for making a claim
ally absolve itself of this statutory remedy would under-      -- that the Act is specifically designed to shift onto the
mine the deterrent purpose of the Workers' Compensation        employer. The balance established by the Act is thus
Act's anti-retaliation provisions. In creating the Texas       "tipped so that the employee's benefits under the statute
Workers' Compensation Act, the Legislature carefully           are substantially reduced, [and] the clear intent [**30] of
balanced competing interests -- of employees subject to        the legislature is thwarted." Hazelwood, 596 S.W.2d at
the risk of injury, employers, and insurance carriers -- in    206. As we have previously refused to enforce private
an attempt to design a viable compensation system, all         agreements that allow subscribing employers to reap the
within constitutional limitations. See Garcia, 893 S.W.2d      system's benefits while burdening employees with the
at 521. Were we to endorse Poly-America's position and         cost of injury, so too we find the provisions of the present
permit enforcement of these remedy limitations, a sub-         contract -- which substantively limit Poly-America's lia-
scribing employer could avoid the Act's [**28] penalties       bility for wrongful retaliation and thereby undermine the
                                                                                                                        Page 8
                                       262 S.W.3d 337, *; 2008 Tex. LEXIS 770, **;
                                       51 Tex. Sup. J. 1237; 28 I.E.R. Cas. (BNA) 140

deterrent regime the Legislature specifically designed to        or cross-examination, which Poly-America failed to do;
protect Texas workers -- void under Texas law. See Tex.          consequently, the court of appeals based its ruling on the
Steel, 533 S.W.2d at 115; Holt, 708 F.2d at 91.                  undisputed facts established by Luna's affidavits. Both
                                                                 parties cite Anglin, 842 S.W.2d at 269, to support their
B. Fee-Splitting Provision                                       respective positions. There, we defined the proper cir-
                                                                 cumstances under which a trial court should hold a full
     The arbitration agreements provide that, in the event
                                                                 evidentiary hearing on a motion to compel arbitration:
of a claim, all fees related to arbitration -- including but
not limited to mediation fees, the arbitrators' fees, costs of
                                                                            Because the main benefits of arbitration
procuring a location for a hearing, and court reporter fees
                                                                        lie in expedited and less expensive dispo-
-- will be split equally between the employer and the
                                                                        sition of a dispute, and the legislature has
employee, with the employee's contribution capped at an
                                                                        mandated that a motion to compel arbitra-
amount equal to "the gross compensation earned by the
                                                                        tion be decided summarily, we think
Employee in Employee's highest earning month in the
                                                                        [**33] it unlikely that the legislature in-
twelve months prior to the time the arbitrator issues his
                                                                        tended the issue to be resolved following a
award." The court of appeals held that this provision
                                                                        full evidentiary hearing in all cases. We
"weigh[ed] heavily toward a finding of substantive
                                                                        also envision that the hearing at which a
[**31] unconscionability." 175 S.W.3d at 322.
                                                                        motion to compel arbitration is decided
Poly-America argues that this was clear error: first, be-
                                                                        would ordinarily involve application of the
cause the court of appeals improperly inferred that Luna
                                                                        terms of the arbitration agreement to un-
could not afford likely arbitration costs based solely on
                                                                        disputed facts, amenable to proof by affi-
subjective evidence and, second, because it failed to
                                                                        davit. With these considerations in mind,
compare such costs to the [*354] expected costs of
                                                                        we hold that the trial court may summarily
litigation. 3 Luna responds that it was Poly-America that
                                                                        decide whether to compel arbitration on
failed to present evidence of the comparative cost of liti-
                                                                        the basis of affidavits, pleadings, discov-
gation and that the evidence presented was sufficient to
                                                                        ery, and stipulations. However, if the ma-
allow an objective determination that the likely costs of
                                                                        terial facts necessary to determine the issue
arbitration were beyond Luna's financial means. We begin
                                                                        are controverted, by an opposing affidavit
with the evidentiary challenge.
                                                                        or otherwise admissible evidence, the trial
                                                                        court must conduct an evidentiary hearing
        3 The Society for Human Resource Manage-
                                                                        to determine the disputed material facts.
        ment Texas State Council submitted an amicus
        brief supporting Poly-America's arguments, ar-
        guing that the court of appeals wrongfully failed to
                                                                 Id. Because the only facts Luna presented on the motion to
        compare Luna's alleged costs with the prospective
                                                                 compel were uncontroverted under this standard -- Luna's
        cost of litigation. The Texas Trial Lawyers Asso-
                                                                 affidavits accompanying his original petition were neither
        ciation likewise submitted an amicus brief sup-
                                                                 contradicted nor challenged in Poly-America's response --
        porting Luna, arguing that unconscionability
                                                                 we believe the court of appeals acted properly in crediting
        should be determined by comparing "the general
                                                                 those facts on appeal.
        financial condition of the claimant's peer group" to
        estimated arbitration costs.                                  Luna attached to his original petition his own affi-
                                                                 davit and that of an expert witness providing detailed
1. Evidentiary Challenge                                         estimates of the likely cost [**34] of arbitration in Lu-
                                                                 na's case, and Luna's expected share under the agree-
     Poly-America claims that the court of appeals, by
                                                                 ment's capped fee-splitting provision based on his
crediting [**32] Luna's factual allegations concerning
                                                                 monthly salary (approximately $ 3,300.00) as a
his financial inability to share arbitration costs, improp-
                                                                 Poly-America supervisor. Luna described his anticipated
erly applied a new evidentiary standard that will require
                                                                 share of the arbitration costs as "way more money than I
all parties seeking to compel arbitration to engage in
                                                                 can afford," and averred that, if he [*355] had to pay
expensive discovery whenever a resisting party submits
                                                                 such an amount to have his claim determined, he would be
cursory and subjective evidence that arbitration costs are
                                                                 unable to pursue his claim against the company unless he
"unaffordable." This evidentiary burden, Poly-America
                                                                 could find an attorney willing to pay those fees. Luna
argues, is contrary to Texas law and policy that supports
                                                                 recounted that he had attempted to retain two attorneys,
summary disposition of motions to compel arbitration. In
                                                                 but they had refused to represent him on a contingent-fee
response, Luna contends the facts upon which the court of
                                                                 basis because of the arbitration agreement.
appeals relied could have been controverted by affidavit
                                                                                                                          Page 9
                                       262 S.W.3d 337, *; 2008 Tex. LEXIS 770, **;
                                       51 Tex. Sup. J. 1237; 28 I.E.R. Cas. (BNA) 140

     Poly-America did not dispute these facts but asserted       must agree with Poly-America that the trial court did not
legal arguments in its pleadings that the cost provisions,       abuse its discretion in ordering arbitration in this case.
as written or as applied, were not unconscionable under
                                                                       Courts across the country [**37] have universally
Texas law. At the hearing on its motion to compel,
                                                                 condemned the use of fee-splitting agreements in em-
Poly-America again asserted only legal arguments in
                                                                 ployment contracts that have the effect of deterring po-
response to Luna's challenge to the cost-splitting provi-
                                                                 tential litigants from vindicating their statutory rights in
sion. There is no indication in the record that the trial
                                                                 an arbitral forum. See Green Tree, 531 U.S. at 90-91.
court discredited or otherwise viewed the facts recited in
                                                                 Some courts have gone so far as to find fee-sharing
Luna's affidavits as insufficient; rather, on the basis of
                                                                 agreements unenforceable per se. See, e.g., Cole v. Burns
Poly-America's legal arguments, the trial [**35] court
                                                                 Int 'l Sec. [*356] Servs., 323 U.S. App. D.C. 133, 105
granted the motion to compel. This disposition was con-
                                                                 F.3d 1465, 1483-85 (D.C. Cir. 1995), cited in Hallibur-
sistent with our statements in Anglin in which we indi-
                                                                 ton, 80 S.W.3d at 572; Shankle v. B-G Maint. Mgmt. of
cated that motions to compel should be decided summar-
                                                                 Colo., Inc., 163 F.3d 1230, 1233-35 (10th Cir. 1999);
ily unless disputed issues of fact require a full evidentiary
                                                                 Paladino v. Avnet Computer Techs., Inc., 134 F.3d 1054,
hearing. See id.
                                                                 1062 (11th Cir. 1998). These courts reason that "an em-
     However, the court of appeals clearly differed from         ployee can never be required, as a condition of employ-
the trial court in its view of the law. It held that the trial   ment, to pay an arbitrator's compensation in order to se-
court's granting of the motion to compel -- in light of          cure the resolution of statutory claims . . . . [T]his would
Luna's averred inability to afford his likely arbitration        surely deter the bringing of arbitration and constitute a de
costs and the agreement's other limitations -- was an abuse      facto forfeiture of statutory rights." Cole, 105 F.3d at
of discretion. 175 S.W.3d at 318-20. In doing so, the court      1468; accord Shankle, 163 F.3d at 1235 ("Such a result
of appeals properly credited the undisputed facts con-           clearly undermines the remedial and deterrent functions
tained in Luna's affidavits as to the total expected cost of     of . . . anti-discrimination laws.").
arbitration and Luna's anticipated share based upon his
                                                                      We agree that fee-splitting provisions that operate to
pre-termination monthly income. Id. at 319-20.
                                                                 prohibit an employee from fully and effectively vindi-
Poly-America contends the court of appeals improperly
                                                                 cating statutory [**38] rights are not enforceable. See
ruled based on Luna's subjective, and thus practically
                                                                 Halliburton, 80 S.W.3d at 572. However, this Court joins
incontrovertible, belief that he could not afford arbitra-
                                                                 the majority of other courts which -- though recognizing
tion, which does not satisfy this Court's requirements of
                                                                 the same policy concerns articulated by courts holding
"specific" evidence to support claims of unconscionably
                                                                 fee-splitting arrangements per se unconscionable -- re-
expensive arbitration. See In re U.S. Home Corp., 236
                                                                 quire some evidence that a complaining party will likely
S.W.3d 761, 764 (Tex. 2007). However, the court of ap-
                                                                 incur arbitration costs in such an amount as to deter en-
peals [**36] relied not solely upon Luna's belief but
                                                                 forcement of statutory rights in the arbitral forum. See
upon his and his expert's specific monetary estimates,
                                                                 U.S. Home Corp., 236 S.W.3d at 764; FirstMerit Bank, 52
which provided objective support for Luna's uncontro-
                                                                 S.W.3d at 756-57. As federal courts have likewise recog-
verted claim that arbitration costs would preclude his
                                                                 nized:
pursuit of the lawsuit. See 175 S.W.3d at 319. The court of
appeals did not, therefore, rely solely on subjective and
                                                                            [I]n some cases, the potential of incur-
incontrovertible allegations.
                                                                        ring large arbitration costs and fees will
                                                                        deter potential litigants from seeking to
2. Unconscionability of Fee-Splitting Provisions
                                                                        vindicate their rights in the arbitral forum .
     Poly-America alternatively challenges the court of                 . . . [I]f the fees and costs of the arbitral
appeals' conclusion that the agreement's cost-allocation                forum deter potential litigants, then that
provisions favor a finding of unconscionability because                 forum is clearly not an effective, or even
the court did not consider the relative costs that Luna                 adequate, substitute for the judicial forum .
would likely incur if the case were litigated in court --               . . . [T]he burden of demonstrating that
costs that, based on Poly-America's estimates, would                    incurring such costs is likely under a given
greatly exceed the capped cost of arbitration -- and Luna               set of circumstances rests, at least initially,
failed to provide any evidence of the actual cost of arbi-              with the party opposing arbitration.
tration that he would bear. Although we have no doubt
that some fee-splitting provisions may operate to dis-
courage employees like Luna from seeking vindication of          Morrison v. Circuit City Stores, Inc., 317 F.3d 646,
their rights under the Workers' Compensation Act, we             659-60 (6th Cir. 2003); accord Bradford v. Rockwell
                                                                 Semiconductor Sys., Inc., 238 F.3d 549, 556 (4th Cir.
                                                                                                                    Page 10
                                     262 S.W.3d 337, *; 2008 Tex. LEXIS 770, **;
                                     51 Tex. Sup. J. 1237; 28 I.E.R. Cas. (BNA) 140

2001); [**39] Rosenberg v. Merrill Lynch, Pierce,              better situated to assess whether the cost provision in this
Fenner & Smith, Inc., 170 F.3d 1, 16 (1st Cir. 1999).          case will hinder effective vindication of Luna's statutory
                                                               rights and, if so, to modify the contract's terms accord-
     Luna contends the magnitude of the fee he could
                                                               ingly. See Halliburton, 80 S.W.3d at 572. We conclude
incur under the arbitration agreement, which he estimates
                                                               the trial court did not abuse its discretion in refusing to
to be as high as $ 3,300, will prevent him from pursuing
                                                               declare the contract's cost-splitting provision uncon-
his claim. Poly-America counters that litigation costs
                                                               scionable and nullify the arbitration agreement.
would be much higher, and therefore the arbitration
agreement's capped cost-splitting provision benefits the
                                                               C. Discovery Limitations
employee and cannot be unconscionable. It is true that in
evaluating the enforceability of fee-splitting provisions,          The 2002 agreement provides that each party may
some courts take into account the relative costs of arbi-      serve on the other a single set of twenty-five interrogato-
tration versus litigation. See, e.g., Bradford, 238 F.3d at    ries (including sub-parts) and one set of twenty-five re-
556 n.5 (focusing upon "a claimant's expected or actual        quests for production or inspection of documents or tan-
arbitration costs and his ability to pay those costs, meas-    gible things. Additionally, the agreement [**42] in-
ured against a baseline of the claimant's expected costs for   cludes limitations alleged by Luna to be unconscionable:
litigation and his ability to pay those costs"). However, at   (1) a limitation of each party to a single, six-hour deposi-
this stage of the proceedings, much of this evidence is        tion; (2) a prohibition on requests for admission; (3) a ban
necessarily speculative, and thus counsels against a           on inquiry into Poly-America's finances; and (4) a confi-
court's ex ante interference with arbitration.                 dentiality provision requiring confidentiality of the parties
                                                               and their attorneys regarding all aspects of the arbitration.
     We do not doubt that arbitration costs might be so
                                                               Luna contends these limitations make it virtually impos-
high in a given case as to preclude access to the forum.
                                                               sible for him to prove his claim of retaliatory discharge
But "the 'risk' that [a claimant] will be saddled with
                                                               and render the arbitration agreement unconscionable.
[**40] prohibitive costs is too speculative to justify the
invalidation of an arbitration agreement." Green Tree, 531           Although an issue of first impression in this Court,
U.S. at 91. Luna has not demonstrated that the ability to      several courts around the country have analyzed the en-
pursue his claim in the arbitral forum hinges upon his         forceability of similar arbitration provisions limiting par-
payment of the estimated costs; to the contrary, depending     ties' access to various forms of discovery. Applying a rule
upon the circumstances, Luna may not have to bear any          functionally equivalent to that used to analyze
cost at all, and [*357] Poly-America has presented             fee-splitting provisions, these courts refuse to enforce
some evidence that the capped cost-splitting arrangement       such limitations when adequate evidence is presented that
may even benefit Luna. The fee-splitting provision in          a plaintiff's ability to present his or her claims in an arbi-
Luna's arbitration agreement caps his share of costs at "the   tral forum is thereby hindered. See, e.g., Hulett v. Capitol
gross compensation earned by Employee in Employee's            Auto Group, Inc., No. 07-6151-AA, 2007 U.S. Dist. LEXIS
highest earning month in the twelve months prior to the        81380, 2007 WL 3232283, at *4--*5 (D. Or. Oct. 29,
time the arbitrator issues his award." (Emphasis added).       2007) (holding discovery restrictions that prohibited re-
Luna, however, presented evidence of his "highest              quests for admission or interrogatories [**43] and lim-
monthly salary in the year preceding [his] termination         ited parties to three depositions unconscionable because
from the company," a period necessarily earlier than that      they "serve to unreasonably withhold information from
relevant under the arbitration agreement. The record           plaintiff that would otherwise be available through dis-
contains no fact-based estimation of Luna's wages in the       covery, thus hindering her ability to present her claims in
relevant time period and, thus, no evidence of his likely      an arbitration forum"); accord Ostroff v. Alterra
share of arbitration costs.                                    Healthcare Corp., 433 F. Supp. 2d 538, 547 (E.D. Pa.
                                                               2006). Courts upholding arbitration provisions containing
     Just as we allow litigants who demonstrate an ina-
                                                               discovery limitations have done so in recognition of the
bility to pay costs to proceed with their claims in court,
                                                               same principle, but determined that a particular [*358]
however, we see [**41] nothing that would prevent
                                                               party failed to provide adequate evidence that the provi-
arbitrators from fairly adjusting employee cost provisions
                                                               sions "prove insufficient to allow . . . claimants . . . a fair
when necessary to allow full vindication of statutory
                                                               opportunity to present their claims." Gilmer, 500 U.S. at
rights in the arbitral forum. See TEX. R. CIV. P. 145. The
                                                               31; see, e.g., In re Cotton Yarn Antitrust Litig., 505 F.3d
contract presented in this case specifically provides that
                                                               274, 286-87 (4th Cir. 2007); Amisil Holdings, Ltd. v.
the arbitrator may modify unconscionable terms; if the
                                                               Clarium Capital Mgmt., No. C06-05255MJJ, 622 F.
cost provisions precluded Luna's enforcement of his
                                                               Supp. 2d 825, 2007 U.S. Dist. LEXIS 69550, 2007 WL
non-waivable statutory rights, they would surely be un-
                                                               2768995, at *4 (N.D. Cal. Sept. 20, 2007) ("[Claimant]
conscionable for the reasons we have explained and the
                                                               has not adequately demonstrated why arbitration under
arbitrator would be free to modify them. The arbitrator is
                                                                                                                  Page 11
                                      262 S.W.3d 337, *; 2008 Tex. LEXIS 770, **;
                                      51 Tex. Sup. J. 1237; 28 I.E.R. Cas. (BNA) 140

the AAA rules would deny it a fair opportunity to present       cause' standard to claims relating to Employee's claims
its claims.").                                                  concerning his employment or separation therefrom" is
                                                                substantively unconscionable because it prohibits, in a
     We agree with these courts that, where the underlying
                                                                retaliatory-discharge case, inquiry into whether the em-
substantive right is not waivable, ex ante limitations on
                                                                ployer had a valid, nondiscriminatory reason for firing the
discovery that unreasonably impede effective prosecution
                                                                employee. Poly-America contends the contract cannot be
of such rights [**44] are likewise unenforceable.
                                                                read as Luna claims, and in fact does not [*359] pre-
However, because the relevant inquiry depends upon the
                                                                vent such an inquiry. We agree with Poly-America, and
facts presented in a given case and the particular discov-
                                                                with the court of appeals, that this prohibition does not
ery limitations' effect upon the relevant statutory regime,
                                                                operate as Luna asserts; rather, the prohibition simply
we are doubtful that courts -- assessing claims and dis-
                                                                emphasizes that the contract relates to at-will employ-
covery limitations before arbitration begins -- are in the
                                                                ment. See Montgomery County Hosp. Dist. v. Brown, 965
best position to accurately determine which limits on
                                                                S.W.2d 501, 502 (Tex. 1998). Thus, the prohibition pre-
discovery will have such impermissible effect.
                                                                vents the arbitrator from substituting a "good cause" re-
     In this case, Luna's expert witness testified that in      quirement for the "at will" standard. The provision does
most employment-discharge cases the employer only               not, however, prohibit inquiry into whether Poly-America
needs to take the plaintiff's deposition, while the plaintiff   improperly terminated Luna in retaliation for his filing of
generally needs testimony from a number of witnesses to         a workers' compensation claim. Because we read the
disprove the employer's likely defense that termination         provision merely to articulate an accepted rule of em-
was based on poor performance. Additionally, the expert         ployment contracts, and not [**47] to restrict a neces-
stated, the employee will likely wish to depose additional      sary inquiry into the motivations behind Poly-America's
witnesses to show a pattern or practice of discrimination,      termination of Luna in this case, we agree with the court
whereas the employer typically has a ready pool of              of appeals that the provision is not unconscionable. See In
available employees and managers to assist in preparing         re Palm Harbor Homes, Inc., 195 S.W.3d 672, 678 (Tex.
for the arbitration. For these reasons, the expert con-         2006) (rejecting a claim that an arbitration provision was
cluded, the arbitration agreement's discovery limitations       substantively unconscionable where the challenged pro-
"significantly reduce the plaintiff's ability to prevail in     vision "effectively incorporate[d] established provisions
arbitration, regardless of how strong a plaintiff's case        of contract law").
[**45] is on the merits."
                                                                E. One-Year Limitations Period
     We agree that if the discovery limitations the arbi-
tration agreement imposes operate to prevent effective               The arbitration agreement includes a clause that re-
presentation of Luna's claim they would be unenforcea-          quires written notice of a claim to be filed within a
ble. But at this point in the proceedings, without knowing      maximum of one year from the events giving rise to an
what the particular claims and defenses -- and the evi-         arbitrable claim. Luna contends this provision uncon-
dence needed to prove them -- will be, discerning the           scionably shortens the two-year statute of limitations
discovery limitations' potential preclusive effect is largely   applicable to claims of retaliatory discharge. See Johnson
speculative. The assessment of particular discovery needs       & Johnson Med., Inc. v. Sanchez, 924 S.W.2d 925, 927
in a given case and, in turn, the enforceability of limita-     (Tex. 1996). However, as Luna filed this case well within
tions thereon, is a determination we believe best suited to     the one-year period and thus suffered no prejudice from
the arbitrator as the case unfolds. As with cost-sharing,       this provision, it is immaterial to Luna's claims of sub-
discovery limitations that prevent vindication of               stantive unconscionability.
non-waivable rights or "prove insufficient to allow [Luna]
a fair opportunity to present [his] claims," Gilmer, 500        F. Lifetime Application
U.S. at 31, would be unconscionable and thus not binding
                                                                     Finally, Luna argues that the arbitration agreement
on the arbitrator, as the agreement in this case specifically
                                                                unconscionably applies even to claims that may arise after
acknowledges. At this point in the proceedings, though,
                                                                Luna's employment with Poly-America [**48] has
we cannot conclude that the evidence presented to the trial
                                                                ended and which may have nothing to do with Luna's
court compelled a finding that the discovery limitations
                                                                employment. While we can imagine circumstances that
were per se unconscionable. Thus, the trial court did not
                                                                might present a closer question, Luna's claims here con-
abuse its discretion.
                                                                cern his employment and termination, the central focus of
                                                                the agreement. We thus agree with the court of appeals
D. Prohibition on Inquiry [**46] into "Good Cause"
                                                                that this provision does not render the arbitration agree-
    Luna claims the arbitration provision that prohibits        ment per se unconscionable. See 175 S.W.3d at 326.
the arbitrator's ability "to apply a 'just cause' or 'good
                                                                                                                   Page 12
                                     262 S.W.3d 337, *; 2008 Tex. LEXIS 770, **;
                                     51 Tex. Sup. J. 1237; 28 I.E.R. Cas. (BNA) 140

VI. Severability                                               Hoover Slovacek, 206 S.W.3d at 565 (citing RESTATE-
                                                               MENT (SECOND) OF CONTRACTS § 208 (1981)).
    The arbitration agreement in this case contains a
                                                               Whether or not the invalidity of a particular provision
severability clause, which provides as follows:
                                                               affects the rest of the contract depends upon whether the
                                                               remaining provisions are independent or mutually de-
           Should any term of this Agreement be
                                                               pendent promises, which courts determine by looking to
       declared illegal, unenforceable, or uncon-
                                                               the language of the contract itself. See John R. Ray &
       scionable, the remaining terms of the
                                                               Sons, Inc. v. Stroman, 923 S.W.2d 80, 86 (Tex.
       Agreement shall remain in full force and
                                                               App.--Houston [14th Dist.] 1996, writ denied) (citing
       effect. To the extent possible, both Em-
                                                               Hanks v. GAB Bus. Servs., Inc., 644 S.W.2d 707, 708 (Tex.
       ployee and Company desire that the Arbi-
                                                               1982)). The relevant inquiry is whether or not parties
       trator modify the term(s) declared to be
                                                               would have entered into the agreement absent the unen-
       illegal, unenforceable, or unconscionable
                                                               forceable provisions. See Patrizi v. McAninch, 153 Tex.
       in such a way as to retain the intended
                                                               389, 269 S.W.2d 343, 348 (Tex. 1954); see also City of
       meaning of the term(s) as closely as pos-
                                                               Beaumont v. Int'l Ass'n of Firefighters, Local Union No.
       sible.
                                                               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)); [**51] Stroman, 923
Poly-America argues that, even if elements of its arbitra-
                                                               S.W.2d at 86 (citing Frankiewicz v. Nat'l Comp. Assocs.,
tion agreement with Luna are unconscionable, arbitration
                                                               633 S.W.2d 505, 507-08 (Tex. 1982)). We have previously
is nevertheless required because the unconscionable pro-
                                                               allowed severance of illegal contract provisions where the
visions are severable from the general agreement to arbi-
                                                               invalid provisions were "only a part of the many recip-
trate. 4 Luna [*360] contends the unconscionable pro-
                                                               rocal promises in the agreement" and "did not constitute
visions are integral to the entire [**49] contract and are
                                                               the main or essential purpose of the agreement." Williams,
therefore not severable. The court of appeals agreed with
                                                               569 S.W.2d at 871.
Luna, stating that the fee-splitting and remedies-limitation
provisions "together deprive Luna of his opportunity to             The 2002 version of the arbitration agreement in this
vindicate his claim in the arbitral forum" and concluding      case is over five pages long and contains numerous pro-
that "those provisions are integral to the purpose of the      visions not challenged by Luna as imposing any uncon-
agreement and cannot be severed." 175 S.W.3d at 328.           scionable burdens: procedures for mediation, selection of
The court of appeals came to this conclusion, it appears,      a neutral arbitrator, filing of motions, and other general
by identifying the fee-splitting and remedies-limitation       provisions governing arbitration procedures. We agree
provisions as weighing in favor of unconscionability "as a     with Poly-America that the intent of the parties, as ex-
whole," but the court did not identify any particular pro-     pressed by the severability clause, is that unconscionable
vision that, by itself, would defeat the agreement's pur-      provisions be excised where possible. Furthermore, it is
pose. See id. at 322, 324. We have determined, however,        clear by the contract's terms that the main purpose of the
that the remedies-limitation provisions are individually       agreement is for the parties to submit their disputes to an
unconscionable and void, and see no reason why they            arbitral forum rather than proceed in court. See id. Ex-
cannot be easily excised from the contract without de-         cising the unconscionable provisions we have identified
feating its underlying purpose.                                will not defeat or undermine this purpose, which we have
                                                               upheld in the context of agreements to [**52] arbitrate
       4 The Court received briefs from amici curiae           employment disputes. See AdvancePCS, 172 S.W.3d at
       the Texas Association of Business and the Society       608; EZ Pawn Corp., 934 S.W.2d at 90; Cantella & Co.,
       for Human Resource Management Texas State               924 S.W.2d at 944.
       Council, both of which argue that the court of
       appeals erred in refusing to sever the provisions it    VII. Conclusion
       deemed unconscionable from the remainder of the
                                                                    We hold invalid, as substantively unconscionable and
       arbitration agreement. [**50] The brief submit-
                                                               void, provisions of the parties' [*361] contract that
       ted by amicus curiae the Texas Trial Lawyers
                                                               prohibit the award of punitive damages or reinstatement
       Association argues that such severance would be
                                                               and thus inhibit effective vindication of Luna's retaliato-
       improper.
                                                               ry-discharge claim in an arbitral forum. We further hold
     An illegal or unconscionable provision of a contract      that the trial court did not abuse its discretion in allowing
may generally be severed so long as it does not constitute     the arbitrator to determine whether the fee-splitting
the essential purpose of the agreement. See Williams v.        agreement and discovery limitations -- as applied in the
Williams, 569 S.W.2d 867, 871 (Tex. 1978); see also            course of arbitration -- are unconscionable. Because we
                                                                                                                    Page 13
                                      262 S.W.3d 337, *; 2008 Tex. LEXIS 770, **;
                                      51 Tex. Sup. J. 1237; 28 I.E.R. Cas. (BNA) 140

find the invalid remedies-limitation provisions severable       from Palacios is neither prudent nor appropriate for at
from the agreement to arbitrate, which we conclude is           least five reasons.
otherwise enforceable, the trial court did not abuse its
discretion in compelling arbitration. Accordingly, we                   5 See, e.g., CSR Ltd. v. Link, 925 S.W.2d 591,
conditionally grant the writ of mandamus.                               597 (Tex. 1996) ("Because of the size and com-
                                                                        plexity of the asbestos litigation, the most prudent
    Harriet O'Neill
                                                                        use of judicial resources in this case is to permit a
    Justice                                                             preliminary resolution of the fundamental issue of
                                                                        personal jurisdiction by writ of mandamus.")
    OPINION DELIVERED: August 29, 2008                                  (emphasis added); In re Dean, 527 F.3d 391, 396
                                                                        (5th Cir. 2008) ("The decision whether to grant
DISSENT BY: Scott Brister
                                                                        mandamus is largely prudential."); In re Atlantic
                                                                        Pipe Corp., 304 F.3d 135, 140 (1st Cir. 2002)
DISSENT                                                                 (concluding mandamus was "prudent under the
    JUSTICE BRISTER, dissenting.                                        circumstances"); In re Chimenti, 79 F.3d 534, 539
                                                                        (6th Cir. 1996) (noting availability of interlocu-
     The hard thing about granting mandamus relief is                   tory appeal was merely one of several factors af-
knowing when to stop. This Court has tried over the years               fecting court's "prudential [**55] considera-
to set mandamus boundaries through various tests, all of                tions" regarding issuance of mandamus).
which soon generated exceptions, [**53] and most of                     6 Cheney v. U.S. Dist. Court for Dist. of Co-
which were met with objections that the "established"                   lumbia, 542 U.S. 367, 380-81, 124 S. Ct. 2576,
boundaries of mandamus were being ignored.                              159 L. Ed. 2d 459 (2004) (holding mandamus
     Only two years ago, we held in In re Palacios that                 should issue when there is (1) no other adequate
mandamus review was available for "orders that deny                     remedy, (2) a "clear and indisputable" right, and
arbitration, but not orders that compel it." 1 We noted that            (3) "the writ is appropriate under the circum-
this was a reversal of previous practice, 2 but was neces-              stances").
sitated by the Supreme Court's 2000 opinion in Green                 First, Congress amended the Federal Arbitration Act
Tree Financial Corp. v. Randolph, which said that orders        in 1988 so that it "permits immediate appeal of orders
compelling arbitration "would not be appealable" unless         hostile to arbitration, . . . but bars appeal of interlocutory
they included final dismissal of the case. 3 Today the          orders favorable to arbitration." 7 Texas law is to the same
Court comes full circle, saying once again that mandamus        effect. 8 As the trial court's order here was favorable to
review of orders compelling arbitration is "proper,"            arbitration, we should defer to the cost-benefit analysis
though courts should be "hesitant" about it. 4 Apparently,      already conducted by the federal and state legislatures. 9
so long as one expresses qualms, Palacios is a dead letter.     We cannot simply substitute mandamus when interlocu-
                                                                tory appeal is prohibited without running into serious
       1 221 S.W.3d 564, 566 (Tex. 2006) (emphasis              Supremacy Clause problems; 10 "[f]requent pre-arbitration
       added).                                                  review would inevitably frustrate Congress's intent to
       2    Id. at 565 (noting abrogation of Freis v.           move the parties to an arbitrable dispute out of court and
       Canales, 877 S.W.2d 283, 284 (Tex. 1994)).               into arbitration as quickly and easily as possible." 11
       3 531 U.S. 79, 87 n.2, 121 S. Ct. 513, 148 L. Ed.
       2d 373 (2000).                                                   7 Green Tree Fin. Corp.-Ala. v. Randolph, 531
       4       S.W.3d    ,    .                                         U.S. 79, 86, 121 S. Ct. 513, 148 L. Ed. 2d 373
     Of course, firm rules governing mandamus are made                  (2000) (construing 9 U.S.C. § 16) (emphasis
to be broken, as issuance of the writ is primarily a matter             added).
of judgment and prudence. 5 As the United States Supreme                8    See TEX. CIV. PRAC. & REM. CODE §
Court said in 2004, mandamus is appropriate if a party                  171.098; In re Palacios, 221 S.W.3d 564, 566
shows a clear right, [**54] no alternative remedy, and                  (Tex. 2006).
that mandamus is "appropriate under the circumstances." 6               9 I [**56] n re McAllen Med. Ctr., Inc., 275
This test (especially the last prong) defies precise appli-             S.W.3d 458,      , 2008 Tex. LEXIS 456 (Tex. 2008)
cation, but years of judicial effort have failed to produce a           ("Although mandamus review is generally a mat-
better one. As a result, reasonable judges will sometimes               ter within our discretion, our place in a govern-
[*362] disagree whether mandamus is "prudent" or                        ment of separated powers requires us to consider
"appropriate under the circumstances," and sometimes                    also the priorities of the other branches of Texas
decide differently in one case than the next. But departing             government.").
                                                                                                                    Page 14
                                       262 S.W.3d 337, *; 2008 Tex. LEXIS 770, **;
                                       51 Tex. Sup. J. 1237; 28 I.E.R. Cas. (BNA) 140

        10 See U.S. CONST. art. VI, cl. 2 ("[T]he Laws           arbitrators and foreclose judicial review of the details of
        of the United States . . . shall be the supreme Law      the result. This also appears to violate the parties' agree-
        of the Land; and the Judges in every State shall be      ment in this case, which authorized the arbitrator to ad-
        bound thereby, any Thing in the Constitution or          dress unconscionability:
        Laws of any State to the Contrary notwithstand-
        ing.").                                                             Should any term of this Agreement be
        11 Perry Homes v. Cull, 258 S.W.3d 580, 587,                    declared illegal, unenforceable, or uncon-
        2008 Tex. LEXIS 423 (Tex. 2008) (quoting Pres-                  scionable, the remaining terms of the
        ton v. Ferrer, 552 U.S. 346,        , 128 S. Ct. 978,           Agreement shall remain in full force and
        169 L. Ed. 2d 917 (2008) and Moses H. Cone Mem                  effect. To the extent possible, both Em-
        'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 22,              ployee and Company desire that the Arbi-
        103 S. Ct. 927, 74 L. Ed. 2d 765 (1983)) (internal              trator modify the term(s) declared to be
        quotations omitted).                                            illegal, unenforceable, or unconscionable
                                                                        in such a way as to retain the intended
     Second, the trial court ordered these parties to arbi-
                                                                        meaning of the term(s) as closely as pos-
tration five years ago. Had mandamus proceedings not
                                                                        sible.
intervened, this dispute would have long since been con-
cluded. Surely the time and expense incurred arbitrating
this case would have been less than that incurred in
                                                                 Telling the arbitrators in advance what legal rulings they
mandamus review. And now that mandamus review is
                                                                 should make (as the Court does today) is an improper way
concluded, the parties must go to arbitration anyway.
                                                                 to circumvent these restrictions.
Given our state's strong public policy favoring freedom of
contract, 12 claims that a contract [**57] is unconscion-             Fifth and finally, the Court decides an important
able are asserted far more often than they are sustained.        question in the abstract that the arbitration may render
After today's decision, it is hard to see how any arbitration    moot. The Court concedes that unconscionability of the
cannot be stopped in its tracks by alleging                      fee-splitting and discovery-limiting clauses should be
unconscionability.                                               deferred to the arbitrator. But unconscionability of the
                                                                 remedy-stripping [**59] clause is just as fact-based, and
        12 Fairfield Ins. Co. v. Stephens Martin Paving,         just as speculative until all the facts are arbitrated. The
        LP, 246 S.W.3d 653, 664 (Tex. 2008); Fortis              fairness of such clauses is not as one-sided as the Court
        Benefits v. Cantu, 234 S.W.3d 642, 649 (Tex.             suggests; many employees might actually prefer cash for
        2007); Lawrence v. CDB Servs., Inc., 44 S.W.3d           lost wages (and no appellate delays) rather than rein-
        544, 553 (Tex. 2001).                                    statement or a long shot at punitive damages. As the Court
                                                                 notes, several courts have held that such "limitations of
     Third, today's opinion is purely advisory; if an arbi-
                                                                 remedies are permissible." 16 Twice in 2003 the Supreme
trator ignores it, there is little we can do. Both federal and
                                                                 Court declined to hold that a remedy-stripping arbitration
state law require courts to enforce an arbitrator's decision,
                                                                 clause violates the FAA -- each time deferring the ques-
no matter what it is, with very few exceptions. 13 The
                                                                 tion until after arbitrators had addressed it. 17 We should
allowable exceptions concern extrinsic or procedural
                                                                 do the same here.
matters like corruption, fraud, or refusing to hear evi-
dence; 14 they do not include (as the Supreme Court just
                                                                        16        S.W.3d at      .
held) disregarding the law, even if a legal error is "mani-
                                                                        17 See PacifiCare Health Sys., Inc. v. Book, 538
fest." 15 What is the benefit of mandamus review if the
                                                                        U.S. 401, 406-07, 123 S. Ct. 1531, 155 L. Ed. 2d
resulting order can be ignored?
                                                                        578 (2003) (holding that "since we do not know
                                                                        how the arbitrator will construe the remedial lim-
        13 See 9 U.S.C. §§ 9-11; TEX. CIV. PRAC. &
                                                                        itations" barring treble damages, "the proper
        REM. CODE §§ 171.087-171.088, 171.091.
                                                                        course is to compel arbitration"); Green Tree Fin.
        14 Id.
                                                                        Corp. v. Bazzle, 539 U.S. 444, 454, 123 S. Ct.
        15 Hall St. Assocs., L.L.C. v. Mattel, Inc., 552
                                                                        2402, 156 L. Ed. 2d 414 (2003) (remanding for
        U.S. 576,   , 128 S.Ct. 1396, 1404, 170 L. Ed. 2d
                                                                        arbitrator to determine whether contracts prohib-
        254 (2008).
                                                                        ited class arbitration).
      [*363] Fourth, even if most arbitrators would
                                                                     We have never held (as the Court holds repeatedly
comply with an appellate court's mandamus [**58]
                                                                 today) that an arbitration agreement is invalid unless an
rulings, issuing them creates a hybrid procedure unknown
                                                                 employee can "effectively vindicate his statutory rights."
to the arbitration acts. As already noted, those statutes        18
                                                                    We [**60] did not say so in In re Halliburton Co. (as
commit matters concerning the law and the merits to the
                                                                                                                   Page 15
                                       262 S.W.3d 337, *; 2008 Tex. LEXIS 770, **;
                                       51 Tex. Sup. J. 1237; 28 I.E.R. Cas. (BNA) 140

the Court's citations aver), where that phrase appears only            salary payments pending arbitration); see also
in a parenthetical describing an opinion by an intermedi-              Cofab, 141 F.3d at 110 (involving temporary stay
ate appellate court in Michigan, an opinion we neither                 of motion to enforce arbitration award pending
approved nor adopted. 19 Nor does the Court's judgment                 NLRB review of related matter).
comply with this new standard. Despite the remedy limits               24 See Adam Borstein, Arbitrary Enforcement:
imposed here, an arbitrator could still award Johnny Luna              When Arbitration Agreements Contain Unlawful
50 years of future lost wages, which would certainly seem              Provisions, 39 LOY. L.A.L. REV. 1259, 1275
to "effectively vindicate his statutory rights." Even more             (2006)      ("This    combination        of   finding
than the fee-splitting or discovery-limiting provisions, it is         unconscionability and favoring public policy over
simply too early to tell whether the remedy-stripping                  enforcement of the FAA has made the Ninth
provisions will be unfair to Luna at all.                              Circuit more hostile towards unlawful arbitration
                                                                       provisions than any other federal circuit."); Mi-
        18       S.W.3d at    ,   ,    ,&     .                        chael G. McGuinness & Adam J. Karr, Califor-
        19     80 S.W.3d 566, 572 (citing Rembert v.                   nia's "Unique" Approach to Arbitration: Why This
        Ryan's Family Steak Houses, Inc., 235 Mich. App.               Road Less Traveled Will Make All the Difference
        118, 596 N.W.2d 208, 226 (Mich. Ct. App. 1999)).               on the Issue of Preemption Under the Federal
                                                                       Arbitration Act, 2005 J. DISP. RESOL. 61, 91-92
     Such an important and controversial question should
                                                                       (2005)("[T]he       conclusion      that    California
not be decided in such an offhanded and abstract way. We
                                                                       courts--and the Ninth Circuit--are imposing their
should instead wait to see whether the arbitration [*364]
                                                                       own biases against arbitration is inescapable.");
award makes such a decision necessary; "if it is not nec-
                                                                       Steven M. Warshawsky, Gilmer, the Contractual
essary to decide more, it is necessary not to decide more."
20                                                                     Exhaustion Doctrine, and Federal Statutory Em-
                                                                       ployment Discrimination Claims, 19 LAB. LAW.
        20 PDK Labs. Inc. v. U.S. D.E.A., 360 U.S. App.                285, 303 n.180 (2004) ("The Ninth Circuit con-
        D.C. 344, 362 F.3d 786, 799 (D.C. Cir. 2004)                   tinues to be hostile to mandatory arbitration
        (Roberts, J., concurring).                                     agreements."); Dennis R. Nolan, Employment
                                                                       [**63] Arbitration After Circuit City, 41
      The Court overlooks [**61] all these problems on                 BRANDEIS L.J. 853, 890 (2003) ("[D]espite
the ground that mandamus "has been broadly applied" by                 Congress's broad endorsement of arbitration in the
federal courts to review orders compelling arbitration. 21             FAA and the Supreme Court's repeated confirma-
But the string citations that follow do not support that               tion of that policy, many judges (not all of them on
claim. Of the five cases cited, three predated Green Tree,             the Ninth Circuit) remain deeply skeptical if not
22
   and a fourth did not involve a trial court order favorable          openly hostile."); Hai Jiang, Do We Allow Con-
to arbitration. 23 The single case granting mandamus relief            tract Law to Administer Civil Rights Remedies?
from an order favorable to arbitration was by the Ninth                Casenote on Haskins v. Prudential Insurance Co.,
Circuit, the court widely recognized as the "most hostile,"            2003 L. REV. MICH. ST. U. DET. C.L. 251, 260
24
   "far to the left of center," 25 and "renegade" court in the         (2003) ("The Ninth Circuit is the most hostile to
country in employment arbitration cases. 26 Even so,                   arbitration of employment discrimination claims
mandamus was granted in that case only because arbi-                   among the circuit courts . . . .").
trating the single class representative's case could moot              25 See Earl Greene III, Note, Armendariz v.
the class action he had brought, wiping it out without                 Foundation Health Psychcare Services, Inc.: The
appellate review. 27 In short, there is no "broad" consensus           California Supreme Court Searches For a Middle
for doing precisely the opposite of what Congress and the              Ground, 1 J. AM. ARB. 105, 108-09 (2001) ("On
Texas Legislature intended.                                            a mandatory arbitration agreement enforcement
                                                                       continuum, the Ninth Circuit would be sitting far
        21        S.W.3d at    .                                       to the left of center as it seems to be more con-
        22 Geourgiou v. Mobil Exploration & Prod.                      cerned with protecting the statutory rights of em-
        Servs., Inc. US, 190 F.3d 538 (5th Cir. 1999);                 ployees than toeing the line with the Supreme
        Cofab Inc. v. Phil. Joint Bd., Amalgamated                     Court.")
        Clothing & Textile Workers Union, 141 F.3d 105                 26     See Jennifer LaFond, Notes, The Private
        (3d Cir. 1998); McDermott Intern., Inc. v. Un-                 Enforcement of Public Laws in Armendariz v.
        derwriters at Lloyds Subscribing to Memorandum                 Foundation Health Psychcare Servs., 29 PEPP. L.
        of Ins. No. 104207, 981 F.2d 744 (5th Cir. 1993).              REV. 401, 414 n.127 (2002) ("The Ninth Circuit
        23 Manion v. Nagin, 255 F.3d 535, 540 (8th                     [**64] is the renegade circuit with respect to . . .
        Cir. 2001) [**62] (involving injunction to obtain
                                                                                                                      Page 16
                                         262 S.W.3d 337, *; 2008 Tex. LEXIS 770, **;
                                         51 Tex. Sup. J. 1237; 28 I.E.R. Cas. (BNA) 140

        [whether] employees can be compelled to arbitrate                While appeal from arbitration awards is very limited,
        statutory claims.").                                        that appeal is an adequate remedy unless the benefits of
        27 Douglas v. U.S. Dist. Court, 495 F.3d 1062,              mandamus outweigh the costs. 29 Considering the costs
        1068-69 (9th Cir. 2007).                                    expended so far, I doubt Johnny Luna [**65] would
                                                                    consider them outweighed by getting the right to seek
      [*365] It is certainly true that leaving matters like
                                                                    reinstatement in arbitration (which employees rarely re-
unconscionability to arbitrators will mean development of
                                                                    quest) and punitive damages (which they rarely get).
the law is "substantially hindered," 28 but the same could
                                                                    Accordingly, I agree with the Court that the court of ap-
be said of arbitration in all cases. It is hard to see the allure
                                                                    peals erred in reviewing and reversing the trial court's
of a system in which decision-makers can ignore the law,
                                                                    order compelling arbitration. But I disagree that we have
unless of course one is planning to ignore the law oneself.
                                                                    any place reviewing those matters either. To that extent, I
Based on its popularity, few arbitrators apparently go that
                                                                    respectfully dissent.
far. But even carefully selected judges and jurors make
mistakes, and carefully selected arbitrators are surely no
                                                                           29 In re BP Products N. Am., Inc., 244 S.W.3d
less fallible. Nevertheless, these are policy matters that
                                                                           840, 845 (Tex. 2008); In re Prudential Ins. Co. of
only Congress can address or amend; we cannot disregard
                                                                           Am., 148 S.W.3d 124, 136 (Tex. 2004).
the express legislative limits on interlocutory review
merely by calling it mandamus when we think the ques-                   Scott Brister
tions are important and the issues well-briefed.
                                                                        Justice
        28         S.W.3d at      .                                     OPINION DELIVERED: August 29, 2008
                                                                                                                  Page 1
                                      980 S.W.2d 462, *; 1998 Tex. LEXIS 152, **;
                                      47 ERC (BNA) 1860; 141 Oil & Gas Rep. 412




                   KELLEY-COPPEDGE, INC., PETITIONER v. HIGHLANDS INSURANCE
                                   COMPANY, RESPONDENT

                                                        No. 97-0926

                                            SUPREME COURT OF TEXAS

                980 S.W.2d 462; 1998 Tex. LEXIS 152; 47 ERC (BNA) 1860; 141 Oil & Gas Rep. 412

                                                 April 28, 1998, Argued
                                              November 12, 1998, Delivered

DISPOSITION:          [**1] Reverseed the court of ap-         mitigate potential damage, and entered into agreements
peals and rendered judgment for KCI.                           with Mobil and the adjoining landowner to clean up the
                                                               soil in accordance with Texas Railroad Commission
                                                               standards. Highlands eventually paid to repair the Mobil
JUDGES: JUSTICE SPECTOR delivered the opinion of               pipeline and for the lost oil. When KCI presented High-
the Court, in which CHIEF JUSTICE PHILLIPS, JUS-               lands with the cleanup costs, however, Highlands denied
TICE ENOCH, JUSTICE ABBOTT and JUSTICE                         the claim.
HANKINSON joined. JUSTICE GONZALEZ filed a
                                                                    KCI then sued Highlands for a declaratory judgment
dissenting opinion, in which JUSTICE HECHT, JUS-
                                                               on Highlands's coverage obligations, breach of insurance
TICE OWEN and JUSTICE BAKER joined.
                                                               contract, and attorneys' fees. Both parties moved for
                                                               summary judgment. Finding that the insurance contract's
OPINION BY: ROSE SPECTOR
                                                               pollution exclusion clause did not exclude KCI's cleanup
                                                               costs, the trial court granted summary judgment for KCI
OPINION
                                                               and overruled Highlands's motion. The trial court later
    [*463] ON PETITION FOR REVIEW FROM                         granted KCI summary judgment on damages for $
THE COURT OF APPEALS FOR THE SECOND                            435,000.
DISTRICT OF TEXAS
                                                                    The court of appeals reversed and rendered summary
     In this case, we consider whether Kelley-Coppedge,        judgment for Highlands. 950 S.W.2d at 419. Relying on
Inc. (KCI), an independent contractor, "occupied" the          Tri County Service Co. v. Nationwide Mutual Insurance
easement on which it was performing operations, thereby        Co., 873 S.W.2d 719, 719 (Tex. App.--San Antonio 1993,
invoking the pollution exclusion clause of a commercial        writ denied), the court held that because KCI had the right
general liability policy. The court of appeals held that KCI   to be on the easement to perform operations, it occupied
did occupy the easement and therefore rendered summary         the easement for the purposes [**3] of the insurance
judgment that KCI take nothing. 950 S.W.2d 415. We             policy. 950 S.W.2d at 419. Because section f.(1)(a) of
reverse and render judgment for KCI.                           KCI's policy excluded coverage for the release of pollu-
                                                               tants from [*464] premises it "owned or occupied," the
I                                                              court held that KCI could not recoup its cleanup costs
                                                               from Highlands. Id. We granted KCI's petition for review
    While laying pipe along an easement, KCI, an oil and
                                                               and now reverse and render judgment for KCI.
gas pipeline contractor, inadvertently struck a Mobil Oil
pipeline causing the release of 1600 barrels of crude oil.
                                                               II
The spill damaged a third party's land upon which the
easement was located.                                              The issue we must resolve is whether the pollution
                                                               exclusion clause contained in KCI's insurance policy with
    At the time, Highlands Insurance Co. covered KCI
                                                               Highlands excluded coverage for KCI's cleanup costs.
under a commercial general liability policy. [**2]
                                                               The relevant portions of the pollution exclusion clause are
After the spill, KCI notified Highlands, took steps to
                                                                                                                       Page 2
                                       980 S.W.2d 462, *; 1998 Tex. LEXIS 152, **;
                                       47 ERC (BNA) 1860; 141 Oil & Gas Rep. 412

subsections f.(1)(a), f.(1)(d), and f.(2)(a). Exclusion f.(1)    of law for the court to decide by looking at the contract as
of the policy excludes coverage for:                             a whole in light of the circumstances present when the
                                                                 contract was entered. Only where a contract is first de-
    "Bodily injury" and "property damage" arising out of
                                                                 termined to be ambiguous may the courts consider the
the actual, alleged or threatened discharge, dispersal,
                                                                 parties' interpretation, and admit extraneous evidence to
seepage, migration, release or escape of pollutants:
                                                                 determine the true meaning of the instrument.
    (a) At or from any premises, site or location which is
or was at any time owned or occupied by, or rented or             907 S.W.2d at 520 (citations omitted). See also Heritage
loaned to, any insured;                                          Resources, Inc. v. NationsBank, 939 S.W.2d 118, 121
                                                                 (Tex. 1996) (observing that when construing unambigu-
     ***                                                         ous instruments "we give terms their plain, ordinary,
     (d) At or from any premises, site or location on which      [**6] and generally accepted meaning . . ."). We must
any insured or any contractors or subcontractors working         also attempt to give effect to all contract provisions so that
directly or indirectly on any insured's behalf are per-          none will be rendered meaningless. Universal C.I.T.
forming operations:                                              Credit Corp. v. Daniel, 150 Tex. 513, 243 S.W.2d 154,
                                                                 158 (Tex. 1951); see also Michael Sean Quinn, Liability
     (i) if the pollutants are [**4] brought on or to the        Insurance Contracts: A Primer, 34 TEX. J. BUS. L. 2,
premises, site or location in connection with such opera-        19-20 (1997). We proceed with these principles as our
tions by such insured, contractor or subcontractor;              guide.
    Exclusion f.(2) excludes coverage for:                             [*465] Each party argues an alternate meaning for
    Any loss, cost or expense arising out of any                 the term "occupy" as used in the policy. An ambiguity
                                                                 does not arise, however, merely because the parties ad-
     (a) Request, demand or order that any insured or            vance conflicting contract interpretations. Grain Deal-
others test for, monitor, clean up, remove, contain, treat,      ers Mut. Ins. Co. v. McKee, 943 S.W.2d 455, 458 (Tex.
detoxify or neutralize, or in any way respond to, or assess      1997). Only when, after applying the applicable rules of
the effects of pollutants . . . . (emphasis added).              construction, a contract term is susceptible of two or more
     This dispute turns on whether or not the term "occu-        reasonable interpretations will the term be ambiguous.
pied by" in the policy encompasses KCI's activities on the       Glover v. National Ins. Underwriters, 545 S.W.2d 755,
easement. Highlands contends that "to occupy" is simply          761 (Tex. 1977). We find no ambiguity in this contract.
"to take up significant parts of an occupied space" or "to            Highlands contends that the plain meaning of "to
be there." KCI contends that something more than mere            occupy" is "to take up space." Thus, KCI's mere presence
presence is needed, and that Highlands's interpretation of       on the easement constitutes "occupation" as contemplated
section f.(1)(a) renders section f.(1)(d) meaningless and        by the pollution exclusion clause. Because section f.(1)(a)
the insurance contract ambiguous as a whole.                     excludes coverage for any pollutant [**7] discharge
    A                                                            from any premises the insured "occupied," KCI cannot
                                                                 recover its cleanup costs. In support of its definition of
     Initially, we note that we interpret insurance policies     "occupy," Highlands cites Tri County, 873 S.W.2d at 720,
in Texas according to the rules of contract interpretation.      the only Texas case to consider this issue.
Balandran v. Safeco Ins. Co. of America, 972 S.W.2d 738,
(1998); National Union Fire Ins. Co. v. CBI Indus., Inc.,             Tri County was a paving subcontractor working un-
907 S.W.2d 517, 520 (Tex. 1995); Forbau v. Aetna [**5]           der contract to pave an H.E.B. parking lot. Tri County
Life Ins. Co., 876 S.W.2d 132, 133 (Tex. 1994). In CBI, we       began its operations in September 1990 and finished them
set forth guidelines courts are to follow when interpreting      in December 1990. After Tri County sprayed oil on the
insurance contracts:                                             parking lot, heavy rains washed the oil into a nearby
                                                                 creek. H.E.B. then removed the oil from the creek and
     The primary concern of a court in construing a writ-        docked Tri County for the cost of cleanup. Tri County
ten contract is to ascertain the true intent of the parties as   claimed this loss under its commercial general liability
expressed in the instrument. If a written contract is so         (CGL) policy with Nationwide. Nationwide later denied
worded that it can be given a definite or certain legal          coverage, invoking a pollution exclusion clause identical
meaning, then it is not ambiguous. Parol evidence is not         to that at issue here. Tri County then sued Nationwide.
admissible for the purpose of creating an ambiguity.
    If, however, the language of a policy or contract is         Tri County argued that it never "occupied" the parking lot
subject to two or more reasonable interpretations, it is         because it held no property interest in the site. After
ambiguous. Whether a contract is ambiguous is a question         holding that the clause was unambiguous, the court of
                                                                 appeals held that the plain, ordinary meaning of "occu-
                                                                                                                   Page 3
                                     980 S.W.2d 462, *; 1998 Tex. LEXIS 152, **;
                                     47 ERC (BNA) 1860; 141 Oil & Gas Rep. 412

pied" did not necessarily mean ownership, and was broad            Highlands, the court of appeals, and the Tri County
enough to encompass Tri County's operations. 873              court all rely on our decision in Hernandez v. Heldenfels,
S.W.2d at 721. Highlands argues that we should [**8]          374 S.W.2d 196, 200 (Tex. 1963), to support their defini-
reach the same conclusion as the Tri County court and         tions of "occupy." They contend we set forth a definition
hold that KCI "occupied" the easement.                        of "occupy" broad enough to cover the contractor's activ-
                                                              ities in Tri County and the contractor's activities in the
     KCI, however, contends that accepting Highlands's
                                                              case at hand.
definition of occupy would render exclusion f.(1)(d)
meaningless. KCI argues that if any presence, no matter            In Heldenfels, however, we implied that an "occupi-
how transitory, is occupancy under section f.(1)(a), then     er" is one who has "exclusive control" of premises. See id.
this section excludes all operations of the insured, in-      at 198. We stated:
cluding those performed by contractors or subcontractors,
                                                                   The thesis of the appellate court is that as Heldenfels
regardless of whether the insured owns the property or
                                                              was the occupier of the premises -- the roadway in ques-
not. Thus, section f.(1)(d)'s provision excluding coverage
                                                              tion -- and Hernandez had no business with Heldenfels
for the insured's operations on another's land would be
                                                              and was not engaged in furthering Heldenfels' interest in
surplusage. In support of this argument, KCI cites United
                                                              any way, he was necessarily a licensee. Had Heldenfels
States Fidelity & Guaranty Co. v. B&B Oil Well Service,
                                                              been entitled as a matter of right to an exclusive posses-
Inc., 910 F. Supp. 1172 (S.D. Miss. 1995).
                                                              sion of the premises as against the owner, this theory
     In that case, B&B, an oil well contractor, had con-      might be tenable. However, as we view the record, there is
tracted to rework some oil wells. A number of landowners      [**11] no evidence that Southwestern, as the owner,
on whose land the oil wells were located sued B&B al-         granted to . . . Heldenfels an exclusive right. Heldenfels
leging that the landowners' property had been contami-        Brothers had the right to occupy such portions of the
nated by pollutants from B&B's operations. USF&G,             roadway as were necessary for them to use in carrying out
which insured B&B under a CGL policy nearly identical         the obligations which they had assumed as a subcontrac-
to that between KCI and Highlands, sought a declaratory       tor, but they did not have the right to bar the owner and its
judgment that under the contracts of insurance issued to      employees therefrom. . . . Both Heldenfels and Hernandez
B&B, B&B [**9] had no coverage for the contamina-             were using the roadway because the interests of South-
tion. Id. at 1175.                                            western as the owner required such use. Both, in a sense,
                                                              were invitees of the owner and . . . each owes a duty to
     While the court ultimately held that another provision
                                                              prevent injury to the other through negligence.
excluded coverage, the court also held that because B&B
was not an "occupier" of the premises, section f.(1)(a) of
                                                               374 S.W.2d at 198-99. In sum, we suggested that for a
the insurance contract did not bar coverage. 910 F. Supp.
                                                              contractor to be an "occupier" of premises, it must have an
at 1178-81. As here, the insurer relied on Tri County in
                                                              exclusive right of possession to that premises.
arguing that the insured occupied the premises. However,
the court distinguished the case from Tri County by               In Heldenfels, however, the meaning of "occupied"
framing the question before it as: "Does occasional, lim-     was not at issue, and the passage that the Tri County court
ited work performed by a subcontractor, such as B&B, at       quoted was merely a recitation of the assumed fact that the
a well site operated and controlled by another amount to      subcontractor had "the right to occupy such portions of the
occupancy?" Id. at 1178. Answering the question in the        roadway as were necessary" for the performance of its
negative, the court stated that "if any sort of occupancy,    work. Thus, the Tri County court incorrectly stated that
'no matter how transitory or for whatever purpose,' were      Heldenfels "articulated a definition" of "occupy." More-
deemed sufficient to invoke subsection (a) of this pollu-     over, the language [**12] quoted above suggests, like
tion exclusion, 'the remaining subsections, (b) through       B&B Oil Well Service, that we intended something more
(d), would be meaninglessly superfluous.'" Id. (quoting       than mere presence for a subcontractor to "occupy"
Schumann v. New York, 160 Misc. 2d 802, 610 N.Y.S.2d          premises.
987, 991 (Ct. Cl. 1994)). "In the court's view, . . . each
                                                                   Both parties cite Gregory v. Tennessee Gas Pipeline
aspect of the 'occupancy' definition suggests something
                                                              Co., 948 F.2d 203 (5th Cir. 1991), as support for their
other than a transient, nonpossessory relation to the
                                                              position. In Gregory, the city of Natchitoches, Louisiana,
[**10] [*466] property. Subsection (a) is thus inap-
                                                              created a lake to provide for the city's drinking water
plicable." Id. (footnote omitted). Thus, B&B Oil Well
                                                              supply. A gas company maintained a facility next to the
Service held that a well contractor reworking a well was
                                                              lake and allegedly discharged chemicals into the lake. As
not an occupier because its presence was too transient and
                                                              a result, several landowners sued the gas company and the
nonpossessory to be occupancy.
                                                              city. The city then filed a third-party complaint against its
                                                              insurer, seeking coverage. Claiming that the city "occu-
                                                                                                                   Page 4
                                       980 S.W.2d 462, *; 1998 Tex. LEXIS 152, **;
                                       47 ERC (BNA) 1860; 141 Oil & Gas Rep. 412

pied" the lake under exclusion (a) (the same as KCI's           "owned," "rented," and "loaned." In short, we agree with
section f.(1)(a)) and was therefore excluded from cover-        Gregory that to "occupy" means "to hold or keep for use,"
age, the insurer denied coverage. The city claimed that,        and we conclude that KCI's interpretation of the word
while it did own the bed of the lake, it did not own "the       "occupy" in section f.(1)(a) is the only reasonable inter-
waters, fish, flora, or fauna of the lake." Id. at 205. Thus,   pretation. We therefore hold that section f.(1)(a) unam-
the issue before the court was whether the city "occupied"      biguously does not apply to exclude coverage for KCI's
the lake as that term was used in the insurance contract.       cleanup costs. 2
948 F.2d at 204-06.
                                                                       2 Highlands also claims that exclusion f. is an
     Because the city "created the lake, owns at least a
                                                                       "absolute pollution exclusion." Nevertheless, the
large portion of the bed, and maintains and uses the [**13]
                                                                       cases Highlands cites for support concern policies
lake and its waters for a drinking water supply," the court
                                                                       with much broader pollution exclusion clauses.
held that the city did occupy the lake. Id. at 207. The court
                                                                       See National Union Fire Ins. Co., 907 S.W.2d at
defined "occupy" as "to keep or hold for use." Id. 1
                                                                       519 (policies excluding coverage for the "dis-
                                                                       charge, dispersal, release or escape of pollutants,
       1 At least one state court's holding is in line with
                                                                       anywhere in the world" and "however caused and
       B&B Oil Well Service and Gregory. See C.O.
                                                                       whenever occurring") (emphasis added).
       Falter, Inc. v. Crum & Forster Ins. Cos., 79 Misc.
       2d 981, 361 N.Y.S.2d 968, 974 (Sup. Ct. 1974)                        Even the secondary authorities cited by
       ("Construed in its ordinary sense and given its                 Highlands indicate that coverage is available un-
       intended meaning, the word 'occupy' suggests . . .              der exclusion f. in certain instances, including
       continued physical presence [on the premises ].                 "off-site pollution releases." Most telling, how-
       This exclusion is intended to deprive an insured                ever, is that in Highlands's own policy with KCI is
       from the benefit of coverage for damages it causes              an endorsement entitled "Total Pollution Exclu-
       while 'occupying' the [premises]. Plaintiff's occa-             sion." This endorsement is a substitute for exclu-
       sional trips to the [premises] to make minor im-                sion f. in the policy and would exclude all pollu-
       provements do not suggest that it 'occupied' the                tion coverage. However, by its own terms, the
       damaged property within the intent of the exclu-                endorsement does not apply in the state of Texas.
       sion and at the time of the loss.").                            Because this endorsement does not apply in Texas,
                                                                       Highlands cannot claim that exclusion f. is an
      [*467] We agree with KCI that if the court of ap-
                                                                       absolute pollution exclusion clause.
peals was correct that any presence, no matter how tran-
sitory, constitutes occupancy under section f.(1)(a), then            [**16] B
[**14] section f.(1)(d) is rendered meaningless. Sub-
                                                                     Finally, Highlands argues that section f.(2)(a) ex-
paragraph (a) applies to releases at or from premises
                                                                plicitly excludes KCI from coverage for its cleanup costs.
owned or controlled by the contractor. Subparagraph (d)
                                                                Nevertheless, Highlands waived reliance on this portion
broadens the scope of the exclusion to include releases at
                                                                of the policy because it asserted its applicability for the
or from premises owned by a third party at which the
                                                                first time in its motion for new trial. McConnell v.
contractor is performing operations, but only if the con-
                                                                Southside Indep. Sch. Dist., 858 S.W.2d 337, 343 (Tex.
tractor brings the pollutants onto the site. By negating
                                                                1993) (holding that an issue not presented in a response to
coverage for a contractor's entire operations at a job site,
                                                                a motion for summary judgment cannot later be raised on
the court of appeals' interpretation leaves section f.(1)(d)
                                                                appeal); City of Houston v. Clear Creek Basin Auth., 589
nothing to exclude. Under the court of appeals' interpre-
                                                                S.W.2d 671, 676 (Tex. 1979). As a result, exclusion
tation, there would be absolutely no reason to include (d)
                                                                f.(2)(a) does not operate to exclude KCI from recovering
since (a) already excludes all of the contractor's opera-
                                                                its cleanup costs. We express no opinion on whether
tions, whether or not the contractor owns or controls the
                                                                KCI's costs would have been excluded had Highlands not
premises on which it is performing operations. Under that
                                                                waived reliance on this section.
reading, a contractor's off-premises coverage is com-
pletely eliminated.
                                                                III
     A reading that does give meaning to both provisions
                                                                     We hold that the term "occupied by" in this insurance
is that section f.(1)(a) refers to operations on premises
                                                                policy's pollution exclusion clause does not encompass
owned or controlled by the contractor, while section
                                                                KCI's operations on a third-party's premises. The provi-
f.(1)(d) refers to operations taking place on a third-party's
                                                                sion unambiguously excludes costs for pollution spillage
premises. This reading is consistent with the plain, ordi-
                                                                from or on the insured's own premises. We therefore
nary, and generally accepted meaning of "occupied" when
                                                                reverse the court of appeals and render judgment for KCI.
[**15] read in context with the other terms in the clause,
                                                                                                                     Page 5
                                       980 S.W.2d 462, *; 1998 Tex. LEXIS 152, **;
                                       47 ERC (BNA) 1860; 141 Oil & Gas Rep. 412

    Rose Spector                                                 py" actually supports Highland's position. In Gregory, the
                                                                 city did not have exclusive control over and use of the
    Justice
                                                                 lake, but others also used it for recreational purposes. See
    OPINION DELIVERED: November 12, 1998                         948 F.2d at 204-05. Gregory supports the proposition that
                                                                 one may "occupy" a premises without owning or having
DISSENT BY: RAUL [**17] A. GONZALEZ                              exclusive use of it.
                                                                      This Court also misreads Hernandez v. Heldenfels,
DISSENT
                                                                 374 S.W.2d 196 (Tex. 1963), to suggest that in order for a
     JUSTICE GONZALEZ, joined by JUSTICE                         contractor to be an "occupier" of a premises, it must have
HECHT, JUSTICE OWEN, and JUSTICE BAKER, dis-                     an exclusive right of possession to the premises. First, our
senting.                                                         interpretation of the term "occupier" in Heldenfels applied
                                                                 only to premises liability actions, not to insurance cov-
     The Court concludes that an insured did not "occupy"
                                                                 erage. Second, not even in the context of premises liability
the work site where it caused an oil spill, and therefore the
                                                                 law must an "occupier" of land actually "possess" the
pollution exclusion provision in the insured's commercial
                                                                 land. One who "is entitled to exclusive control" of a
general liability insurance policy did not preclude              premises, even if not an owner, may be an "occupier" of
[*468] coverage. I disagree and would affirm the judg-           the land. See id. at 198. Third, just because one who has
ment of the court of appeals.
                                                                 an exclusive right of possession or control of a property
     Natural Gas Pipeline Company of America ("NGP")             may be deemed an "occupier" of the property does not
contracted Kelley-Coppedge, Inc. ("KCI") to construct            mean that the converse is true -- that one who does not
pipelines for NGP. Their contract expressly obliged NGP          have a right to exclusive possession or control of a prop-
to "furnish right-of-way" as appropriate to KCI and spe-         erty [**20] is not an occupier. Even so, while it per-
cifically granted KCI "the right to conduct operations for       formed its pipe-laying operations, KCI had what is tan-
the construction of pipelines (gas, water, drain and sew-        tamount to exclusive control through a contractual "right
age) over a strip of ground fifty feet (50') in width." For a    of way" on NGP's easement.
period of no fewer than nineteen days, KCI placed
                                                                      The Court's reliance on C.O. Falter, Inc. v. Crum &
workers and equipment on NGP's easement in Wise                  Forster Insurance Cos., 79 Misc. 2d 981, 361 N.Y.S.2d
County. In the course of laying pipeline along this ease-        968 (Sup. Ct. 1974), and United States Fidelity & Guar-
ment, KCI's workers punched a hole in a crude oil pipe-
                                                                 anty Co. v. B&B Oil Well Service, Inc., 910 F. Supp. 1172
line, causing the discharge of 1,600 barrels of crude oil at
                                                                 (S.D. Miss. 1995), is also misplaced. The C.O. Falter
the location KCI was working.
                                                                 court construed the word "occupy" to mean "continued
      Section f.(1)(a) of KCI's insurance policy excluded        physical presence," not "occasional trips to the [premises]
coverage for pollution-related losses, damage [**18] or          to make minor improvements." 361 N.Y.S.2d at 974.
injuries "at or from any premises, site or location which is     Similarly, the B&B Oil court concluded that "occasional,
or was at any time owned or occupied by, or rented or            limited work performed by a subcontractor, such as B&B,
loaned to, any insured." Section f.(1)(d) excluded cover-        at a well site operated and controlled by another" did not
age of the same at any place "on which any insured or any        amount to occupancy. 910 F. Supp. at 1178. The B&B Oil
contractors or subcontractors working directly or indi-          court compared the occasional workover operations B&B
rectly on any insured's behalf are performing operations . .     performed on wells to the work of a plumber or telephone
. if the pollutants are brought on or to the premises, site or   repairman. Id. at 1178 n.7. KCI's physical presence on
location in connection with such operations by such in-          the easement, by contrast, was not occasional, limited, or
sured, contractor or subcontractor."                             brief; nor was it merely engaged in routine maintenance
                                                                 operations. Rather, KCI placed a crew and [*469]
      The Court concludes that to "occupy" means "to hold        heavy [**21] machinery at the job site over a period of
or keep for use," citing Gregory v. Tennessee Gas Pipe-          several days.
line Co., 948 F.2d 203, 207 (5th Cir. 1991), in support of
this definition. In Gregory, the court concluded that the             Based on any of the preceding definitions, KCI
City of Natchitoches "occupied" the lake it created, even        clearly "occupied" the easement. The various construc-
if it did not "own" the lake, because it regulated the lake      tions placed on the term "occupancy" in the preceding
levels and used the lake to supply the city's drinking wa-       cases, however, are not controlling. Because the term
ter. Id. Gregory held that one who "holds or maintains           "occupied" is not ambiguous, "it is the court's duty to give
[property] for use" also "occupies" it. Id. It does not fol-     the words used their plain meaning." See Puckett v. U.S.
low, however, that one who does not hold or maintain             Fire Ins. Co., 678 S.W.2d 936, 938 (Tex. 1984).
property for use does not "occupy" it. Nevertheless, the
Gregory court's construction of the [**19] term "occu-
                                                                                                                 Page 6
                                     980 S.W.2d 462, *; 1998 Tex. LEXIS 152, **;
                                     47 ERC (BNA) 1860; 141 Oil & Gas Rep. 412

      Based on the plain, ordinary, and generally accepted           1 In general, an employer is not vicariously li-
meaning of occupied, a person or thing occupies a space if           able for the negligence of its subcontractor. See
it is there. One may occupy a vehicle, a hotel room, or              Baptist Memorial Hosp. Sys. v. Sampson, 969
even an airplane seat or bathroom for a short period of              S.W.2d 945, 947 (Tex. 1998). However, an em-
time without ever possessing or controlling it. The term             ployer may be liable for the negligence of its
occupy and its cognates are routinely defined as indicat-            subcontractor if the employer retains the right or
ing physical presence or proximity in the automobile                 power to control the manner in which the sub-
insurance context. See, e.g., Genthner v. Progressive Cas.           contractor performs its work but fails to exercise
Ins. Co., 681 A.2d 479, 482 n.1 (Me. 1996) (citing cases             reasonable care in supervising the contractor. See
deciding who could be covered as an "occupant" under                 Hoechst-Celanese Corp. v. Mendez, 967 S.W.2d
general automobile insurance policies). KCI unambigu-                354, 356 (Tex. 1998).
ously occupied NGP's easement by being there and using
                                                                    [**23] Finally, we should not hold that some re-
it to construct a pipeline.
                                                              dundancy or overlapping application in multiple policy
     KCI argues that if mere presence and use of a prem-      provisions renders any of the provisions meaningless. It is
ises constitutes [**22] occupancy under section f.(1)(a)      not uncommon for contracts to have redundant terms,
of the policy, then section f.(1)(d) is rendered meaning-     expressions and provisions, especially when specific
less. However, as Highland contends, the two sections         provisions require regulatory pre-approval or when
have independent, non-overlapping meanings because            standard-form contracts are crafted to accommodate a
section f.(1)(a), unlike section f.(1)(d), does not exclude   wide variety of clients and circumstances. See Grain
pollution damages on a third party's premises occupied by     Dealers Mut. Ins. Co. v. McKee, 943 S.W.2d 455, 458
an insured's subcontractor rather than the insured. The       (Tex. 1997). The use of several terms and overlapping
policy indemnified KCI for any vicarious liability it might   provisions is usually intended to clarify the scope and
incur for pollution-related damages caused by a KCI           intent of the instrument and insulate it from any misun-
subcontractor who did not bring the pollutants to the site,   derstanding.
but excluded it for any damages for which KCI was di-
                                                                  Because I disagree with the Court's definition of
rectly responsible. Stated another way, the insurance
                                                              "occupy," I dissent.
policy provided coverage for pollution-related damages in
only a narrow set of circumstances -- circumstances over          Raul A. Gonzalez
which KCI had minimal control and for damages arising
                                                                  Justice
only out of vicarious liability. 1
                                                                  OPINION DELIVERED: November 12, 1998
                                                                                                                      Page 1
                                              2013 Tex. App. LEXIS 7976, *




                            Liaquat Ali Khan, Appellant v. Nizarali Meknojiya, Appellee

                                                   NO. 03-11-00580-CV

                         COURT OF APPEALS OF TEXAS, THIRD DISTRICT, AUSTIN

                                               2013 Tex. App. LEXIS 7976


                                                   June 28, 2013, Filed

PRIOR HISTORY: [*1]                                            attorney's fees. Because we conclude that the holdover
  FROM THE DISTRICT COURT OF TRAVIS                            provision is not an unenforceable penalty, we reverse the
COUNTY, 200TH JUDICIAL DISTRICT NO.                            trial court's judgment and remand the case for further
D-1-GN-08-001931, HONORABLE  LORA J.                           proceedings.
LIVINGSTON, JUDGE PRESIDING.
                                                               BACKGROUND
DISPOSITION:          Reversed and Remanded.
                                                                    Khan owns commercial property located in Austin,
                                                               Texas. [*2] In 1996, Khan and Meknojiya entered into a
                                                               written lease agreement, and Meknojiya began operating a
COUNSEL: For appellant: Mr. D. Todd Smith, Smith
                                                               convenience store on the leased premises. The parties
Law Group, P.C., Austin, TX.
                                                               renegotiated their lease ("the lease") in March 2002. The
                                                               renegotiated lease required Meknojiya to pay $4,500 per
For appellee: Mr. Timothy J. Herman, Howry Breen &
                                                               month in "base rent" and included the following para-
Herman, L.L.P., Austin, TX.
                                                               graph, which the parties refer to as a "holdover provision":
Mr. John Sepehri, Texas Apartment Association, Austin,
                                                                         2.07 Holding Over. If Tenant does not
TX.
                                                                      vacate the Leased Premises upon the ex-
                                                                      piration or earlier termination of the Lease,
JUDGES: Before Chief Justice Jones, Justices Goodwin
                                                                      Tenant shall be a tenant at sufferance for
and Field.
                                                                      the holdover period and all of the terms
                                                                      and provisions of this Lease shall be ap-
OPINION BY: Scott K. Field
                                                                      plicable during that period, except that
                                                                      Tenant shall pay Landlord (in addition to
OPINION
                                                                      additional rent payable under this Lease
                                                                      and any other sums payable under this
MEMORANDUM OPINION
                                                                      Lease) as base rental for the period of such
     Landlord Liaquat Ali Khan sued tenant Nizarali                   holdover an amount equal to two times the
Meknojiya for breach of the parties' commercial lease. In             base rent which would have been payable
the suit, Khan sought damages pursuant to the lease's                 by Tenant had the holdover period been a
holdover provision, contending that Meknojiya became a                part of the original terms of the Lease
holdover tenant as a of result Khan's termination of the              (without waiver of Landlord's right to re-
lease. Meknojiya moved for summary judgment on the                    cover damages as permitted by law).
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."
                                                                   According to Khan, Meknojiya committed a series of
The trial court granted partial summary judgment in favor
                                                               breaches following execution of the 2002 lease. For in-
of Meknojiya, and following a bench trial only on attor-
                                                               stance, Khan contends that [*3] Meknojiya (1) failed to
ney's fees, the court rendered a final judgment that Khan
                                                               obtain or renew required insurance, (2) failed to provide
take nothing on his claims and that Meknojiya recover
                                                                                                                    Page 2
                                             2013 Tex. App. LEXIS 7976, *


the required insurance documentation, and (3) permitted a                    party, their reasonable attorney['s]
corporation owned by other individuals to operate the                        fees, court costs and expenses, in-
convenience store without obtaining Khan's prior written                     cluding but not limited to travel
consent. Khan notified Meknojiya in writing, through                         and witness costs.
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         STANDARD OF REVIEW
premises and to pay $4,500 per month until January 2,
                                                                   We review a trial court's ruling on summary judg-
2007, the date the lease was set to have expired by its own
                                                              ment de novo. Valence Operating Co. v. Dorsett, 164
terms.
                                                              S.W.3d 656, 661 (Tex. 2005). A moving party is entitled to
     Khan subsequently sued Meknojiya for breach of the       summary judgment if (1) there are no genuine issues of
lease, asserting that upon Meknojiya's breach of the lease    material fact and (2) the movant is entitled to judgment as
and Khan's notification that the lease was terminated,        a matter of law. Tex. R. Civ. P. 166a(c). A party who
Meknojiya occupied the property as a tenant at sufferance.    moves for traditional summary judgment on another
See ICM Mortg. Corp. v. Jacob, 902 S.W.2d 527, 530            party's claim is entitled to summary judgment when he
(Tex. App.--El Paso 1994, writ denied) (citing Restate-       negates at least one essential element of that claim or
ment (First) of Property § 22 (1936)) ("A tenant at suf-      conclusively establishes each element of an affirmative
ferance is a person who has been in lawful possession of      defense. Science Spectrum, Inc. v. Martinez, 941 S.W.2d
property but who wrongfully remains as a holdover after       910, 911 (Tex. 1997). When reviewing the trial court's
his right to possession has expired."). Khan sought dam-      summary judgment ruling, we take as true all evidence
ages [*4] in an amount equal to the difference that           favorable to the nonmovant, and we indulge [*6] every
Meknojiya actually paid during the alleged holdover           reasonable inference and resolve any doubts in the
period and the amount that Meknojiya was required to pay      nonmovant's favor. Valence Operating Co., 164 S.W.3d at
for the same time period under paragraph 2.07.                661.
      Khan moved for partial summary judgment, asserting           In part, Khan's arguments on appeal raise matters of
that he conclusively established all elements of his claim    contract construction. In construing a written agreement,
for breach of the lease.1 Meknojiya filed a response and      we must ascertain and give effect to the parties' intentions
subsequently moved for summary judgment asserting that        as expressed in the agreement. Frost Nat'l Bank v. L & F
Khan's recovery was barred as a matter of law because the     Distribs., Ltd., 165 S.W.3d 310, 311-12 (Tex. 2005) (per
double-rent rate under paragraph 2.07 constitutes an un-      curiam). We consider the agreement as a whole and at-
enforceable penalty. After conducting a hearing, the trial    tempt to harmonize and give effect to all provisions of the
court granted Meknojiya's motion for summary judgment         contract. Id. If the contract language can be given a certain
but denied Khan's motion. Following a bench trial on          or definite legal meaning, then the language is not am-
Meknojiya's remaining counterclaim for attorney's fees,       biguous, and this Court will construe the contract as a
the trial court rendered a final judgment incorporating the   matter of law. SAS Inst., Inc. v. Breitenfeld, 167 S.W.3d
trial court's order granting summary judgment in favor of     840, 841 (Tex. 2005) (quoting Coker v. Coker, 650 S.W.2d
Meknojiya and ordering Khan to pay $60,191.71 in at-          391, 393 (Tex. 1983)).
torney's fees.2 In three issues on appeal, Khan argues that
the trial court erred in granting summary judgment in         DISCUSSION
favor of Meknojiya and consequently, in awarding
                                                                   Meknojiya moved for traditional summary judgment
Meknojiya attorney's fees as the prevailing party.
                                                              on the sole ground that the lease's holdover provision,
                                                              calling for double rent, is an unenforceable liquidat-
       1     Khan also asked the trial court to render
                                                              ed-damages provision, i.e. a penalty. This assertion by
       summary judgment that [*5] he was entitled to
                                                              Meknojiya is an affirmative defense that he had the bur-
       attorney's fees, but to reserve judgment on the
                                                              den of pleading and proving. See Phillips v. Phillips, 820
       amount of fees for a separate hearing.
                                                              S.W.2d 785, 788 (Tex. 1991). As a result, [*7] to be
       2 Paragraph 13.03 of the lease states:
                                                              entitled to summary judgment, Meknojiya had to conclu-
                                                              sively establish every element of this defense. See Ryland
                  Attorney's Fees. The prevailing
                                                              Grp., Inc. v. Hood, 924 S.W.2d 120, 121 (Tex. 1996) (per
               party in any legal proceeding
                                                              curiam).
               brought under or with a relation to
               this agreement shall be entitled to                "The universal rule for measuring damages for the
               recover form the non-prevailing                breach of a contract is just compensation for the loss or
                                                                                                                     Page 3
                                               2013 Tex. App. LEXIS 7976, *


damage actually sustained." Phillips, 820 S.W.2d at 788.        peals in Dallas in analyzing whether a similar clause
Accordingly, a liquidated-damages provision is not en-          operated as a penalty provision. See Meridien Hotels, Inc.
forceable if, in effect, it is a penalty. See id. ("Whether a   v. LHO Fin. P'ship I, L.P., 255 S.W.3d 807 (Tex.
contractual provision is an enforceable liquidated dam-         App.--Dallas 2008, no pet.). In Meridien Hotels, the
ages provision or an unenforceable penalty is a question        landlord leased hotel space to the tenant under a lease that
of law for the court to decide."). A liquidated-damages         required the tenant to pay 1.5 times the base rental amount
provision is enforceable only if a court finds that (1) the     if the tenant remained [*10] in the space upon termina-
harm caused by the breach is incapable or difficult of          tion of the lease by one of the parties or the lease term's
estimation, and (2) the amount of liquidated damages            expiration.3 Id. at 822. The landlord sent the tenant a
called for is a reasonable forecast of just compensation.       notice of termination of the lease, but the tenant remained
Id. Whether a liquidated-damages provision is an unen-          in the hotel space anyway. Id. at 814. The landlord
forceable penalty is a question of law for the court, alt-      eventually sued the tenant, seeking multiple types and
hough sometimes factual issues must be resolved before          amounts of damages, including $2,130,136 in holdover
the court can decide the legal question. Id.                    rent, plus prejudgment interest, all of which the trial court
                                                                awarded. Id.
     In his first and second issues on appeal, Khan argues
that the trial court erred in granting Meknojiya's sum-
                                                                       3 Specifically, the lease at issue in Meridien
mary-judgment motion because [*8] Meknojiya failed to
                                                                       Hotels, Inc. v. LHO Financing Partnership I, L.P.,
conclusively establish the essential elements of his af-
                                                                       contained the following provision:
firmative defense of penalty. Specifically, Khan argues
that, as a matter of law, paragraph 2.07 is not an unen-
                                                                                  Any holding over by Tenant
forceable penalty provision because it is not a liquidat-
                                                                               after the expiration or sooner ter-
ed-damages provision at all. Instead, according to Khan,
                                                                               mination of this Agreement shall
paragraph 2.07 simply sets forth the parties' agreed rental
                                                                               be treated as a daily tenancy at
rate for any holdover period. Based on the unambiguous
                                                                               sufferance at a rate equal to one
language of the lease, we agree.
                                                                               and one-half (1.5) times the Rent
     Whether a contract term is a liquidated-damages                           and other charges herein provided
provision is a question of law for the court. Valence Op-                      (prorated on a daily basis).
erating Co., 164 S.W.3d. at 664. "The term 'liquidated
damages' ordinarily refers to an acceptable measure of
damages that parties stipulate in advance will be assessed             255 S.W.3d 807, 822 (Tex. App.--Dallas 2008, no
in the event of a contract breach." Flores v. Millennium               pet.)
Interests, Ltd., 185 S.W.3d 427, 431 (Tex. 2005). Here,
                                                                      The tenant appealed, claiming that the holdover rent
paragraph 2.07 sets an agreed-upon rental rate for situa-
                                                                provision was an unlawful penalty and that, as a result, the
tions in which the tenant has failed to surrender the leased
                                                                trial court erred in awarding pre-judgment interest on that
premises upon expiration of the lease term or earlier ter-
                                                                amount. Id. at 822. Concluding that the holdover rental
mination by one of the parties. The provision itself de-
                                                                rate did not constitute a penalty, the court of appeals
scribes the amount due during the holdover period as
                                                                concluded that the provision "does not [*11] punish
"base rental for the period of such holdover." Further,
                                                                appellants; it instead requires that if appellants make the
paragraph 2.07 states that payment [*9] of such rental
                                                                decision to hold over beyond the term of the lease, they
amounts do not waive the landlord's right to recover
                                                                must pay a higher rate for doing so. Appellants were on
"damages as permitted by law." In other words, based on
                                                                notice that [the landlord] considered the lease terminated,
the plain language of the lease, there is no indication that
                                                                yet they chose to stay, having agreed in the lease to pay
the parties intended the amounts owed under paragraph
                                                                1.5 times the usual rent for doing so." Id.
2.07 as a means of forecasting damages in the event of a
breach. And, while rent under paragraph 2.07 may, in                 Likewise, in this case, paragraph 2.07 of the parties'
certain circumstances, form the basis of measuring dam-         lease agreement sets out in advance the rent to be paid
ages, it does not independently set a damages amount or         should the tenant choose to remain on the premises after
attempt to calculate damages. Simply put, any amount            one of the parties terminates the lease or the lease expires
owed under paragraph 2.07 does not equate to a stipulated       by its own terms, creating a tenancy at sufferance. Upon
measure of damages; rather, it is an agreed-upon rental         expiration or termination of the lease, the tenant must
amount that is due under particular circumstances.              decide whether to (1) leave the leased premises (assuming
                                                                he is not forcibly removed) or (2) hold over under the
     Our conclusion that paragraph 2.07 of the lease is not
                                                                lease as a tenant at sufferance and pay additional rent at
a liquidated-damages provision, and therefore is not a
                                                                the agreed holdover rate. Such additional rent is not a
penalty, is consistent with that of our sister court of ap-
                                                                                                                  Page 4
                                              2013 Tex. App. LEXIS 7976, *


penalty; in fact, it does not represent liquidated damages            quire a separate determination of damages or the
at all. Rather, the additional rent is the agreed-to, bar-            application of any multiplier to that amount. Thus,
gained-for amount of rent due and owing in the event of a             even if we were to conclude that paragraph 2.07 is
holdover.4                                                            a liquidated-damages provision, unlike the court
                                                                      in Phillips we could not conclude that it consti-
       4 Meknojiya relies on Phillips v. Phillips, 820                tutes a penalty on its face.
       S.W.2d 785 (Tex. 1991), for the proposition that a
                                                                    Because paragraph 2.07 of the parties' lease agree-
       contractual [*12] provision in which one party
                                                               ment is not a liquidated-damages provision, it cannot be
       agrees to pay the other some multiple of damages
                                                               an unenforceable penalty, as a matter of law. We therefore
       is an unenforceable penalty. Phillips is a classic
                                                               conclude that the trial court erred in granting summary
       illustration of a liquidated-damages provision that
                                                               judgment in favor of Meknojiya on this ground. In addi-
       constitutes an unlawful penalty. In the midst of
                                                               tion, because Meknojiya should not have prevailed on
       divorce proceedings, a husband and wife agreed to
                                                               summary judgment, it follows that he was not entitled to
       create a limited partnership rather than divide their
                                                               attorney's fees. We sustain appellant's first and second
       substantial assets. Id. at 786-87. The agreement
                                                               issues on appeal.5
       contained the following provision: "If the general
       partner breaches his trust hereunder, he shall pay
                                                                      5 In his third issue on appeal, Khan argues that,
       to the limited partner as liquidated damages ten
                                                                      even if the double-rent rate set forth in paragraph
       times the amount she loses as a result of such
                                                                      2.07 represents liquidated damages,           [*14]
       breaches of trust." Id. at 787. In other words, once
                                                                      Meknojiya failed to satisfy his burden to establish
       actual damages were established for breach of the
                                                                      that it is an unenforceable penalty. Having sus-
       parties' contract, they would be multiplied by ten
                                                                      tained Khan's first and second issues on appeal, we
       to reach the damages award. Id. at 789. The su-
                                                                      do not address this issue. See Tex. R. App. P. 47.1.
       preme court held that this provision was an un-
       enforceable penalty provision, rather than an en-
                                                               CONCLUSION
       forceable liquidated damages provision. Id.
                                                                    Because we conclude that the trial court erred in
            Meknojiya's reliance on Phillips in this case is
                                                               granting summary judgment, we reverse the trial court's
       misplaced. First, unlike paragraph 2.07, the pro-
                                                               judgment and award of attorney's fees in favor of
       vision at issue in Phillips was undisputedly a liq-
                                                               Meknojiya. We remand the case to the trial court for
       uidated-damages provision. As previously dis-
                                                               further proceedings consistent with this opinion.
       cussed, paragraph 2.07 is not a liquidat-
       ed-damages provision at all, but instead is a rental        Scott K. Field, Justice
       [*13] amount that is triggered if and when the
       lease expires or is terminated. Second, the liqui-           Before Chief Justice Jones, Justices Goodwin and
                                                               Field
       dated-damages provision at issue in Phillips was
       an unenforceable penalty on its face because the            Reversed and Remanded
       amount awarded by the provision was computed
       by multiplying actual damages (once established).           Filed: June 28, 2013
       See id. at 789. Here, paragraph 2.07 does not re-
                                                                                                                   Page 1




                LAKE RIVER CORPORATION, Plaintiff-Appellee-Cross-Appellant, v. CARBO-
                       RUNDUM COMPANY, Defendant-Appellant-Cross-Appellee

                                                 Nos. 84-1623, 84-1688

                   UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT

                                     769 F.2d 1284; 1985 U.S. App. LEXIS 21908

                                               April 22, 1985, Argued
                                               August 9, 1985, Decided

PRIOR HISTORY:               [**1]    Appeal from the        would receive Ferro Carbo in bulk from Carborundum,
United States District Court for the Northern District of    "bag" it, and ship the bagged product to Carborundum's
Illinois, Eastern Division, No. 82 C 6292-Thomas R.          [**2] customers. The Ferro Carbo would remain Car-
McMillen, Judge.                                             borundum's property until delivered to the customers.
                                                                  Carborundum insisted that Lake River install a new
DISPOSITION:       AFFIRMED IN PART, RE-
                                                             bagging system to handle the contract. In order to be sure
VERSED IN PART, AND REMANDED.
                                                             of being able to recover the cost of the new system
                                                             ($89,000) and make a profit of 20 percent of the contract
                                                             price, Lake River insisted on the following mini-
COUNSEL: Michael R. Turoff, Arnstein, Gluck, Lehr,
                                                             mum-quantity guarantee:
Barron & Milligan, Chicago, Illinois, for Plaintiff.
                                                                       In consideration of the special equip-
Glen H. Kanwit, Hopkins & Sutter, Chicago, Illinois, for
                                                                    ment [i.e., the new bagging system] to be
Defendant.
                                                                    acquired and furnished by LAKE-RIVER
                                                                    for handling the product, CARBORUN-
JUDGES: Eschbach and Posner, Circuit Judges, and
                                                                    DUM shall, during the initial three-year
Gibson, Senior Circuit Judge. *
                                                                    term of this Agreement, ship to
                                                                    LAKE-RIVER for bagging a minimum
       * Hon. Floyd R. Gibson of the Eighth Circuit,
                                                                    quantity of [22,500 tons]. If, at the end of
       sitting by designation.
                                                                    the three-year term, this minimum quantity
                                                                    shall     not    have      been     shipped,
OPINION BY: POSNER
                                                                    LAKE-RIVER shall invoice CARBO-
                                                                    RUNDUM at the then prevailing rates for
OPINION
                                                                    the difference between the quantity bagged
     [*1286] POSNER, Circuit Judge.                                 and the minimum guaranteed.
    This diversity suit between Lake River Corporation
and Carborundum Company requires us to consider
                                                             If Carborundum had shipped the full minimum quantity
questions of Illinois commercial law, and in particular to
                                                             that it guaranteed, it would have owed Lake River roughly
explore the fuzzy line between penalty clauses and liq-
                                                             $533,000 under the contract.
uidated-damages clauses.
                                                                 After the contract was signed in 1979, the demand for
     Carborundum manufactures "Ferro Carbo," an abra-
                                                             domestic steel, and with it the demand for Ferro Carbo,
sive powder used in making steel. To serve its midwestern
                                                             plummeted, and Carborundum [**3] failed to ship the
customers better, Carborundum made a contract with
                                                             guaranteed amount. When the contract expired late in
Lake River by which the latter agreed to provide distri-
                                                             1982, Carborundum had shipped only 12,000 of the
bution services in its warehouse in Illinois. Lake River
                                                                                                                      Page 2
                                    769 F.2d 1284, *; 1985 U.S. App. LEXIS 21908, **


22,500 tons it had guaranteed. Lake River had bagged the        tract. The issue is whether an entitlement to damages,
12,000 tons and had billed Carborundum for this bagging,        large or small, entitles the victim of the breach to assert a
and Carborundum had paid, but by virtue of the formula in       lien on goods that are in its possession though they belong
the minimum-guarantee clause Carborundum still owed             to the other party.
Lake River $241,000 -- the contract price of $533,000 if
                                                                      Lake River has not been very specific about the type
the full amount of Ferro Carbo had been shipped, minus
                                                                of lien it asserts. We think it best described as a form of
what Carborundum had paid for the bagging of the quan-
                                                                artisan's lien, the "lien of the bailee, who does work upon
tity it had shipped.
                                                                or adds materials to chattels . . . ." Restatement of Security
     When Lake River demanded payment of this amount,           § 61, comment on clause (a), at p. 165 (1941). Lake River
Carborundum refused, on the ground that the formula             was the bailee of the Ferro Carbo that Carborundum de-
imposed a penalty. At the time, Lake River had in its           livered to it, and it did work on the Ferro Carbo -- bagging
warehouse 500 tons of bagged Ferro Carbo, having a              it, and also storing it (storage is a service, too). If Carbo-
market value of $269,000, which it refused to release           rundum had refused to pay for the [**6] services that
unless Carborundum paid the $241,000 due under the              Lake River performed on the Ferro Carbo delivered to it,
formula. Lake River did offer to sell the bagged product        then Lake River would have had a lien on the Ferro Carbo
and place the proceeds in escrow until its dispute with         in its possession, to coerce payment. Cf. National Bank
Carborundum over the enforceability of the formula was          of Joliet v. Bergeron Cadillac, Inc., 66 Ill. 2d 140, 143-44,
resolved, but Carborundum rejected the offer and trucked        361 N.E.2d 1116, 1117, 5 Ill. Dec. 588 (1977). But in fact,
in bagged Ferro Carbo from the East to serve its custom-        when Lake River impounded the bagged Ferro Carbo,
ers in Illinois, at an additional cost of $31,000.              Carborundum had paid in full for all bagging and storage
                                                                services that Lake River had performed on Ferro Carbo
     Lake River brought this [**4] suit for $241,000,
                                                                shipped to it by Carborundum. The purpose of impound-
which it claims as liquidated damages. Carborundum
                                                                ing was to put pressure on Carborundum to pay for ser-
counterclaimed for the value of the bagged Ferro Carbo
                                                                vices not performed, Carborundum having failed to ship
when Lake River impounded it and the additional cost of
                                                                the Ferro Carbo on which those services would have been
serving the customers affected by the impounding. The
                                                                performed.
theory of the counterclaim is that the impounding was a
conversion, and not as Lake River contends the assertion             Unlike a contractor who, having done the work con-
of a lien. The district judge, after a [*1287] bench trial,     tracted for without having been paid, may find himself in
gave judgment for both parties. Carborundum ended up            a box, owing his employees or suppliers money he does
roughly $42,000 to the good: $269,000 +                         not have -- money he was counting on from his customer
$31,000-$24100-$17,000, the last figure representing            -- Lake River was the victim of a breach of a portion of the
prejudgment interest on Lake River's damages. (We have          contract that remained entirely unexecuted on either side.
rounded off all dollar figures to the nearest thousand.)        Carborundum had not shipped the other 10,500 tons, as
Both parties have appealed.                                     promised; but on the other hand Lake River had not had to
                                                                bag those 10,500 tons, as it had promised. [**7] It is
     The only issue that is not one of damages is whether
                                                                not as if Lake River had bagged those tons, incurring
Lake River had a valid lien on the bagged Ferro Carbo that
                                                                heavy costs that it expected to recoup from Carborundum,
it refused to ship to Carborundum's customers -- that,
                                                                and then Carborundum had said, "Sorry, we won't pay
indeed, it holds in its warehouse to this day. Although
                                                                you; go ahead and sue us."
Ferro Carbo does not deteriorate with age, the domestic
steel industry remains in the doldrums and the product is            A lien is strong medicine; it clogs up markets, as the
worth less than it was in 1982 when Lake River first            facts of this case show. Its purpose is to provide an effec-
withheld it. If Lake River did not have a valid lien on the     tive self-help remedy for one who has done work in ex-
product, then it converted it, and must pay Carborundum         pectation of payment and then is not paid. The vulnerable
[**5] the $269,000 that the Ferro Carbo was worth back          position of such a person gives rise to "the artisan's priv-
then.                                                           ilege of holding the balance for work done in the past."
                                                                United States v. Toys of the World Club, Inc., 288 F.2d 89,
      It might seem that if the minimum-guarantee clause
                                                                94 (2d Cir. 1961) (Friendly, J.) (emphasis added). A lien
was a penalty clause and hence unenforceable, the lien
                                                                is thus a device for preventing unjust enrichment -- not for
could not be valid, and therefore that we should discuss
                                                                forcing the other party to accede to your view of a contract
the penalty issue first. But this is not correct. If the con-
                                                                dispute. "The right to retain possession of the property to
tractual specification of damages is invalid, Lake River
                                                                enforce a possessory lien continues until such time as the
still is entitled to any actual damages caused by Carbo-
                                                                charges [*1288] for such materials, labor and services
rundum's breach of contract in failing to deliver the
                                                                are paid." Bull v. Mitchell, 114 Ill. App. 3d 177, 181, 448
minimum amount of Ferro Carbo called for by the con-
                                                                N.E.2d 1016, 1019, 70 Ill. Dec. 138 (1983); cf. Ill. [**8]
                                                                                                                     Page 3
                                    769 F.2d 1284, *; 1985 U.S. App. LEXIS 21908, **


Rev. Stat. ch. 82, § 40. Since here the charges were paid        would have been unrelated to -- and certainly exceeded --
before the lien was asserted, the lien was no good.              the investment in the bagging system.
     Lake River tries to compare its position to that of a            It is no answer that the bagging system should be
conventional lien creditor by pointing out that it made          presumed to have been amortized equally over the life of
itself particularly vulnerable to a breach of contract by        the contract, and therefore to have been only half amor-
buying specialized equipment at Carborundum's insist-            tized when Carborundum broke the contract. [**11]
ence, to the tune of $89,000, before performance under           Amortization is an accounting device; it need not reflect
the contract began. It says it insisted on the minimum           cash flows. There is no evidence that when the contract
guarantee in order to be sure of being able to amortize this     was broken, Lake River was out of pocket a cent in re-
equipment over a large enough output of bagging services         spect of the bagging system, especially when we consider
to make the investment worthwhile. But the equipment             that the bagging system was still usable, and was used to
was not completely useless for other contracts -- Lake           fulfill another contract.
River having in fact used it for another contract; it was not
                                                                      The hardest issue in the case is whether the formula in
the major cost of fulfilling the contract; and Lake River
                                                                 the minimum-guarantee clause imposes a penalty for
received almost $300,000 during the term of the contract,
                                                                 breach of contract or is merely an effort to liquidate
thus enabling it to amortize much of the cost of the special
                                                                 damages. Deep as the hostility to penalty clauses runs in
equipment. Although Lake River may have lost money on
                                                                 the common law, see Loyd, Penalties and Forfeitures, 29
the contract (but as yet there is no proof it did), it was not
                                                                 Harv. L. Rev. 117 (1915), we still might be inclined to
in the necessitous position of a contractor who completes
                                                                 question, if we thought ourselves free to do so, whether a
his performance without receiving a dime and then is told
                                                                 modern court should refuse to enforce a penalty clause
by his customer to sue for the price. The recognition of a
                                                                 where the signator [*1289] is a substantial corporation,
[**9] lien in such a case is based on policies akin to
                                                                 well able to avoid improvident commitments. Penalty
those behind the rule that a contract modification procured
                                                                 clauses provide an earnest of performance. The clause
by duress will not be enforced. See, e.g., Selmer Co. v.
                                                                 here enhanced Carborundum's credibility in promising to
Blakeslee-Midwest Co., 704 F.2d 924 (7th Cir. 1983).
                                                                 ship the minimum amount guaranteed by showing that it
When as a practical matter the legal remedy may be in-
                                                                 was willing to pay the full contract price even if it failed
adequate because it operates too slowly, self-help is al-
                                                                 [**12] to ship anything. On the other side it can be
lowed. But we can find no case recognizing a lien on facts
                                                                 pointed out that by raising the cost of a breach of contract
like these, no ground for thinking that the Illinois Su-
                                                                 to the contract breaker, a penalty clause increases the risk
preme Court would be the first court to recognize such a
                                                                 to his other creditors; increases (what is the same thing
lien if this case were presented to it, and no reason to
                                                                 and more, because bankruptcy imposes "deadweight"
believe that the recognition of such a lien would be a good
                                                                 social costs) the risk of bankruptcy; and could amplify the
thing. It would impede the marketability of goods without
                                                                 business cycle by increasing the number of bankruptcies
responding to any urgent need of creditors.
                                                                 in bad times, which is when contracts are most likely to be
       Conrow v. Little, 115 N.Y. 387, 393, 22 N.E. 346,         broken. But since little effort is made to prevent busi-
347 (1889), on which Lake River relies heavily because           nessmen from assuming risks, these reasons are no better
the lien allowed in that case extended to "money expended        than makeweights.
in the preparation of instrumentalities," is not in point.
                                                                      A better argument is that a penalty clause may dis-
The plaintiffs, dealers in paper, [**10] had made ex-
                                                                 courage efficient as well as inefficient breaches of con-
tensive deliveries to the defendants for which they had
                                                                 tract. Suppose a breach would cost the promisee $12,000
received no payment. See id. at 390-91, 22 N.E. at 346. If
                                                                 in actual damages but would yield the promisor $20,000
Lake River had bagged several thousand tons of Ferro
                                                                 in additional profits. Then there would be a net social gain
Carbo without being paid anything, it would have had a
                                                                 from breach. After being fully compensated for his loss
lien on the Ferro Carbo; and maybe -- if Conrow is good
                                                                 the promisor would be no worse off than if the contract
law in Illinois, a question we need not try to answer -- the
                                                                 had been performed, while the promisor would be better
lien would have included not only the contract price for
                                                                 off by $8,000. But now suppose the contract contains a
the Ferro Carbo that Lake River had bagged but also the
                                                                 penalty clause under which [**13] the promisor if he
unreimbursed, unsalvageable cost of the special bagging
                                                                 breaks his promise must pay the promisee $25,000. The
system that Lake River had installed. But that is not this
                                                                 promisor will be discouraged from breaking the contract,
case. Carborundum was fully paid up and Lake River has
                                                                 since $25,000, the penalty, is greater than $20,000, the
made no effort to show how much if any money it stood to
                                                                 profits of the breach; and a transaction that would have
lose because the bagging system was not fully amortized.
                                                                 increased value will be forgone.
The only purpose of the lien was to collect damages which
                                                                                                                      Page 4
                                    769 F.2d 1284, *; 1985 U.S. App. LEXIS 21908, **


     On this view, since compensatory damages should be         clause is a question of law rather than fact, [**16]
sufficient to deter inefficient breaches (that is, breaches     Weiss v. United States Fidelity & Guaranty Co., 300 Ill.
that cost the victim more than the gain to the contract         11, 16, 132 N.E. 749, 751 (1921); M.I.G. Investments, Inc.
breaker), penal damages could have no effect other than to      v. Marsala, supra, 92 Ill. App. 3d 400, 406, 414 N.E.2d
deter some efficient breaches. But this overlooks the           1381, 1386, and unlike some courts of appeals we do not
earlier point that the willingness to agree to a penalty        treat a determination by a federal district judge of an issue
clause is a way of making the promisor and his promise          of state law as if it were a finding of fact, and reverse only
credible and may therefore be essential to inducing some        if persuaded that clear error has occurred, though we give
value-maximizing contracts to be made. It also overlooks        his determination respectful consideration. See, e.g.,
the more important point that the parties (always assum-        Morin Bldg. Products Co. v. Baystone Construction, Inc.,
ing they are fully competent) will, in deciding whether to      717 F.2d 413, 416-17 (7th Cir. 1983); In re Air Crash
include a penalty clause in their contract, weigh the gains     Disaster Near Chicago, 701 F.2d 1189, 1195 (7th Cir.
against the costs -- costs that include the possibility of      1983); 19 Wright, Miller & Cooper, Federal Practice and
discouraging an efficient breach somewhere down the             Procedure § 4507, at pp. 106-110 (1982).
road -- and will include the clause only [**14] if the
                                                                      Mindful that Illinois courts resolve doubtful cases in
benefits exceed those costs as well as all other costs.
                                                                favor of classification as a penalty, see, e.g., Stride v. 120
      On this view the refusal to enforce penalty clauses is    West Madison Bldg. Corp., supra, 132 Ill. App. 3d at 605,
(at best) paternalistic -- and it seems odd that courts         477 N.E.2d at 1321; Pick Fisheries, Inc. v. Burns Elec-
should display parental solicitude for large corporations.      tronic Security Services, Inc., 35 Ill. App. 3d 467, 472, 342
But however this may be, we must be on guard to avoid           N.E.2d 105, 108 (1976), [**17] we conclude that the
importing our own ideas of sound public policy into an          damage formula in this case is a penalty and not a liqui-
area where our proper judicial role is more than usually        dation of damages, because it is designed always to assure
deferential. The responsibility for making innovations in       Lake River more than its actual damages. The formula --
the common law of Illinois rests with the courts of Illinois,   full contract price minus the amount already invoiced to
and not with the federal courts in Illinois. And like every     Carborundum -- is invariant to the gravity of the breach.
other state, Illinois, untroubled by academic skepticism of     When a contract specifies a single sum in damages for any
the wisdom of refusing to enforce penalty clauses against       and all breaches even though it is apparent that all are not
sophisticated promisors, see, e.g., Goetz & Scott, Liqui-       of the same gravity, the specification is not a reasonable
dated Damages, Penalties and the Just Compensation              effort to estimate damages; and when in addition the fixed
Principle, 77 Colum. L. Rev. 554 (1977), continues              sum greatly exceeds the actual damages likely to be in-
steadfastly to insist on the distinction between penalties      flicted by a minor breach, its character as a penalty be-
and liquidated damages. See, e.g., Bauer v. Sawyer, 8 Ill.      comes unmistakable. See M.I.G. Investments, Inc. v.
2d 351, 359-61, 134 N.E.2d 329, 333-34 (1956); Stride v.        Marsala, supra, 92 Ill. App. 3d at 405-06, 414 N.E.2d at
120 West Madison Bldg. Corp., 132 Ill. App. 3d 601,             1386; cf. Arduini v. Board of Educ., 93 Ill. App. 3d 925,
605-06, 477 N.E.2d 1318, 1321, 87 Ill. Dec. 790 (1985);         931-33, 418 N.E.2d 104, 109-10, 49 Ill. Dec. 460 (1981),
[**15] Builder's Concrete Co. v. Fred Faubel & Sons,            rev'd on other grounds, 92 Ill. 2d 197, 441 N.E.2d 73, 65
Inc., 58 Ill. App. 3d 100, 107, 373 N.E.2d 863, 869, 15 Ill.    Ill. Dec. 281 (1982); 5 Corbin on Contracts § 1066 (1964).
Dec. 517 (1978). To be valid under Illinois law a liquida-      This case is within the gravitational field of these princi-
tion of damages must be a reasonable estimate at the time       ples [**18] even though the minimum-guarantee clause
of contracting of the likely damages from breach, and the       does not fix a single sum as damages.
need for estimation at that time must be shown by refer-
                                                                     Suppose to begin with that the breach occurs the day
ence to the likely difficulty of measuring the actual
                                                                after Lake River buys its new bagging system for $89,000
damages from a breach of contract after the breach occurs.
                                                                and before Carborundum ships any Ferro Carbo. Carbo-
If damages would be easy to determine then, or if the
                                                                rundum would owe Lake River $533,000. Since Lake
estimate greatly exceeds a reasonable upper estimate
                                                                River would have incurred at that point a total cost of only
[*1290] of what the damages are likely to be, it is a
                                                                $89,000, its net gain from the breach would be $444,000.
penalty. See, e.g., M.I.G. Investments, Inc. v. Marsala, 92
                                                                This is more than four times the profit of $107,000 (20
Ill. App. 3d 400, 405-06, 414 N.E.2d 1381, 1386, 47 Ill.
                                                                percent of the contract price of $533,000) that Lake River
Dec. 265 (1981).
                                                                expected to make from the contract if it had been per-
     The distinction between a penalty and liquidated           formed: a huge windfall.
damages is not an easy one to draw in practice but we are
                                                                    Next suppose (as actually happened here) that breach
required to draw it and can give only limited weight to the
                                                                occurs when 55 percent of the Ferro Carbo has been
district court's determination. Whether a provision for
                                                                shipped. Lake River would already have received
damages is a penalty clause or a liquidated-damages
                                                                $293,000 from Carborundum. To see what its costs then
                                                                                                                       Page 5
                                    769 F.2d 1284, *; 1985 U.S. App. LEXIS 21908, **


would have been (as estimated at the time of contracting),       system has no value apart from the contract. If it were
first subtract Lake River's anticipated profit on the con-       worth only $20,000 to Lake River, the range would be 434
tract of $107,000 from the total contract price of               percent to 150 percent.
$533,000. The difference -- Lake River's total cost of
                                                                      Lake River argues that it would never get as much as
performance -- is $426,000. Of this, $89,000 is the cost of
                                                                 the formula suggests, because it would be required to
the new bagging system, a fixed cost. The rest
                                                                 mitigate its damages. This is a dubious argument on sev-
($426,000-$89,000=$337,000) presumably consists of
                                                                 eral grounds. First, mitigation of damages is a doctrine of
variable costs [**19] that are roughly proportional to the
                                                                 the law of court-assessed damages, while the point of a
amount of Ferro Carbo bagged; there is no indication of
                                                                 liquidated-damages clause is to substitute party assess-
any other fixed costs. Assume, therefore, that if Lake
                                                                 ment; and that point is blunted, and the certainty that
River bagged 55 percent of the contractually agreed
                                                                 liquidated-damages clauses are designed to give the pro-
quantity, it incurred in doing so 55 percent of its variable
                                                                 cess of assessing damages impaired, if a defendant can
costs, or $185,000. [*1291] When this is added to the
                                                                 force the plaintiff to take less than the damages specified
cost of the new bagging system, assumed for the moment
                                                                 in the clause, on the ground that the plaintiff could have
to be worthless except in connection with the contract, the
                                                                 avoided some of them. It would seem therefore that the
total cost of performance to Lake River is $274,000.
                                                                 clause in this case should be read to eliminate any duty of
Hence a breach that occurred after 55 percent of con-
                                                                 mitigation, that what Lake River is doing is attempting to
tractual performance was complete would be expected to
                                                                 rewrite the clause to make [**22] it more reasonable,
yield Lake River a modest profit of $19,000
                                                                 and that since actually the clause is designed to give Lake
($293,000-$274,000). But now add the "liquidated dam-
                                                                 River the full damages it would incur from breach (and
ages" of $241,000 that Lake River claims, and the result is
                                                                 more) even if it made no effort to find a substitute use for
a total gain from the breach of $260,000, which is almost
                                                                 the equipment that it bought to perform the contract, this
two and a half times the profit that Lake River expected to
                                                                 is just one more piece of evidence that it is a penalty
gain if there was no breach. And this ignores any use
                                                                 clause rather than a liquidated-damages clause. See
value or salvage value of the new bagging system, which
                                                                 Northwest Collectors, Inc. v. Enders, 74 Wash. 2d 585,
is the property of Lake River -- though admittedly it also
                                                                 594, 446 P.2d 200, 206 (1968).
ignores the time value of money; Lake River paid $89,000
for that system before receiving any revenue from the                 But in any event mitigation would not mitigate the
contract.                                                        penal character of this clause. If Carborundum did not
                                                                 ship the guaranteed minimum quantity, the reason was
     To complete the picture, assume that the [**20]
                                                                 likely to be -- the reason was -- that the steel industry had
breach had not occurred till performance was 90 percent
                                                                 fallen on hard times and the demand for Ferro Carbo was
complete. Then the "liquidated damages" clause would
                                                                 therefore down. In these circumstances Lake River would
not be so one-sided, but it would be one-sided. Carbo-
                                                                 have little prospect of finding a substitute contract that
rundum would have paid $480,000 for bagging. Against
                                                                 would yield it significant profits to set off against the full
this, Lake River would have incurred its fixed cost of
                                                                 contract price, which is the method by which it proposes
$89,000 plus 90 percent of its variable costs of $337,000,
                                                                 to take account of mitigation. At argument Lake River
or $303,000. Its total costs would thus be $392,000, and
                                                                 suggested that it [*1292] might at least have been able
its net profit $88,000. But on top of this it would be enti-
                                                                 to sell the new bagging equipment to someone for some-
tled to "liquidated damages" of $53,000, for a total profit
                                                                 thing, and the figure $40,000 was proposed. If the [**23]
of $141,000 -- more than 30 percent more than its ex-
                                                                 breach occurred on the first day when performance under
pected profit of $107,000 if there was no breach.
                                                                 the contract was due and Lake River promptly sold the
     The reason for these results is that most of the costs to   bagging equipment for $40,000, its liquidated damages
Lake River of performing the contract are saved if the           would fall to $493,000. But by the same token its costs
contract is broken, and this saving is not reflected in the      would fall to $49,000. Its profit would still be $444,000,
damage formula. As a result, at whatever point in the life       which as we said was more than 400 percent of its ex-
of the contract a breach occurs, the damage formula gives        pected profit on the contract. The penal component would
Lake River more than its lost profits from the breach --         be unaffected.
dramatically more if the breach occurs at the beginning of
                                                                      With the penalty clause in this case compare the liq-
the contract; tapering off at the end, it is true. Still, over
                                                                 uidated-damages clause in Arduini v. Board of Education,
the interval between the beginning of Lake River's per-
                                                                 supra, which is representative of such clauses upheld in
formance and nearly the end, the clause could be expected
                                                                 Illinois. The plaintiff was a public school teacher whose
to generate [**21] profits ranging from 400 percent of
                                                                 contract provided that if he resigned before the end of the
the expected contract profits to 130 percent of those
                                                                 school year he would be docked 4 percent of his salary.
profits. And this is on the assumption that the bagging
                                                                 This was a modest fraction of the contract price. And the
                                                                                                                     Page 6
                                    769 F.2d 1284, *; 1985 U.S. App. LEXIS 21908, **


cost to the school of an untimely resignation would be           common law damages. See, e.g., Restatement, Second,
difficult to measure. Since that cost would be greater the       Contracts § 356, comment a (1981). In this case that
more senior and experienced the teacher was, the fact that       would be the unpaid contract price of $241,000 minus the
the liquidated damages would be greater the higher the           costs that Lake River saved by not having to complete the
teacher's salary did not make the clause arbitrary. Even         contract (the variable costs on the other 45 percent of the
the fact that the liquidated damages were the same               Ferro Carbo [*1293] that it never had to bag). The case
whether the teacher resigned at the beginning, [**24]            must be remanded to the district judge to fix these dam-
the middle, or the end of the school year was not arbitrary,     ages.
for it was unclear how the amount of actual damages
                                                                      Two damage issues remain. The first concerns Car-
would vary with the time of resignation. Although one
                                                                 borundum's expenses of delivering bagged Ferro Carbo to
might think that the earlier the teacher resigned the greater
                                                                 its customers to replace that impounded by Lake River.
the damage to the school would be, the school might find
                                                                 The district judge gave Carborundum the full market
it easier to hire a replacement for the whole year or a great
                                                                 value of the bagged Ferro Carbo. Lake River argues that it
part of it than to bring in a replacement at the last minute
                                                                 should not have to pay for Carborundum's expense of
to grade the exams left behind by the resigning teacher.
                                                                 selling additional Ferro Carbo -- additional in the sense
Here, in contrast, it is apparent from the face of the con-
                                                                 that Carborundum is being given credit for the full retail
tract that the damages provided for by the "liquidated
                                                                 value of the product that Lake River withheld. [**27]
damages" clause are grossly disproportionate to any
                                                                 To explain, suppose that Carborundum had an order for
probable loss and penalize some breaches much more
                                                                 $1,000 worth of bagged Ferro Carbo, which Lake River
heavily than others regardless of relative cost.
                                                                 was supposed to deliver; and because it refused, Carbo-
     We do not mean by this discussion to cast a cloud of        rundum incurred a transportation cost of $100 to make a
doubt over the "take or pay" clauses that are a common           substitute shipment of bagged Ferro Carbo to the cus-
feature of contracts between natural gas pipeline compa-         tomer. Carborundum would still get $1,000 from the
nies and their customers. Such clauses require the cus-          customer, and if that price covered the transportation cost
tomer, in consideration of the pipeline's extending its line     it would still make a profit. In what sense, therefore, is
to his premises, to take a certain amount of gas at a spec-      that cost a separate item of damage, of loss? On all Ferro
ified price -- and if he fails to take [**25] it to pay the      Carbo (related to this case) sold by Carborundum in the
full price anyway. The resemblance to the mini-                  Midwest, Carborundum received the full market price,
mum-guarantee clause in the present case is obvious, but         either from its customers in the case of Ferro Carbo ac-
perhaps quite superficial. Neither party has mentioned           tually delivered to them, or from Lake River in the case of
take-or-pay clauses, and we can find no case where such a        the Ferro Carbo that Lake River refused to deliver. Hav-
clause was even challenged as a penalty clause -- though         ing received a price designed to cover all expenses of sale,
in one case it was argued that such a clause made the            a seller cannot also get an additional damage award for
damages unreasonably low. See National Fuel Gas Dis-             any of those expenses.
tribution Corp. v. Pennsylvania Public Utility Comm'n, 76
                                                                      If, however, the additional Ferro Carbo that Carbo-
Pa. Commw. 102, 126-27 n.8, 464 A.2d 546, 558 n.8
                                                                 rundum delivered to its midwestern customers in substi-
(1983). If, as appears not to be the case here but would
                                                                 tution for Ferro Carbo previously delivered to, and im-
often be the case in supplying natural gas, a supplier's
                                                                 pounded by, Lake River would have been sold in the East
fixed costs were a very large fraction of his total costs, a
                                                                 at the same price but lower cost, Carborundum would
take-or-pay clause might well be a reasonable liquidation
                                                                 have had an additional [**28] loss, in the form of re-
of damages. In the limit, if all the supplier's costs were
                                                                 duced profits, for which it could recover additional
incurred before he began supplying the customer, the
                                                                 damages. But it made no effort to prove such a loss.
contract revenues would be an excellent measure of the
                                                                 Maybe it had no unsatisfied eastern customers, and ex-
damages from breach. But in this case, the supplier (Lake
                                                                 panded rather than shifted output to fulfill its midwestern
River, viewed as a supplier of bagging services to Car-
                                                                 customers' demand. The damages on the counterclaim
borundum) incurred only a fraction of its costs before
                                                                 must be refigured also.
performance began, and the interruption of performance
generated a considerable cost saving that is not reflected            Finally, Lake River argues that Carborundum failed
[**26] in the damage formula.                                    to mitigate its damages by accepting Lake River's offer to
                                                                 deliver the bagged product and place the proceeds in
     The fact that the damage formula is invalid does not
                                                                 escrow. But a converter is not entitled to retain the pro-
deprive Lake River of a remedy. The parties did not con-
                                                                 ceeds of the conversion even temporarily. Lake River had
tract explicitly with reference to the measure of damages
                                                                 an opportunity to limit its exposure by selling the bagged
if the agreed-on damage formula was invalidated, but all
                                                                 product on Carborundum's account and deducting what it
this means is that the victim of the breach is entitled to his
                                                                 claimed was due it on its "lien." Its failure to follow this
                                                                                                                Page 7
                                   769 F.2d 1284, *; 1985 U.S. App. LEXIS 21908, **


course reinforces our conclusion that the assertion of the     to redetermine both parties' damages in accordance with
lien was a naked attempt to hold Carborundum hostage to        the principles [**29] in this opinion. The parties may
Lake River's view -- an erroneous view, as it has turned       present additional evidence on remand, and shall bear
out -- of the enforceability of the damage formula in the      their own costs in this court. Circuit Rule 18 shall not
contract.                                                      apply on remand.
    The judgment of the district court is affirmed in part        AFFIRMED IN PART, REVERSED IN PART,
and reversed in part, and the case is returned to that court   AND REMANDED.
                                                                                                                   Page 1
                                             2007 Tex. App. LEXIS 8849, *




                 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 De-
                partment of Insurance; and State Office of Administrative Hearings for the State of
                                                Texas, Appellees

                                                  NO. 03-05-00176-CV

                         COURT OF APPEALS OF TEXAS, THIRD DISTRICT, AUSTIN

                                              2007 Tex. App. LEXIS 8849


                                                November 7, 2007, Filed

SUBSEQUENT HISTORY: Petition for review denied                Staffing, Inc.; Task Services, Inc.; Rick Chapman; and
by LHR Enters. v. Geeslin, 2008 Tex. LEXIS 178 (Tex.,         Harry Sewill (cumulatively "the appellants") were en-
Feb. 22, 2008)                                                gaged in the unauthorized practice of insurance and re-
                                                              ferred the matter to the State Office of Administrative
PRIOR HISTORY: [*1]                                           Hearings ("SOAH"). In response, the appellants filed a
  FROM THE DISTRICT COURT OF TRAVIS                           declaratory-judgment action in district court seeking
COUNTY, 345TH JUDICIAL DISTRICT. NO.                          declarations that the Commissioner did not have the au-
GN402881, HONORABLE SUZANNE COVINGTON,                        thority to refer the matter for a hearing before SOAH.
JUDGE PRESIDING.                                              Shortly thereafter, the Commissioner and the Department
                                                              filed a plea to the jurisdiction contending that the district
DISPOSITION:         Dismissed on Appellees' Motion.          court did not have jurisdiction [*2] over the case because
                                                              the appellants had failed to show a valid waiver of sov-
                                                              ereign immunity. The district court granted the plea, and
COUNSEL: For Appellant: Mr. Bogdan Rentea, Rentea             the appellants appealed the judgment of the district court.
& Associates, Austin, TX.                                     We will dismiss this case for want of subject-matter ju-
                                                              risdiction.
For Appellee: Mr. Kristofer S. Monson, Assistant Solic-
itor General, Austin, TX.                                     BACKGROUND

JUDGES: Before Justices Patterson, Puryear and Pem-           Proceedings Before SOAH
berton.
                                                                   The case presently before us is related to another case
                                                              involving the appeal of an administrative order. Because it
OPINION BY: David Puryear
                                                              is helpful in explaining the outcome of this appeal, we will
                                                              briefly review some of the facts of the related case.
OPINION
                                                                   In 2004, the staff of the Department of Insurance
MEMORANDUM OPINION                                            ("Staff") became concerned that several companies and
                                                              individuals, including the appellants, were engaged in the
     The procedural history of this case is complicated by
                                                              unauthorized business of insurance. See Tex. Ins. Code
its relationship to another case before the Department of
                                                              Ann. §§ 101.051 (specifying what constitutes business of
Insurance ("Department"). Although we will discuss the
                                                              insurance), .102 (prohibiting unauthorized business of
various proceedings in more detail later in the opinion, we
                                                              insurance) (West Supp. 2006). In particular, the Staff
will briefly summarize the proceedings here. The Com-
                                                              believed that the appellants and others were improperly
missioner of Insurance became concerned that LHR En-
                                                              engaged in the business of providing various companies'
terprises, Inc.; Transglobal Mortgage, Inc.; Business
                                                                                                                     Page 2
                                               2007 Tex. App. LEXIS 8849, *


employees with workers' compensation insurance cover-           administrative penalties on individuals that are neither
age.                                                            licensed to engage in the business of insurance nor regu-
                                                                lated by the insurance code. See Tex. Ins. Code Ann. §
     After formalizing their concerns, the Staff filed a
                                                                84.021 (West Supp. 2006) (authorizing Commissioner to
report with the Commissioner that detailed the allegations
                                                                impose administrative penalties on individuals who are
against the [*3] appellants and others. The report also
                                                                "licensed or regulated" under insurance code or another
contained the Staff's recommendation that the Commis-
                                                                Texas insurance law).
sioner order that all the parties investigated (1) be held
jointly and severally liable for any unpaid workers' com-            In addition, the appellants also sought a declaration
pensation claims, (2) pay monetary penalties, and               that the Commissioner may not refer a matter to SOAH
(3)cease practicing the business of insurance in Texas. See     for a determination of whether a cease-and-desist order
id. §§ 84.041 (providing that if Staff determines that in-      should be issued to stop an individual from engaging in
surance violations have occurred, they have the authority       certain activities when the statutory time for requesting a
to file report with Commissioner that specifies facts           hearing has expired. See id. §§ 101.151(a) (authorizing
forming basis of their conclusion and also specifies any        Commissioner to set hearing concerning issuance of
penalty that they feel should be imposed), .021 (West           cease-and-desist order and specifying that Commissioner
Supp. 2006) (authorizing Commissioner to impose pen-            is required to provide notice of hearing), .152 (providing
alty on individual who violates insurance law, rule, or         that unless parties agree otherwise, hearing must be held
order).                                                         "not earlier than the fifth day or later than the 30th day
                                                                after" notice was given), .153 (West Supp. 2006) (allow-
     In July 2004, the Commissioner referred the matter to
                                                                ing Commissioner to issue cease-and-desist order after
SOAH for a contested-case hearing to determine whether
                                                                hearing has been held).
the appellants and others had engaged in the unauthorized
business of insurance and whether a cease-and-desist                 In response to the appellants' [*6] petition, the
order prohibiting the parties from engaging in the alleg-       Commissioner and the Department filed a plea to the
edly improper actions should be issued. See, e.g., id. §§       jurisdiction. In their plea, they argued that because this
31.021(a) (requiring Commissioner to "administer and            case is essentially a suit against state agencies, the ap-
enforce" insurance code), 40.002 (requiring SOAH to             pellants had the burden of proving a waiver of sovereign
conduct hearing when required under insurance code),            immunity. Further, the Commissioner and the Department
[*4] 101.151 (West Supp. 2006) (authorizing Commis-             contended that because the appellants failed to plead and
sioner to set hearing to determine whether                      prove a waiver, the district court did not have jurisdiction
cease-and-desist order should be imposed if, among other        over the appellants' claims.
things, Commissioner has reason to believe that individ-
                                                                     Ultimately, the district court granted the plea to the
ual has violated insurance provision or rule).
                                                                jurisdiction, and the appellants appeal the district court's
    During the proceedings, the investigated parties, in-       judgment.
cluding the appellants, filed pleas to the jurisdiction and a
motion for summary disposition. The administrative law          DISCUSSION
judge overseeing the case denied the motions, and the
                                                                     The appellants raise three issues on appeal. First, they
investigated parties appealed the administrative law
                                                                argue that the district court erred when it granted the plea
judge's ruling to the Commissioner. The Commissioner
                                                                to the jurisdiction. Specifically, they contend that their
denied the appeal. Subsequently, a hearing was scheduled
                                                                suit does not implicate sovereign immunity because it
before SOAH.
                                                                seeks declaratory and injunctive relief against state offi-
                                                                cials acting beyond their statutory authority. See Texas
Declaratory-Judgment Action
                                                                Natural Res. Comm'n v. IT-Davy, 74 S.W.3d 849, 855
     Soon after the Commissioner requested a hearing            (Tex. 2002) (explaining that "[p]rivate parties may seek
before SOAH, the appellants filed a petition for declara-       declaratory relief against state officials who allegedly act
tory relief in the district court. See Tex. Civ. Prac. & Rem.   without legal or statutory authority" but that "such suits
Code Ann. §§ 37.001-.011 (West 1997 & Supp. 2006)               are not 'suits against the State' . . . because suits [*7] to
(Uniform Declaratory Judgments Act). The propriety of           compel state officers to act within their official capacity
the district court's judgment is the subject of this appeal.    do not attempt to subject the State to liability" and,
                                                                therefore, "do not implicate the sovereign-immunity doc-
     In their petition, the appellants sought, among other
                                                                trine" (citation omitted)). Second, the appellants argue
things, a declaration that the Commissioner did not have
                                                                that the district court erred by failing to declare that the
the authority to require a hearing before SOAH. Specifi-
                                                                Commissioner does not have the authority to impose
cally, they sought a declaration [*5] that the Commis-
                                                                administrative penalties on individuals who are not li-
sioner has no authority to require a hearing or impose
                                                                                                                      Page 3
                                               2007 Tex. App. LEXIS 8849, *


censed or regulated under the provisions of the insurance        merely authorizes a court "to declare rights, status, and
code. Finally, the appellants insist that the district court     other legal relations" when subject-matter jurisdiction is
erred when it failed to declare that the Commissioner may        already present. See Tex. Civ. Prac. & Rem. Code Ann. §
not refer a matter to SOAH for a hearing if the referral is      37.003(a) (West 1997) (court may act "within its juris-
not made within the time allowed by statute.                     diction"); Texas Ass'n of Bus. v. Texas Air Control Bd.,
                                                                 852 S.W.2d 440, 444 (Tex. 1993). Although the Act does
     After the appellants filed this appeal, the SOAH
                                                                 not expand the jurisdiction of a trial court, [*10] "[a] suit
hearing for determining whether the appellants and the
                                                                 under the [Act] is not confined to cases in which the par-
other investigated parties had engaged in the unauthorized
                                                                 ties have a cause of action apart from the Act itself."
practice of insurance was held. After the hearing con-
                                                                 TexasDep'tof Pub. Safety v.Moore, 985 S.W.2d 149, 153
cluded, the Commissioner issued a final order, which
                                                                 (Tex. App.--Austin 1998, no pet.).
specified that none of the appellants had violated any
insurance provision or regulation and that, accordingly,              In order for a court to have jurisdiction to consider a
no sanction or penalty should be imposed upon them.              declaratory-judgment action, there must be a "justiciable
Shortly thereafter, the Commissioner and the Department          controversy as to the rights and status of" the parties, and
filed a motion to dismiss this appeal. [*8] 1 In their mo-       the requested declaration "must actually resolve the con-
tion, the Commissioner and the Department argue that             troversy." Brooks v. Northglen Ass'n, 141 S.W.3d 158,
because a final order has been issued absolving the ap-          163-64 (Tex. 2004). "A justiciable controversy is one in
pellants of any wrongdoing, this Court no longer has             which a real and substantial controversy exists involving a
subject-matter jurisdiction over the appellants' declaratory     genuine conflict of tangible interests and not merely a
claims. Because our resolution of the motion to dismiss is       theoretical dispute." Moore, 985 S.W.2d at 153; see also
dispositive of this appeal, we will now turn to the various      City of Euless v. Dallas/Fort Worth Int'l Airport Bd., 936
arguments made by the parties regarding the motion to            S.W.2d 699, 703 (Tex. App.--Dallas 1996, writ denied)
dismiss.                                                         (explaining that if there is no actual controversy between
                                                                 parties, declaratory judgment is improper). However, a
        1 As part of their motion to dismiss, the Com-           person seeking declaratory relief need not have yet in-
        missioner and the Department attached a copy of          curred an actual injury of the sort for which consequential
        the final order.                                         relief might be granted. See Bexar Metro. Water Dist. v.
                                                                 City of Bulverde, 156 S.W.3d 79, 88 (Tex. App.--Austin
     The appellants seek relief under the Uniform De-
                                                                 2004, pet.denied). Instead, [*11] the Act is intended to
claratory Judgment Act. See Tex. Civ. Prac. & Rem. Code
                                                                 provide a means to determine, before any wrong has ac-
Ann. § 37.001-.011. The Act allows an individual "whose
                                                                 tually occurred, the rights of parties when a controversy
rights, status, or other legal relations are affected by a
                                                                 has arisen and is remedial in nature. Id.
statute" to "have determined any question of construction
or validity arising under the . . . statute . . . and obtain a        The need for a justiciable controversy is related to the
declaration of rights, status, or other legal relations          jurisdictional concepts of standing and ripeness and does
thereunder." Id. § 37.004(a) (West 1997). In this case, the      not supersede these concepts. See Texas Dep't of Ins
appellants seek declarations concerning the authority of         v.Reconveyance Servs., Inc.,240 S.W.3d 418, 451, 2007
the Commissioner. This Court has previously recognized           Tex. App. LEXIS 7262, at *38 (Tex. App.--Austin 2007, no
that individuals may request declaratory relief regarding        pet. h.). Ripeness is a necessary component of sub-
whether state agencies or officers have acted beyond             ject-matter jurisdiction, Atmos Energy Corp. v. Abbott,
[*9] their statutory authorities. See, e.g., Texas Dep't of      127 S.W.3d 852, 857 (Tex.App.--Austin 2004, no pet.),
Ins., Div. of Workers' Comp. v. Lumbermens Mut. Cas.             and concerns when a claim may be made, Patterson v.
Co., 212 S.W.3d 870, 874-75 (Tex. App.--Austin 2006, pet.        Planned Parenthood, 971 S.W.2d 439, 442 (Tex. 1998).
denied) (holding that claimant may seek declaration that         The requirement that a claim be ripe for review is based
agency's issuance of advisories was outside agency's             on the prohibition against issuing advisory opinions. Id.;
statutory authority). However, while individuals may             see also Tex. Const. art. II, § 1 (separation of powers);
employ the Act to challenge actions as beyond an agency's        Northglen Ass'n, 141 S.W.3d at 164 (explaining that sep-
or officer's authority, a court must still have sub-             aration of powers provision bars issuance of advisory
ject-matter jurisdiction over the case before it may             opinions). A claim is ripe if the facts involved demon-
properly issue a declaration. Subject-matter jurisdiction        strate that "an injury has occurred or is likely to occur."
may be considered for the first time on appeal, and ap-          Patterson, 971 S.W.2d at 442; see also City of Waco v.
pellate courts may raise that issue on their own accord.         Texas Natural Res. Comm'n, 83 S.W.3d 169, 175 (Tex.
See Aguilar v. Weber, 72 S.W.3d 729, 731 (Tex.                   App.--Austin 2002, pet. denied) [*12] ("In determining
App.--Waco 2002, no pet.). The Act does not expand the           whether a cause is ripe for judicial consideration, we look
scope of a trial court's subject-matter jurisdiction but         to see if the facts have sufficiently developed to show that
                                                                                                                     Page 4
                                               2007 Tex. App. LEXIS 8849, *


an injury has occurred, or is likely to occur"). In other
words, there must be a concrete injury for the claim to be
                                                                      Subsequently, as previously discussed, the Commis-
ripe. See Atmos Energy Corp., 127 S.W.3d at 858. A claim
                                                                 sioner issued a final order in the complained-of contest-
is not ripe if it is based on hypothetical or contingent facts
                                                                 ed-case proceeding. The Commissioner's order concluded
that may not occur as anticipated or may not occur at all.
                                                                 that none of the appellants were engaged in the unau-
See Waco Indep. Sch. Dist. v. Gibson, 22 S.W.3d 849, 852
                                                                 thorized practice of insurance or had violated any insur-
(Tex. 2000).
                                                                 ance provisions or regulations and that, therefore, no
     In this case, there is no concrete dispute to resolve.      penalty should be imposed upon the appellants. As the
The appellants pled the following, relevant jurisdictional       State argues, these developments resolve the controversy
facts as the basis for their suit:                               on which Appellants' suit is based, i.e., the subject matter
                                                                 of the July [*14] 16, 2004 Notice of Hearing has been
           On June 24, 2004, pursuant to section                 resolved in Appellants' favor.
        84.041 of the insurance code, the Staff
                                                                      Appellants nonetheless urge that a justiciable con-
        delivered to the Commissioner a report "in
                                                                 troversy remains because the Commissioner's order states
        which it alleged that these Plaintiffs en-
                                                                 a conclusion of law that, "Under Tex. Ins. Code § 84.021,
        gaged in activities in the State of Texas in
                                                                 the Commission may impose an administrative penalty on
        violation of the Texas Insurance Code, and
                                                                 a person, including an entity, that is licensed or regulated
        recommended that administrative penalties
                                                                 under and who violates the Insurance Code or rules
        be assessed against them in the aggregate
                                                                 adopted or orders issued thereunder." However, absent
        amount of $ 2,000,000."
                                                                 another impending hearing or other action by the De-
            "[T]he Staff, on July 16, 2004, filed                partment adversely impacting the appellants in some
        with SOAH and served on these Plaintiffs                 concrete way, the Commissioner's legal conclusion
        a Notice of Hearing, thereby initiating a                amounts to a bare, abstract statement of legal opinion, and
        contested case . . . [which] was assigned                any judicial determination regarding the conclusion
        Docket No. 454--4-75940H."                               would necessarily be no more than a mere abstract advi-
                                                                 sory opinion. Cf. Waco Indep. Sch. Dist., 22 S.W.3d at 852
             The [*13] pleadings then recount
                                                                 (explaining that "ripeness doctrine allows courts to avoid
        that the appellants filed a plea to the juris-
                                                                 premature adjudication, and serves the constitutional
        diction and general denial in the SOAH
                                                                 interests in prohibiting advisory opinions").
        proceeding, that the Staff filed a response
        asserting various statutory bases for juris-                  We conclude that we do not have subject-matter ju-
        diction, that the administrative law judge               risdiction over this appeal and, therefore, grant the
        denied the appellant's plea to the jurisdic-             Commissioner and the Department's motion to dismiss the
        tion and summary disposition motion, and                 case. See Tex. R. App. P. 43.2 (explaining that one of
        that they appealed the decision to the                   [*15] permissible types of appellate judgments is to dis-
        Commissioner, who upheld it.                             miss appeal); South Tex. Water Auth. v. Lomas, 223
                                                                 S.W.3d 304, 308 (Tex. 2007) (dismissing case after de-
             The appellants pled that they "have
                                                                 termining court did not have subject-matter jurisdiction
        not and will not voluntarily subject them-
                                                                 over case).
        selves to the [Department]'s jurisdiction"
        and sought a declaration that "the Com-                      David Puryear, Justice
        missioner as a matter of law does not have
                                                                     Before Justices Patterson, Puryear and Pemberton
        jurisdiction over the Plaintiffs to take the
        action contemplated by the July 16, 2004                     Dismissed on Appellees' Motion
        Notice of Hearing."
                                                                     Filed: November 7, 2007
                                                                                                                    Page 1
                                  575 S.W.2d 571, *; 1978 Tex. App. LEXIS 3847, **




               Cecil W. Mayfield, David Hughes, Margaret H. O'Neal and John Robert Trimmier,
                      Appellants v. Dave Hicks and Dave Hicks Company, Inc., Appellees

                                                       No. 19540

                                Court of Civil Appeals of Texas, Fifth District, Dallas

                                     575 S.W.2d 571; 1978 Tex. App. LEXIS 3847


                                                   October 24, 1978

SUBSEQUENT HISTORY:                    [**1]   Rehearing              1.     These default judgments have now become
Denied November 28, 1978.                                             final since no appeal was taken from them.
                                                                   Only the guarantors appeal from the trial court's
PRIOR HISTORY:           From a District Court of Dallas
                                                              judgment asserting, among other grounds, certain de-
County, Texas
                                                              fenses to the leases that go to the question of the liability
                                                              of Four C [*574] Corporation on the leases. In re-
                                                              sponse, appellees argue that guarantor-appellants are
COUNSEL: Philip C. McGahey, Bagby, McGahey, Ross
                                                              collaterally estopped from asserting any defenses going to
& DeVore, Arlington, for appellants.
                                                              questions relating to the liability of the primary obligor,
                                                              Four C, or to the extent of that liability, since the judgment
Don R. Hanmer, Carrington, Coleman, Sloman, Johnson
                                                              against Four C is now final. Additionally, guaran-
& Blumenthal, Dallas, for appellees.
                                                              tor-appellants contend that the guaranties were ambigu-
                                                              ous, that consideration for the guaranties had failed, that
OPINION BY: AKIN
                                                              attorneys' fees were not recoverable under the guaranties,
                                                              that all offsets and credits had not been allowed them, and
OPINION
                                                              that the liquidated damage [**3] provision of the lease
      [*573] This is an appeal from an instructed verdict     was a penalty. With respect to the defenses to the leases,
rendered against the guarantors of two equipment leases.      we hold that these guarantors are not collaterally estopped
Dave Hicks Company sued Four C Corporation, the pri-          and, thus they may assert all defenses available to the
mary obligor, for amounts due under the first equipment       primary obligor. We also hold that the "liquidated dam-
lease agreement and sued Mayfield, Hughes, O'Neal and         age" provision of the lease is a penalty rather than a pro-
Trimmier, the guarantors, on a guaranty of Four C Cor-        vision for just compensation. Accordingly, we reverse
poration's obligations under this lease. Dave Hicks, indi-    and remand so that appellees may prove their actual
vidually, also sued Four C Corporation for the amounts        damages.
due under a second equipment lease and sued the guar-
                                                                   Collateral Estoppel
antors under the terms of a similar guaranty. Four C
Corporation neither filed an answer nor participated at            Appellees argue that the trial court properly in-
trial. The trial judge, acting on the provisions of an al-    structed a verdict for the appellees because the liability of
leged liquidated damage clause in each lease, granted a       the primary obligor on the leases had been finally deter-
default judgment in favor of Dave Hicks Company               mined by the default judgments and that the appellants, as
against Four C Corporation for $ 289,401.08, plus $           guarantors, are collaterally estopped from asserting any
15,000 in attorneys' fees and also granted a default          defenses to the liability of the primary obligor, Four C
judgment in favor of Dave Hicks, [**2] individually,          Corporation, under the leases. In this respect, they con-
against Four C Corporation for $ 20,765.51 and attorneys'     tend that since the judgment is final as to Four C, the rule
fees of $ 2,500. 1 Both plaintiffs were then granted an       applies that a judgment against the principal obligor con-
instructed verdict against the guarantors.                    clusively establishes the extent of the principal's liability
                                                              with respect to a guarantor, if that judgment is obtained in
                                                                                                                          Page 2
                                    575 S.W.2d 571, *; 1978 Tex. App. LEXIS 3847, **


a suit of which the guarantor had full knowledge and an          thus no basis for appellees' actual damages. The lessors
opportunity to defend, citing R. G. McClung Cotton Co. v.        argue, however, that the provision is a valid stipulation of
[**4] Cotton Concentration Co., 479 S.W.2d 733, 742              liquidated damages, for which the lessee became liable
(Tex.Civ.App.-Dallas 1972, writ ref'd n.r.e.); Empire            upon default. We agree with appellants that the provision
Steel Corp. v. Omni Steel Corp., 378 S.W.2d 905                  is a penalty rather than a liquidated damage provision and
(Tex.Civ.App.-Fort Worth 1964, writ ref'd n.r.e.); Latimer       that the question of actual damages should be submitted to
v. Texas & N. O. R. Co., 56 S.W.2d 933                           the jury. The provision in each lease provides:
(Tex.Civ.App.-Beaumont 1933, writ ref'd); Young v. Bank
of Miami, 175 S.W. 1102 (Tex.Civ.App.-Amarillo 1915,                        Upon the occurrence of an event of
writ ref'd). Although we agree with the principle as-                   Default, and at any time thereafter, Lessor,
serted by appellees, it is not applicable to the facts in this          in addition to any other rights and reme-
case because the guarantors have not had an opportunity                 dies he may have, Shall have the right to . .
to defend which is a predicate to the application of col-               . Take possession of the Equipment,
lateral estoppel. 1 Freeman on Judgments § 447, at 978                  whereupon Lessee's right to use the same
(5th ed. 1925). Indeed, in the cases cited by appellees,                under and subject to the terms and provi-
those courts applied the rule where the primary obligor's               sion of this Lease, and any other right or
liability had been established in an action where the                   interest of Lessee to or in the Equipment
guarantor had an opportunity to defend but either did not               [**7] shall absolutely cease, But such
so do or did so unsuccessfully as in Young v. Bank of                   taking by Lessor shall not relieve Lessee of
Miami, supra, and subsequently attempted to attack that                 its obligations and liabilities hereunder . . .
judgment in a later action by the obligee against the                   . If Lessor repossesses the Equipment,
guarantor. It is only in this situation that courts have ap-            Lessor shall have the right, at his option, to
plied collateral estoppel. Here, the guarantors attempted               lease the Equipment to any other party . . .
to assert the defenses available to their principal [**5] in            or Lessor may sell the Equipment or sal-
the trial court rather than consciously ignore the oppor-               vage the valuable components thereof. In
tunity to present such defenses. There was no other                     the event of any such leasing or sale, There
opportunity to defend because there had been no prior                   shall be due from Lessee, and Lessee will
action. Thus, the general rule that guarantors have the                 immediately pay to Lessor, the difference
right to raise any defenses to the guaranteed obligation                between the amount of rentals to be re-
that the principal may have applies. Accordingly, we                    ceived from any third person, or the pur-
hold that where a guarantor has notice of the action                    chase price at said sale, as the case may be,
against his principal and he takes part in the suit, he is not          And the total unpaid rental and other
bound by the adjudication of the principal's liability by a             amounts to be paid herein, plus all costs
default judgment against his principal in the same action.              and expenses of Lessor in repossessing,
This is true because the guarantor may have had no au-                  transporting, repairing, releasing, selling
thority to answer in the principal's behalf or to defend in             or otherwise handling the equipment.
the name of his principal. Indeed, before collateral es-                (Emphasis added)
toppel applies, the opportunity to defend must be such that
the guarantor can actually control the suit with respect to
any defenses including those available to the primary            The vice in this provision that makes it a penalty rather
obligor. U. S. Wire & Cable Corp. v. Ascher Corp., 34            than a liquidated damage provision is that upon the oc-
N.J. 121, 167 A.2d 633, 637 (1961). Thus, where the              currence of even a minor default by the lessee, the lessor
guarantor is merely given notice that the primary obligor        may then declare the lessee in default, take possession of
expects the guarantor "to assist" in the conduct of the          the equipment, and, in addition, demand payment of all
defense, it is insufficient notice or control so as to pre-      lease payments called for in the lease. The coupling of
clude the [**6] guarantor from asserting the same de-            repossession with acceleration of rent, [**8] irrespec-
fenses in a subsequent suit or in the same suit. 1 Freeman       tive of the type of breach, is the defect in this provision.
on Judgments § 449, at 984-85 [*575] (5th ed. 1925).             It is immaterial that the actual breach was for nonpayment
Accordingly, we must now turn to all points of error as-         of rentals. A provision is a penalty if it provides for un-
serted by appellants.                                            reasonable payments for a minor breach. For example,
                                                                 the leases here provide that an event of default occurs if
    Liquidated Damages or Penalty
                                                                 the lessee does not punctually perform any of the obliga-
    Appellants contend that the clauses in both leases           tions contained in the leases and the leases obligate the
which entitle the lessor to repossess the equipment and          lessee to keep the equipment in good appearance. Con-
sue for unpaid rentals is an unenforceable penalty, and          ceivably, if the lessee did not punctually keep the
                                                                                                                       Page 3
                                    575 S.W.2d 571, *; 1978 Tex. App. LEXIS 3847, **


equipment in good appearance, then the lessor could                   Appellants contend next that the trial court erred in
declare the lessee to be in default. Such a minor breach         granting judgment against them for attorneys' fees under
could then lead to draconian penalties disproportionate to       the guaranties. They assert that although the lease obli-
any actual damage that the lessors may suffer. In Stewart        gated Four C Corporation to pay attorneys' fees, since the
v. Basey, 150 Tex. 666, 245 S.W.2d 484, 487 (1952), the          guaranty agreement does [**11] not expressly provide
supreme court condemned a similar provision as a penalty         for attorneys' fees, the guarantor is not liable for them,
because the lease provided the same reparation for breach        citing Miller v. Bush, 42 S.W.2d 156, 159
of each and every covenant in the lease, thus violating the      (Tex.Civ.App.-Waco 1931, writ ref'd). Miller is not,
principle of just compensation. Consequently, that court         however, controlling because in that case the attorneys'
concluded that the provision in that case to be a penalty        fees were not allowed because neither the guaranty nor the
rather than a provision for liquidated damages. Since the        obligation guaranteed provided for attorneys' fees.
clause in our case subjects the lessee to the [**9] same         Consequently, that court applied the rule that guarantors
reparation for the breach of any covenant, we likewise           are not liable for attorneys' fees, unless they are provided
hold that the provision is a penalty rather than one for         for in the contract guaranteed, or, if that contract is silent
liquidated damages. United States Leasing Corp. v. Smith,        with respect to attorneys' fees, unless the guaranty so
555 S.W.2d 766, 770 (Tex.Civ.App.-Tyler 1977, writ ref'd         provides. In this case the contract guaranteed expressly
n.r.e.); Annot., 104 A.L.R. 132 (1936); 5 Williston on           provides for attorneys' fees and the guaranty agreement
Contracts § 779 (3rd ed. 1961).                                  specifically binds the guarantor to pay all indebtedness
                                                                 incurred by the lessor by reason of the lessor's default.
     Although appellees pleaded that the breach was for
                                                                 This, of course, includes attorneys' fees incurred in as-
unpaid rentals, it does not save the provision from being a
                                                                 serting the rights of the obligee. Since the lease agree-
penalty because that question turns on whether the provi-
                                                                 ments provide for attorneys' fees against the principal
sion provides for reasonable compensation. Of course, it
                                                                 obligor, and since the guaranties cover any and all in-
would be unreasonable to permit the lessor to repossess
                                                                 debtedness that the primary obligor may owe, the attor-
and to require the lessee or its guarantors to pay the entire
                                                                 neys' fees are included as a part of the guaranteed debt.
rentals set forth in the lease for [*576] any insignifi-
                                                                 Gubitosi v. Schoellkopf Products, Inc., 545 S.W.2d [**12]
cant, technical breach. Thus, the question of whether the
                                                                 528, 538 (Tex.Civ.App.-Tyler 1976, no writ); Young v. J.
provision is a penalty or a liquidated damage clause is
                                                                 F. Zimmerman & Sons, Inc., 434 S.W.2d 926, 927
determined by the reasonableness of the provision with
                                                                 (Tex.Civ.App.-Waco 1968, writ dism'd); McGhee v.
respect to just compensation. Since we have held this
                                                                 Wynnewood State Bank, 297 S.W.2d 876, 884
provision to be a penalty, it will not support the damages
                                                                 (Tex.Civ.App.-Dallas 1957, writ ref'd n.r.e.). Accord-
in the judgment instructed by the trial court. On remand
                                                                 ingly, we hold that trial court properly concluded that
the question of actual damages is one of proof to be de-
                                                                 attorneys' fees were recoverable from the guarantors.
termined by the jury.
                                                                     Interest
     Nevertheless, appellees argue that the instructed
verdict [**10] was proper because appellants failed to                Additionally, appellants complain of the refusal of
request proper special issues inquiring whether the liq-         the trial court to admit evidence showing that certain sums
uidated damage clause was a penalty. We cannot agree             allegedly guaranteed by appellants Wharton and Mayfield
because any jury issues pertaining to whether a contrac-         were interest, and, therefore, not within the guaranty. In
tual clause is enforceable as a liquidated damage provi-         this respect, they contend that, as a matter of law, these
sion or void as a penalty are immaterial since this deter-       guarantors cannot be made liable for interest. We cannot
mination is a question of law for the trial court, rather than   agree. Since the lease provides for interest and since that
a jury question and must be viewed as of the time the            is the contract guaranteed, the trial court properly per-
contract was executed. Schepps v. American District              mitted recovery of interest on the same rationale as that of
Telegraph Co. of Texas, 286 S.W.2d 684, 690                      attorneys' fees, discussed Supra.
(Tex.Civ.App.-Dallas 1955, no writ); Zucht v. Stewart
                                                                     Admission of Summaries
Title Guaranty Co., 207 S.W.2d 414, 418
(Tex.Civ.App.-San Antonio 1947, writ dism'd ); Muller v.              Appellants next argue that the trial court erred in
Light, 538 S.W.2d 487, 488 (Tex.Civ.App.-Austin 1976,            admitting into evidence certain appellees' exhibits which
writ ref'd n.r.e.). Thus, appellees' contention lacks merit.     were summaries of accounts relating to payment [*577]
Since we have held that the trial court erred in instructing     made to appellees on the leases and pertain to certain
a verdict, we turn now to other questions that may arise         payments made and credits [**13] due. They assert
upon retrial.                                                    that these summaries were hearsay since the proper
                                                                 predicate for their admission into evidence under
    Attorneys' Fees
                                                                 Tex.Rev.Civ.Stat.Ann. art. 3737e (Vernon Supp.1978)
                                                                                                                     Page 4
                                   575 S.W.2d 571, *; 1978 Tex. App. LEXIS 3847, **


was not laid. We agree because it was not shown that the        anty was identical to the date of the lease. Some testimony
original records were voluminous or that appellants had         was to the effect that some of the guarantors actually
had access to the original underlying records. Black            signed the guaranties as long as several months after the
Lake Pipe Line Co. v. Union Construction Co., 538               lease. The evidence is, however, undisputed that the
S.W.2d 80, 93-94 (Tex.1976); Hanson Southwest Corp. v.          guarantors would execute the guaranties and that without
Dal-Mac Construction Co., 554 S.W.2d 712, 723                   the guaranties the lessors would not furnish the equip-
(Tex.Civ.App.-Dallas 1977, writ ref'd n.r.e.).                  ment. We conclude that appellants' contention lacks
                                                                merit. In Maykus v. Texas Bank & Trust Co. of Dallas,
    Consideration
                                                                550 S.W.2d 396, 398 (Tex.Civ.App.-Dallas 1977, no
     Appellants also assert that the instructed verdict was     writ), the promissory note was dated August 8, 1973, and
improper because there were issues raised by the evidence       the guaranty was dated August 15, 1973, and the argu-
as to whether the guaranty agreements were supported by         ment was advanced by appellant [**16] that this shifted
consideration. In this respect, they contend that they          the burden to appellee to show new consideration. In
presented evidence that the guarantors were to receive          rejecting this contention, we stated that this apparent
stock or stock options in Four C Corporation as consid-         discrepancy did not refute the presumption of considera-
eration for acting as guarantors and that since the guar-       tion inherent in the guaranty agreement, and, therefore,
antors failed to receive this stock, there was no consider-     held that:
ation for the execution of the guaranties. Whether appel-
lants failed to receive stock from the primary obligor is                 (M)ere evidence of a time discrepancy
immaterial. Rather, our question is whether consideration              in execution between a note and a written
exists between the plaintiffs [**14] and the guarantors.               guaranty agreement is legally insufficient
In this respect sufficient consideration exists if the pri-            to rebut the statutory presumption of con-
mary obligor receives some benefit. Bonner Oil Co. v.                  sideration which supports a separate
Gaines, 108 Tex. 232, 191 S.W. 552 (1917); Hargis v.                   guaranty accord.
Radio Corp. of America, Electronic Components, 539
S.W.2d 230, 232 (Tex.Civ.App.-Austin 1976, no writ);
Estes v. Oilfield Salvage Co., 284 S.W.2d 201, 204               [*578] Thus, the mere fact that a guaranty agreement
(Tex.Civ.App.-Dallas 1955, no writ). Here it is undis-          was executed subsequent to the passing of consideration
puted that the equipment covered by both of these leases        for the principal obligation does not rebut the statutory
was delivered to Four C in reliance on the guaranties and       presumption of consideration nor does it shift the burden
that the primary obligor received the benefit of its bargain.   of proof to the plaintiffs to show additional consideration.
We conclude, therefore, that this contention is without
                                                                    Ambiguity
merit.
                                                                     Finally, appellants argue that the trial court erred in
     Appellants next contend that since the guaranties
                                                                refusing to submit issues to the jury with respect to their
were executed after the leases, the consideration for the
                                                                allegation that the guaranties are ambiguous and further,
leases cannot also serve as consideration for the guaran-
                                                                that the trial court erred in determining as a matter of law
ties. We cannot agree. Before addressing the merits of
                                                                that the guaranties were not ambiguous. Appellants urge
this contention, we first note that all written contracts are
                                                                that the guaranties are ambiguous because the agreements
presumed to be supported by consideration.
                                                                provide in one part that all guarantors are "jointly and
Tex.Rev.Civ.Stat.Ann. art. 27 (Vernon 1969); Unthank v.
                                                                severally" [**17] liable and that they bind themselves
Rippstein, 386 S.W.2d 134, 138 (Tex.1964); Maykus v.
                                                                to pay "any and all indebtedness" which would indicate a
Texas Bank & Trust Co. of Dallas, 550 S.W.2d 396
                                                                general liability of each signer for the total indebtedness
(Tex.Civ.App.-Dallas 1977, no writ); Waters v. Waters,
                                                                as set out in the equipment leases, and then the same
498 S.W.2d 236, [**15] 240-41 (Tex.Civ.App.-Tyler
                                                                instrument later provides that "the undersigned shall not
1973, writ ref'd n.r.e.). Thus the guaranties themselves
                                                                be required to pay the lessor hereunder more than the sum
import consideration and the burden is on appellants to
                                                                set out adjacent to the undersigned names." Thus, appel-
show lack of consideration. Maykus, Supra, at 398. This
                                                                lants contend that on the face of the instrument it calls for
appellants have failed to do.
                                                                two different liabilities. We cannot agree. First, it was
     Finally, appellants urge that since there were ques-       not error for the trial judge to refuse to submit issues on
tions of fact as to whether the lease agreements and            the alleged ambiguity of the guaranties because the ques-
guaranties were executed several months apart, consider-        tion of whether a written agreement is ambiguous is a
ation for the leases cannot serve as consideration for the      question of law for the court, rather than for a jury ques-
guaranties. One guaranty shows that it was executed six         tion. Davis v. Andrews, 361 S.W.2d 419
days after the lease; however, the date on the other guar-      (Tex.Civ.App.-Dallas 1962, writ ref'd n.r.e.). Secondly,
                                                                                                               Page 5
                                    575 S.W.2d 571, *; 1978 Tex. App. LEXIS 3847, **


a reading of the guaranty agreements clearly indicates that      more than the amount stated by each guarantor's name.
the agreements are capable of only one meaning and that          Accordingly, the guaranty agreements [**18] were not
is that each guarantor is jointly and severally liable for the   ambiguous.
indebtedness of Four C Corporation under each lease
                                                                     Reversed and remanded.
except that none of the guarantors can be required to pay
                                                                                                                Page 1




                 MBM FINANCIAL CORPORATION, ET AL., PETITIONERS, v. THE WOOD-
                         LANDS OPERATING COMPANY, L.P., RESPONDENT

                                                      NO. 08-0390

                                           SUPREME COURT OF TEXAS

                             292 S.W.3d 660; 2009 Tex. LEXIS 634; 52 Tex. Sup. J. 1221

                                              March 12, 2009, Argued
                                          August 28, 2009, Opinion Delivered

PRIOR HISTORY: [**1]                                                 1    CHARLES DICKENS, BLEAK HOUSE
   ON PETITION FOR REVIEW FROM THE COURT                             (1853).
OF APPEALS FOR THE NINTH DISTRICT OF
                                                                   In this case, the plaintiff obtained a judgment for $
TEXAS.
                                                              1,000 in damages and almost $ 150,000 in attorney's fees.
MBM Fin. Corp. v. Woodlands Operating Co., L.P., 251
                                                              But there was no evidence to support the amount of the $
S.W.3d 174, 2008 Tex. App. LEXIS 2535 (Tex. App.
                                                              1,000 award, and it is too large to constitute nominal
Beaumont, 2008)
                                                              damages. As the award to the client must be set aside, the
                                                              attorney's fee award must also. Accordingly, we reverse
                                                              and render a take-nothing judgment.
COUNSEL: For MBM Financial Corporation, PETI-
TIONERS: Jennifer Bruch Hogan, Richard P. Hogan Jr.
                                                              I. Background
and Matthew E. Coveler, Hogan & Hogan, L.L.P., Phillip
R. Livingston and Deanna H. Livingston, Livingston &               The Woodlands Operating Company leased the 19
Livingston, LLC, Houston, TX.                                 copiers at issue here from MBM Financial Corporation 2
                                                              and installed them in late 2000 and early 2001. Each
For Woodlands Operation Company, L.P., RESPOND-               machine [**2] was covered by a separate four-year
ENT: Karen D. Smith, Kirby D. Hopkins and Rachael             lease, with annual renewals thereafter unless notice was
McDonell Rolon, Drucker, Ruthledge & Smith, L.L.P.,           sent between 90 and 180 days before the end of the ex-
The Woodlands, TX.                                            isting term. The leases required the Woodlands to return
                                                              the copiers to a location MBM specified.
JUDGES: JUSTICE BRISTER delivered the opinion of
the Court. JUSTICE O'NEILL did not participate in the                2 The equipment was leased from MBM Fi-
decision. Scott Brister, Justice.                                    nancial Corporation, now known as MBM Finan-
                                                                     cial Interest L.P., and serviced by Marimon
OPINION BY: Scott Brister                                            Business Systems, Inc. The two companies were
                                                                     operated from the same location by the same em-
OPINION                                                              ployees, and Anthony Marimon was the chief
                                                                     operating officer of both. Because the parties and
      [*663] Since Jarndyce v. Jarndyce, 1 there have
                                                                     judgment treat the two corporations as the same,
been charges that some cases benefit the lawyers more
                                                                     we refer to both herein as "MBM," the party listed
than the clients. But suits cannot be maintained solely for
                                                                     as lessor.
the attorney's fees; a client must gain something before
attorney's fees can be awarded. While making losing                The Woodlands decided not to renew the leases in
parties bear their own attorney's fees may add injury to      mid-2004 and asked MBM for the end-of-term dates and
insult, the American Rule has long been that each party       instructions for return. MBM employees provided the
pays its own lawyers.                                         dates and approved a draft termination letter from the
                                                              Woodlands. But when the actual termination letter arrived
                                                                                                                       Page 2
                                       292 S.W.3d 660, *; 2009 Tex. LEXIS 634, **;
                                                  52 Tex. Sup. J. 1221

(viewing the evidence in the light favorable to the trial       are available for breach of contract, as this Court has
court's judgment), 3 MBM's president unilaterally changed       stated at least a dozen times. 6 As we wrote in 1853:
the dates so the notice would be untimely and demanded
rent for another year. To bolster MBM's position, he                      The law is, that if the contract is proven
signed the leases and inserted commencement dates                      to be broken, the law would give some
[**3] for the first time after the Woodlands filed suit.               damage, sufficient to authorize a verdict
Until suit was filed, MBM also refused to designate a                  for the plaintiff, [**5] although, in the
return location for the bulky equipment.                               absence of proof of special loss, the dam-
                                                                       ages would be nominal only. 7
       3 See City of Keller v. Wilson, 168 S.W.3d 802,
       819-21 (Tex. 2005) (discussing jury verdicts). The
       same standard of review applies to a trial court's       We are hardly alone in recognizing nominal damages for
       findings following a bench trial. See Catalina v.        breach of contract; so do the First and Second Restate-
       Blasdel, 881 S.W.2d 295, 297 (Tex. 1994).                ments, 8 Williston, 9 Corbin, 10 and Black's Law Diction-
                                                                ary. 11 While more generous damage measures make
      The Woodlands sued, asserting claims for breach of
                                                                nominal damages rare, and some judges have questioned
contract, fraud, and declaratory relief. MBM counter-
                                                                the reason behind them, 12 we agree that nominal [*665]
claimed for additional rent of $ 160,000, though it later
                                                                damages may be recovered for breach of contract.
dropped that claim. After a two-day bench trial, the trial
court rendered judgment awarding the Woodlands $ 1,000
                                                                       6 See, e.g., Lubbock Mfg. Co. v. Sames, 598
in damages and $ 145,091.59 in attorney's fees through
                                                                       S.W.2d 234, 237 (Tex. 1980); Travelers Ins. Co. v.
trial. The court of appeals affirmed the damages and part
                                                                       Employers Cas. Co., 380 S.W.2d 610, 614-15
of the fee award. 4 On appeal, MBM challenges both.
                                                                       (Tex. 1964); Woodward v. Harlin, 121 Tex. 46, 39
                                                                       S.W.2d 8, 9 (Tex. 1931); Malakoff Gin Co. v.
       4    251 S.W.3d 174, 184.
                                                                       Riddlesperger, 108 Tex. 273, 192 S.W. 530, 532
                                                                       (Tex. 1917); Porter v. Kruegel, 106 Tex. 29, 155
II. Nominal Damages & Breach of Contract
                                                                       S.W. 174, 175 (Tex. 1913); Raymond v.
     At trial, the Woodlands requested only nominal                    Yarrington, 96 Tex. 443, 73 S.W. 800, 804 (Tex.
damages. The judgment describes the $ 1,000 award as                   1903); Davis v. Tex. & P. Ry., 91 Tex. 505, 44 S.W.
"actual damages," but the trial court's findings and con-              822, 823 (Tex. 1898); Seibert v. Bergman, 91 Tex.
clusions describe them as "actual damages in the form of               411, 44 S.W. 63, 64 (Tex. 1898); East Line & Red
nominal damages." [*664] We agree with MBM that                        River R.R. v. Scott, 72 Tex. 70, 10 S.W. 99, 102
no evidence supports $ 1,000 as either.                                (Tex. 1888); Stuart v. W. Union Tel. Co., 66 Tex.
                                                                       580, 18 S.W. 351, 352 (Tex. 1885); Moore v. An-
     The only damages mentioned [**4] at trial related
                                                                       derson, 30 Tex. 224, 231 (1867); Hope v. Alley, 9
to wasted time the Woodlands spent trying to get MBM's
                                                                       Tex. 394, 395 (1853); McGuire v. Osage Oil
cooperation. But there was no evidence about the value of
                                                                       Corp., 55 S.W.2d 535, 537 (Tex. Comm'n App.
that time--either the quantity or the cost of it. The
                                                                       1932, holdings approved); [**6] see also Note,
Woodlands blamed this gap on the difficulty of tracking                Pleading--Necessity of Damage to Cause of Ac-
the lost time, but never explained why it could not have               tion, 9 TEX. L. REV. 111, 112 (1930) (citing
been estimated. If the difficulty of proof always dis-
                                                                       cases).
charged the burden of proof, many litigants would simply
                                                                       7 Hope, 9 Tex. at 395.
not bother. 5 While the Woodlands could have estimated
                                                                       8 Restatement (Second) of Contracts § 346(2)
the value of wasted time, it could not ask the trial court to          (1981) ("If the breach caused no loss or if the
pull a figure from thin air.                                           amount of the loss is not proved under the rules
                                                                       stated in this Chapter, a small sum fixed without
       5 See, e.g., Wal-Mart Stores, Inc. v. Gonzalez,
                                                                       regard to the amount of loss will be awarded as
       968 S.W.2d 934, 937 (Tex. 1998) ("[T]hat proof of
                                                                       nominal damages."); accord Restatement (First)
       causation is difficult does not provide a plaintiff
                                                                       of Contracts § 328 (1932).
       with an excuse to avoid introducing some evi-                   9 See 24 Samuel Williston & Richard A. Lord,
       dence of causation." (quoting Schaefer v. Tex.                  A Treatise on the Law of Contracts § 64:6 (4th ed.
       Employers' Ins. Ass'n, 612 S.W.2d 199, 205 (Tex.
                                                                       2002) ("An unexcused failure to perform a con-
       1980))).
                                                                       tract is a legal wrong. An action will therefore lie
     Nevertheless, the Woodlands argues the award was                  for the breach although it causes no injury. Nom-
justified as nominal damages. We agree nominal damages                 inal damages may then be awarded.").
                                                                                                                    Page 3
                                      292 S.W.3d 660, *; 2009 Tex. LEXIS 634, **;
                                                 52 Tex. Sup. J. 1221

       10 See 11 JOSEPH M. PERILLO, CORBIN                            David Pearce & Roger Halson, Damages for
       ON CONTRACTS § 55.10 (rev. ed. 2005) ("[F]or                   Breach of Contract: Compensation, Restitution
       every breach of contract, a cause of action exists. .          and Vindication, 28 Oxford J. Legal Stud. 73, 76
       . . If the aggrieved party has suffered no com-                n.25 (2008) (noting that English cases can be
       pensable damages, a judgment for nominal dam-                  found awarding nominal damages of £ 1, £ 2, £ 5,
       ages will be entered.").                                       £ 10, and £ 15).
       11 BLACK'S LAW DICTIONARY 418 (8th                             17 Black's Law Dictionary 418 (8th ed. 2004).
       ed. 2004) (defining nominal damages as "[a] small              18 See, e.g., Nicholas v. Pa. State Univ., 227
       amount fixed as damages for breach of contract                 F.3d 133, 146 (3rd Cir. 2000) (Alito, J.) (holding
       without regard to the amount of harm").                        trial court properly reduced nominal damages
       12 See Chronister Oil Co. v. Unocal Ref. &                     award from $ 1,000 to $ 1).
       Mktg. (Union Oil Co. of Ca.), 34 F.3d 462, 466
                                                                    It appears from the record that the trial court awarded
       (7th Cir. 1994) [**7] (Posner, C.J.) (stating that
                                                               $ 1,000 as rough compensation for the wasted time the
       "for reasons we do not understand every victim of
                                                               Woodlands incurred. But nominal damages [**9] are not
       a breach of contract, unlike a tort victim, is enti-
                                                               for compensation; they are for cases in which there are no
       tled" to nominal damages).
                                                               damages, or none that could ever be proved. 19 While a few
    But $ 1,000 is not nominal damages. "[T]he usual           older cases hold otherwise, 20 in recent decades the rule in
meaning of the phrase 'nominal damages' refers to an           Texas has been that nominal damages are not available
award of one dollar." 13 Despite substantial changes over      when the harm is entirely economic and subject to proof
the centuries in what a dollar will buy, it remains the        (as opposed to non-economic harm to civil or property
standard award in federal cases, 14 and in Texas cases as      rights). 21 Thus, in Gulf States Utilities [*666] Co. v.
well. 15 A few cases have awarded nominal damages of $         Low, we rejected nominal damages because actual dam-
10 and even $ 100, 16 but nominal damages are supposed         ages had been incurred, yet the plaintiff failed to prove the
to be a "trifling sum," 17 and $ 1,000 hardly falls in that    amount. 22 "While mathematical precision is not required
category. 18                                                   to establish the extent or amount of one's damages, one
                                                               must bring forward the best evidence of the damage of
       13 Harkins v. Crews, 907 S.W.2d 51, 61 (Tex.            which the situation admits . . . ." 23 On this record, the $
       App.--San Antonio 1995, writ denied); accord ITT        1,000 damage award to the Woodlands cannot be sus-
       Commercial Fin. Corp. v. Riehn, 796 S.W.2d 248,         tained as either actual or nominal damages.
       257 (Tex. App.--Dallas 1990, no writ) (stating that
       "nominal damages [are] traditionally the sum of                19 Black's Law Dictionary 418 (8th ed. 2004)
       one dollar or perhaps ten dollars"); see also                  (defining nominal damages as "[a] trifling sum
       Perillo, supra note 10 ("The usual amount of                   awarded when a legal injury is suffered but when
       nominal damages is six cents or one dollar . . . .").          there is no substantial loss or injury to be com-
       14 See, e.g., Faragher v. City of Boca Raton,                  pensated"); see County of Dallas v. Wiland, 216
       524 U.S. 775, 783, 118 S. Ct. 2275, 141 L. Ed. 2d              S.W.3d 344, 356 (Tex. 2007) (noting that denial of
       662 (1998); Farrar v. Hobby, 506 U.S. 103, 107,                procedural due process justified award of nominal
       113 S. Ct. 566, 121 L. Ed. 2d 494 (1992); Carey v.             damages when no harm resulted); [**10] see
       Piphus, 435 U.S. 247, 267, 98 S. Ct. 1042, 55 L.               also Malakoff Gin Co., 192 S.W. at 532; Raymond
       Ed. 2d 252 (1978).                                             v. Yarrington, 96 Tex. 443, 73 S.W. 800, 804 (Tex.
       15 See, e.g., Henry S. Miller Co. v. Evans, 452                1903); McGuire v. Osage Oil Corp., 55 S.W.2d
       S.W.2d 426, 434 (Tex. 1970); [**8] Tex. Dis-                   535, 537 (Tex. Comm'n App. 1932, holdings ap-
       posal Sys. Landfill, Inc. v. Waste Mgmt. Holdings,             proved); Williston & Lord, supra note 9.
       Inc., 219 S.W.3d 563, 584 (Tex. App.--Austin                   20 See State v. Jackson, 388 S.W.2d 924, 926
       2007, pet. denied); State v. Miles, 458 S.W.2d 943,            (Tex. 1965); Davis v. Tex. & P. Ry., 91 Tex. 505,
       944 (Tex. Civ. App.--Waco 1970, writ ref'd n.r.e.);            44 S.W. 822, 823 (Tex. 1898); Moore v. Anderson,
       Lucas v. Morrison, 286 S.W.2d 190, 192 (Tex. Civ.              30 Tex. 224, 231 (1867); Hope v. Alley, 9 Tex. 394,
       App.--San Antonio 1956, no writ); Caswell v. J.S.              395 (1853).
       McCall & Sons, 163 S.W. 1001, 1002 (Tex. Civ.                  21 See Gulf Coast Inv. Corp. v. Rothman, 506
       App.--Austin 1913, no writ).                                   S.W.2d 856, 858 (Tex. 1974) (rejecting claim for
       16 See, e.g., Williams v. Kaufman County, 352                  nominal damages when evidence showed plaintiff
       F.3d 994, 1014-15 (5th Cir. 2003) (nominal                     suffered no economic damage); see also Coastal
       damages of $ 100); Malakoff Gin Co. v.                         Oil & Gas Corp. v. Garza Energy Trust, 268
       Riddlesperger, 108 Tex. 273, 192 S.W. 530, 532                 S.W.3d 1,12 n.36 (Tex. 2008) (stating that nominal
       (Tex. 1917) (nominal damages of $ 10); see also                damages are available for mere trespass against
                                                                                                                    Page 4
                                       292 S.W.3d 660, *; 2009 Tex. LEXIS 634, **;
                                                  52 Tex. Sup. J. 1221

        possessory interest, but reversionary interest           is not before us. Accordingly, the Woodlands' fee award
        owner must prove actual economic damages);               cannot be affirmed based on Chapter 38.
        Wiland, 216 S.W.3d at 356-57 (stating that nom-
        inal damages are available for denial of procedural             28 Mustang Pipeline Co., 134 S.W.3d at 201;
        due process); St. Paul Surplus Lines Ins. Co. v.                Green Int'l, 951 S.W.2d at 390; Beaston, 907
        Dal-Worth Tank Co., 974 S.W.2d 51, 53 (Tex.                     S.W.2d at 437.
        1998) (per curiam) (stating that nominal damages
        are available for loss of credit reputation).            IV. Attorney's Fees: Fraud Arising From Breach of
        22 79 S.W.3d 561, 567 (Tex. 2002).                       Contract
        23 Rothman, 506 S.W.2d at 858.
                                                                      Alternatively, the Woodlands argues it is entitled to
     While we normally remand [**11] for a new trial             attorney's fees based on fraud arising from a breach of
when there is some evidence to support an amount of              contract, pointing to this [**13] Court's reference to
actual damages, 24 in this case there was no evidence about      such an award in Gill Savings Ass 'n v. Chair [*667]
the amount of damages at all. And "where the record              King. 29 But in Gill we merely reinstated bankruptcy and
shows as a matter of law that the plaintiff is entitled only     appellate fees; we did not address the court of appeals'
to nominal damages, the appellate court will not reverse         award of fees for both contract and fraud on the basis that
merely to enable him to recover such damages." 25 Ac-            they were inextricably intertwined. 30 We explicitly re-
cordingly, we must render judgment that the Woodlands            jected this intertwining exception in Tony Gullo Motors I,
take nothing as damages on its breach of contract claim.         L.P. v. Chapa and reiterated that fees are not allowed for
                                                                 torts like fraud. 31 Thus, even if the Woodlands' fraud
        24 See Guevara v. Ferrer, 247 S.W.3d 662, 670            claim arose from a breach of contract, that is no basis for
        (Tex. 2007); Tony Gullo Motors I, L.P. v. Chapa,         an attorney's fee award.
        212 S.W.3d 299,314-15 (Tex. 2006).
        25 Travelers Ins. Co. v. Employers Cas. Co.,                    29 797 S.W.2d 31, 31 (Tex. 1990) (per curiam).
        380 S.W.2d 610, 614-15 (Tex. 1964); accord Wil-                 30         See 783 S.W.2d 674, 680 (Tex.
        liston & Lord, supra note 9 ("[A] judgment for the              App.--Houston [14th Dist.] 1989), aff'd as modi-
        defendant will not be reversed merely to give the               fied, 797 S.W.2d 31 (Tex. 1990).
        plaintiff nominal damages unless some substantial               31 212 S.W.3d 299, 311-14 (Tex. 2006).
        right of the plaintiff will thereby be protected.").
                                                                 V. Attorney's Fees: Bad Faith & Vexatious Conduct
III. Attorney's Fees: Breach of Contract
                                                                      The Woodlands also argues it is entitled to attorney's
      Chapter 38 of the Civil Practices and Remedies Code        fees because MBM "has acted in bad faith, vexatiously,
allows recovery of attorney's fees in breach of contract         wantonly, or for oppressive reasons." The rules of civil
cases: "A person may recover reasonable attorney's fees . .      procedure allow fees as a sanction against a party who
. in addition to the amount of a valid claim and costs, if the   files pleadings in bad faith 32 or abuses the discovery
claim is for . . . an oral or written contract." [**12] 26 To    process. 33 But the Woodlands filed no motion for sanc-
recover fees under this statute, a litigant must do two          tions pursuant to those rules. Its fee claim was not based
things: (1) prevail on a breach of contract claim, and (2)       on MBM's litigation         [**14] conduct but on its
recover damages. 27 The second requirement is implied            pre-litigation conduct; such fees are recoverable only if a
from the statute's language: for a fee recovery to be "in        contract or statute so provides. As the Woodlands cannot
addition to the amount of a valid claim," the claimant           recover fees based on contract or fraud, allegations that
must recover some amount on that claim.                          the breach was in bad faith or the fraud vexatious do not
                                                                 change that result.
        26 Tex. Civ. Prac. & Rem. Code § 38.001.
        27 Mustang Pipeline Co. v. Driver Pipeline Co.,                 32 See TEX. R. CIV. P. 13.
        134 S.W.3d 195, 201 (Tex. 2004) (per curiam);                   33      See, e.g., Tex. R. Civ. P. 215.1(d),
        Green Int'l, Inc. v. Solis, 951 S.W.2d 384, 390                 215.2(b)(8), 215.4(b), 215.5(b).
        (Tex. 1997); State Farm Life Ins. Co. v. Beaston,
        907 S.W.2d 430, 437 (Tex. 1995).                         VI. Attorney's Fees: Declaratory Judgment & Breach
                                                                 of Contract
    While some damages are necessary to recover fees
under this statute, 28 this Court has never said whether             The court of appeals affirmed part of the attorney's
nominal damages are enough. But as the Woodlands can             fee award based on the Declaratory Judgments Act. 34
recover neither actual nor nominal damages, that question        MBM asserts four reasons why declaratory relief was
                                                                 improper and cannot support a fee award. We disagree
                                                                                                                        Page 5
                                       292 S.W.3d 660, *; 2009 Tex. LEXIS 634, **;
                                                  52 Tex. Sup. J. 1221

that declaratory relief was improper but agree it cannot                 should have declined to exercise such ju-
support the fee award here.                                              risdiction because it deprived the real
                                                                         plaintiff of the traditional right to choose
        34    251 S.W.3d 174, 183-84.                                    the time and place of suit. 40
     First, MBM argues that declaratory relief is not
available for contract claims (like those here) that are
                                                                 But the "real plaintiff" and the "traditional right to choose
"fully matured and predicated upon a terminated rela-
                                                                 the time and place of suit" are materially different in
tionship." But the Act says relief is available in contract
                                                                 contract and tort cases. The "real" plaintiff in a tort action
cases "before or after there has been a breach," 35 so a
                                                                 is the injured party, yet both parties often suffer injury if a
matured breach is explicitly covered by the Act. 36 Further,
                                                                 contract collapses. When each party claims the other
declaratory relief is often available after a relationship has
                                                                 breached (as is usually the case), 41 it is hard to say who
been terminated, as in cases concerning noncompetition
                                                                 ought to be the "real" plaintiff. Here, for example, why
[**15] covenants signed by former employees, 37 or off-
                                                                 should MBM get to choose the time and place of suit
setting judgments between former litigants. 38 MBM notes
                                                                 rather than the Woodlands? The Act itself [**17] spe-
that we justified declaratory relief in [*668] BHP Pe-
                                                                 cifically contemplates declarations that are negative
troleum Co. v. Millard by referring to an "ongoing and
                                                                 (non-liability) as well as affirmative (liability). 42 And
continuing relationship," but that was solely to show that
                                                                 historically, declarations of non-liability under a contract
the defendant's counterclaim (relating to the parties' future
                                                                 have been among the most common suits filed under the
rights) went beyond the plaintiff's claim (relating to past
                                                                 Act, including:
damages alone). 39 We disagree that a party can immunize
                                                                             . suits by insurers to declare
itself against declaratory relief by simply terminating any
                                                                          non-liability under a duty-to-defend
ongoing relationship.
                                                                          clause, 43
        35 Tex. Civ. Prac. & Rem. Code § 37.004(b)                           . suits by employees to declare
        (emphasis added).                                                non-liability under a covenant not to
        36         See RESTATEMENT (SECOND) OF                           compete, 44 and
        JUDGMENTS § 33 cmt. a (1982) ("But while the
                                                                             . suits by a party to declare
        declaratory action is perhaps most important as a
                                                                         non-liability for higher or additional pay-
        kind of preventive device, its use is not so re-
                                                                         ments. 45
        stricted; it is also sometimes permitted after the
        wrong has been committed, when a coercive
        remedy could be awarded to or against the plain-
                                                                 Extending the bar against declarations of non-liability
        tiff in the declaratory action.").
                                                                 from tort to contract cases would drastically handicap
        37 See Mann Frankfort Stein & Lipp Advisors,
                                                                 declaratory-judgment practice in Texas.
        Inc. v. Fielding, 289 S.W.3d 844, 852, 2009 Tex.
        LEXIS 124 (Tex. 2009) (declaring former em-
                                                                         40 695 S.W.2d 564, 566 (Tex. 1985).
        ployee's noncompetition covenant enforceable);
                                                                         41 See, e.g., Mustang Pipeline Co. v. Driver
        see also Lowenberg v. City of Dallas 261 S.W.3d
                                                                         Pipeline Co., 134 S.W.3d 195, 200 (Tex. 2004)
        54, 59 (Tex. 2008) (per curiam) (affirming de-
                                                                         (per curiam); Bennett v. Cochran, 96 S.W.3d 227,
        claratory judgment [**16] regarding unlawful
                                                                         228 (Tex. 2002) (per curiam); Callahan & Assocs.
        tax that had been repealed).
                                                                         v. Orangefield Indep. Sch. Dist., 92 S.W.3d 841,
        38 Bonham State Bank v. Beadle, 907 S.W.2d
                                                                         842 (Tex. 2002) (per curiam); State ex rel. Dep't of
        465, 468 (Tex. 1995).
                                                                         Criminal Justice v. VitaPro Foods, Inc., 8 S.W.3d
        39 800 S.W.2d 838, 841-42 (Tex. 1990).
                                                                         316, 321 (Tex. 1999); Stuart v. Bayless, 964
    Second, MBM urges that declarations of non-liability                 S.W.2d 920, 921 (Tex. 1998) (per curiam); For-
should be barred in contract cases, just as they are in tort             mosa Plastics Corp. USA v. Presidio Eng'rs &
cases. As we said in Abor v. Black:                                      Contractors, Inc., 960 S.W.2d 41, 43 (Tex. 1998);
                                                                         Green Int'l, Inc. v. Solis, 951 S.W.2d 384, 386
           Because [the Act] appears to give the                         (Tex. 1997); [**18] Stewart Title Guar. Co. v.
        courts jurisdiction over declarations of                         Aiello, 941 S.W.2d 68, 70 (Tex. 1997); Mancorp,
        non-liability of a potential defendant in a                      Inc. v. Culpepper, 802 S.W.2d 226, 227 (Tex.
        tort action, we find that the . . . District                     1990).
        Court had jurisdiction over the suit.                            42 Tex. Civ. Prac. & Rem. Code § 37.003(b)
        However, we hold that the trial court                            ("The declaration may be either affirmative or
                                                                                                                   Page 6
                                     292 S.W.3d 660, *; 2009 Tex. LEXIS 634, **;
                                                52 Tex. Sup. J. 1221

       negative in form and effect, and the declaration              49 See, e.g., In re Sw. Bell Tel. Co., 235 S.W.3d
       has the force and effect of a final judgment or               619, 625 (Tex. 2007) (holding declaratory relief
       decree.").                                                    unavailable until administrative remedies were
       43     See, e.g., Fairfield Ins. Co. v. Stephens              exhausted); Thomas v. Long, 207 S.W.3d 334, 342
       Martin Paving, LP, 246 S.W.3d 653 (Tex. 2008);                (Tex. 2006) (same); State v. Morales, 869 S.W.2d
       Farmers Tex. County Mut. Ins. Co. v. Griffin, 955             941, 942 (Tex. 1994) (holding civil courts can
       S.W.2d 81 (Tex. 1997) (per curiam); Nat'l Union               declare criminal laws unconstitutional only in
       Fire Ins. Co. of Pittsburgh, Pa. v. Merchants Fast            limited circumstances); Canyon Creek Land
       Motor Lines, Inc., 939 S.W.2d 139 (Tex. 1997)                 Corp., 456 S.W.2d at 894 (holding civil courts
       (per curiam); Liberty Mut. Fire Ins. Co. v. San-              generally should not entertain declaratory actions
       ford, 879 S.W.2d 9 (Tex. 1994) (per curiam).                  to overturn an administrative agency's interpreta-
       44 See, e.g., Mann Frankfort Stein & Lipp Ad-                 tion of a penal statute the agency is to enforce);
       visors, Inc. v. Fielding, 289 S.W.3d 844 2009 Tex.            Cobb, 190 S.W.2d at 714 ("We do not hold that the
       LEXIS 124 (Tex. 2009); In re AutoNation, Inc.,                declaratory judgment procedure may be used
       228 S.W.3d 663 (Tex. 2007).                                   when a statute provides an administrative board or
       45 See, e.g., Yzaguirre v. KCS Res., Inc., 53                 other special tribunal or special procedure for the
       S.W.3d 368, 370 (Tex. 2001); VitaPro Foods, Inc.,             particular type of case in hand as, for example, a
       8 S.W.3d at 321.                                              workmen's compensation case.").
                                                                     50      See Tex. Civ. Prac. & Rem. Code §
      [*669]     Third, MBM argues that declaratory
                                                                     37.004(a), (b) (stating that "[a] contract may be
judgments are available only if there is no adequate al-
                                                                     construed [**21] either before or after there has
ternative cause of action. But this has never been the rule
                                                                     been a breach," and that "[a] person interested
in Texas. Shortly after the Legislature passed the Act in
                                                                     under . . . writings constituting a contract . . . may
1943, 46 this Court adopted exactly [**19] the opposite
                                                                     have determined any question of construction or
rule, stating that "the existence of another adequate rem-
                                                                     validity arising under the . . . contract").
edy does not bar the right to maintain an action for de-
claratory judgment" and finding this rule supported by             Yet while declaratory relief may be obtained under
"better reasoning." 47 The federal courts follow the same     the Act in all these circumstances, that does not mean
rule, as Federal Rule of Civil Procedure 57 makes clear:      attorney's fees can too. Texas has long followed the
"The existence of another adequate remedy does not pre-       "American Rule" prohibiting fee awards unless specifi-
clude a declaratory judgment that is otherwise appropri-      cally provided by contract or statute. 51 By contrast, the
ate." We agree the Act cannot be invoked when it would        Declaratory Judgments Act allows fee awards to either
interfere with some other exclusive remedy 48 or some         party in all cases. 52 If repleading a claim as a declaratory
other entity's exclusive jurisdiction. 49 But prohibiting     judgment could justify a fee award, attorney's fees would
declaratory judgments whenever a breach of contract           be available for all parties in all cases. That would repeal
claim is available would negate the Act's explicit terms      not only the American Rule but also the limits imposed on
covering such claims. 50                                      fee awards in other statutes. Accordingly, the rule is that a
                                                              party cannot use the Act as a vehicle to obtain otherwise
       46 Uniform Declaratory Judgments Act, 48th             impermissible attorney's fees. 53
       Leg., R.S., ch. 164, 1943 Tex. Gen. Laws 265.
       47     Cobb v. Harrington, 144 Tex. 360, 190                  51 See Tony Gullo Motors I, L.P. v. Chapa, 212
       S.W.2d 709, 714 (Tex. 1945); accord Tex. Liquor               S.W.3d 299, 310-11 (Tex. 2006).
       Control Bd. v. Canyon Creek Land Corp., 456                   52 See Tex. Civ. Prac. & Rem. Code § 37.009.
       S.W.2d 891, 895 (Tex. 1970); Crow v. City of                  53 See Martin, 133 S.W.3d at 267; THPD, Inc.
       Corpus Christi, 146 Tex. 558, 209 S.W.2d 922,                 v. Cont'l Imports, Inc., 260 S.W.3d 593, 619-20
       924 (Tex. 1948); see also McKinley v. McKinley,               (Tex. App.--Austin 2008, no pet.); Warrantech
       496 S.W.2d 540, 542 (Tex. 1973).                              Corp. v. Steadfast Ins. Co., 210 S.W.3d 760, 770
       48 See, e.g., Martin v. Amerman, 133 S.W.3d                   (Tex. App.--Fort Worth 2006, pet. denied);
       262, 267 (Tex. 2004) (noting that the Property                [**22] Sani v. Powell, 153 S.W.3d 736, 745 (Tex.
       Code describes trespass-to-try-title actions                  App.--Dallas 2005, pet. denied); City of Houston
       [**20] as "the method for determining title");                v. Texan Land & Cattle Co., 138 S.W.3d 382, 392
       John G. & Marie Stella Kenedy Mem'l Found. v.                 (Tex. App.--Houston [14th Dist.] 2004, no pet.);
       Dewhurst, 90 S.W.3d 268, 289 (Tex. 2002) (noting              Sw. Guar. Trust Co. v. Hardy Road 13.4 Joint
       that Natural Resources Code provisions author-                Venture, 981 S.W.2d 951, 957 (Tex.
       izing declaratory suits by coastal property owners            App.--Houston [1st Dist.] 1998, pet. denied);
       do not provide for fees).
                                                                                                                     Page 7
                                      292 S.W.3d 660, *; 2009 Tex. LEXIS 634, **;
                                                 52 Tex. Sup. J. 1221

       Boatman v. Lites, 970 S.W.2d 41, 43 (Tex.                    Nevertheless, the Woodlands argues it is entitled to
       App.--Tyler 1998, no pet.).                             fees because the declaratory relief it sought did more than
                                                               merely duplicate the issues litigated in its contract and
      [*670] The Act was originally "intended as a
                                                               fraud claims. The five declarations the Woodlands ob-
speedy and effective remedy" for settling disputes before
                                                               tained in the judgment were:
substantial damages were incurred. 54 It is "intended to
provide a remedy that is simpler and less harsh than co-
                                                                          1. that the Woodlands "complied with
ercive relief, if it appears that a declaration might termi-
                                                                      its contractual obligations to provide no-
nate the potential controversy." 55 But when a claim for
                                                                      tice of its intent not to renew";
declaratory relief is merely tacked onto a standard suit
based on a matured breach of contract, allowing fees                       2. that MBM "improperly failed to
under Chapter 37 would frustrate the limits Chapter 38                timely designate a carrier and location for
imposes on such fee recoveries. And granting fees under               the return";
Chapter 37 when they are not permitted under the specific
                                                                          3. that MBM's manipulation of the
common-law or statutory claims involved would violate
                                                                      termination dates barred it from making
the rule that specific provisions should prevail over gen-
                                                                      "any claim that [the Woodlands] failed to
eral ones. 56 While the Legislature intended the Act to be
                                                                      provide timely notice";
remedial, 57 it did not intend to supplant all [**23] other
statutes and remedies. 58                                                  4. that the Woodlands "relied to its
                                                                      detriment on the termination dates pro-
       54 Cobb, 190 S.W.2d at 713.                                    vided by MBM"; and
       55     Restatement (Second) of Judgments § 33
       cmt. c (1982).                                                      5. that the Woodlands "has suffered
       56 See, e.g., Tex. Gov't Code § 311.026(b) (re-                damage as a direct result of its detrimental
                                                                      reliance upon the termination dates pro-
       quiring that specific statutory provisions prevail
                                                                      vided by MBM."
       over general ones in statutory construction);
       Strong v. Garrett, 148 Tex. 265, 224 S.W.2d 471,
       475 (Tex. 1949) (noting the "general rule" that
       specific descriptions in deeds prevail over general      [*671] Whether the Woodlands sent timely notice of
                                                               cancellation and MBM failed to designate a return loca-
       ones).
                                                               tion were part and parcel of the Woodlands' contract
       57       See Tex. Civ. Prac. & Rem. Code §
                                                               claim. And whether MBM misrepresented the [**25]
       37.002(b).
                                                               termination dates and the Woodlands relied on those
       58 Crow v. City of Corpus Christi, 146 Tex.
       558, 209 S.W.2d 922, 924 (Tex. 1948) ("[T]he            misrepresentations were duplicative of the Woodlands'
       remedy afforded by the Declaratory Judgment Act         fraud claim. Thus, the declarations sought by the Wood-
                                                               lands merely duplicated issues already before the trial
       is additional and does not supplant any existing
                                                               court.
       remedy."); Restatement (Second) of Judgments §
       33 cmt. c ("[D]eclaratory actions are to supple-             It is easy to understand the Woodlands' frustration
       ment rather than supersede other types of litiga-       with MBM. Viewing the evidence in the proper light,
       tion.").                                                MBM withheld information, changed renewal dates, and
     At trial, the Woodlands recovered no damages on its       manipulated the truth to try to get more rent than it was
                                                               entitled to. It raised dodges, defenses, and counterclaims
breach of contract claim, so it cannot recover fees under
                                                               at various stages that all eventually collapsed in a heap,
Chapter 38. Allowing it to recover the same fees under
                                                               but only after forcing the Woodlands to incur legal fees
Chapter 37 would frustrate the provisions and limitations
of the neighboring chapter in the same Code. 59 Accord-        and costs. But to recover those fees, the Woodlands had to
ingly, we hold the Woodlands cannot recover attorney's         recover damages for breach of contract. That it failed to
                                                               do. As Chief Justice Calvert wrote for this Court almost
fees under the Declaratory Judgments Act.
                                                               50 years ago:
       59 Cf. City of Waco v. Lopez, 259 S.W.3d 147,
                                                                         Perhaps every successful litigant should
       153-55 (Tex. 2008) [**24] (holding the Legis-
       lature did not intend to allow claimants to elect              be permitted to recover his attorney fees
       between Human Rights and Whistleblower Acts                    from the opposite party. But whether that
                                                                      policy would be wise is for the Legislature,
       because differing procedures and remedies would
                                                                      not the courts, to decide. Apparently the
       frustrate legislative goals).
                                                                      Legislature has not thought it wise. 60
                                                                                                   Page 8
                         292 S.W.3d 660, *; 2009 Tex. LEXIS 634, **;
                                    52 Tex. Sup. J. 1221

                                                      Accordingly, we reverse the judgment of the court of
                                                 appeals and render judgment that [**26] the Woodlands
                                                 take nothing.
60 Van Zandt v. Fort Worth Press, 359 S.W.2d
                                                     Scott Brister
893, 896 (Tex. 1962).
                                                     Justice
                                                     OPINION DELIVERED: August 28, 2009
                                                                                                                   Page 1




                DAVID L. MCFADDEN, Appellant, v. PEDRO ZARAGOSA FUENTES, Appellee

                                                     No. 08-89-00402-CV

                             COURT OF APPEALS OF TEXAS, Eighth District, El Paso

                790 S.W.2d 736; 1990 Tex. App. LEXIS 967; 12 U.C.C. Rep. Serv. 2d (Callaghan) 728


                                                       April 25, 1990

PRIOR HISTORY:           [**1] Appeal from 34th Dis-            sent Fuentes notice that if the $ 30,000.00 of March 1,
trict Court of El Paso County, Texas. TC No. 86-8580,           1986 was not timely made, "Mr. McFadden (seller) will
William Moody, Judge.                                           have no alternative but to cancel the agreement and retain
                                                                all money paid pursuant to the terms of the agreement."
                                                                On September 10, 1986, the seller filed suit for conse-
COUNSEL: ATTORNEY FOR APPELLANT, Harris,                        quential damages caused by the breach of contract.
Hon. Ralph E., El Paso, Texas.
                                                                     The focal point of the appeal is whether the exacted $
                                                                20,000.00 was a penalty of forfeiture to be applied toward
ATTORNEY FOR APPELLEE, Broaddus, Jr., Hon.
                                                                consequential damages for a breach of contract, or
Francis C., El Paso, Texas.
                                                                whether it was proper liquidated damages that had been
                                                                stipulated to by the parties whereby "cancellation" of the
JUDGES: JERRY WOODARD,                    Justice,    Fuller,
                                                                contract precludes any further damage award.
Woodard and Koehler, JJ.
                                                                     To be enforceable as liquidated damages under
OPINION BY: WOODARD                                             common law, the damages must be uncertain and the
                                                                stipulation must be reasonable. Stewart v. Basey, 150
OPINION                                                         Tex. 666, 245 S.W.2d 484 (1952). However, in 1965, the
                                                                Uniform Commercial Code was enacted in Texas. The
     [*737] OPINION
                                                                specific provisions of the UCC supersede the common
     This is an appeal from a summary judgment in favor         law      applicable    to     transactions    in    goods.
of the Defendant, Mr. Fuentes. We reverse.                      Tex.Bus.&Com.Code Ann. sec. 2.718 (Vernon 1968),
                                                                provides for [**3] liquidated damages in the agreement
     The parties contracted for Fuentes' purchase of cer-
                                                                subject to their reasonableness in light of anticipated or
tain bowling, restaurant and bar equipment. On the exe-
                                                                actual harm, difficulties in proving loss and inconven-
cution of the agreement, $ 20,000.00 was paid, $
                                                                ience or nonfeasibility of otherwise obtaining an adequate
30,000.00 was to be paid on or before March 1, 1986 and
                                                                remedy. Section 2.719 now provides that remedies in case
$ 135,000.00 was to be paid on May 1, 1986, which was
                                                                of default can be contracted for, including an exclusive or
the date Fuentes was to take possession of the property.
                                                                sole remedy where expressly agreed upon. Section 2.719,
The contract was prepared by the attorney for the seller. It
                                                                Uniform Commercial Code Comment states:
provided that "[i]n the event Buyer fails to pay the full
purchase price for the personal property as provided for             (2) Subsection (1)(b) creates a presumption that
herein on or before May 1, 1986, Seller shall have the          clauses prescribing remedies are cumulative rather than
right to retain all money paid pursuant to the terms and        exclusive. If the parties intend the term to describe the
conditions of this Agreement, and cancel this Agree-            sole remedy under the contract, this must be clearly ex-
ment." Under the contract, $ 20,000.00 was deposited            pressed.
with the attorney for the seller [**2] as earnest money to
                                                                    The limitation or exclusion of consequential damages
be held in escrow until the terms of the agreement had
                                                                must not be unconscionable, but unconscionability would
been complied with. On January 13, 1986, the attorney
                                                                                                                      Page 2
                                    790 S.W.2d 736, *; 1990 Tex. App. LEXIS 967, **;
                                         12 U.C.C. Rep. Serv. 2d (Callaghan) 728

be a matter of confession and avoidance, and was not             also retains any remedy for breach of the whole contract
affirmatively pleaded in this case. The pertinent para-          or any unperformed balance." Whenever a statute or other
graphs of the contract are as follows:                           legal rule requires a specified "legal meaning" to be given
                                                                 to certain words, the requirement is that the use of those
     (1) With the execution of this Agreement, (the buyer
                                                                 words shall produce a particular legal effect whether the
shall) deposit $ 20,000.00 in escrow with Ralph E. Harris,
                                                                 contracting parties intended to produce it or not. 3 Corbin
said deposit representing earnest money to be held in
                                                                 On Contracts, sec. 550, at 196-197 (West 1960). A mis-
escrow by the said Ralph E. Harris until such time as all
                                                                 take in understanding what the legal definition is would be
terms and conditions of this Agreement are complied
                                                                 a mistake of law. Corbin, sec. 619, at 766. A mistake of
with; [**4] . . .
                                                                 law has not been pleaded by the parties.
    .....
                                                                      We hold that there is no evidence establishing that
     (2) In the event Buyer fails to pay the full purchase       any stipulated sum is reasonable in light of (1) the antic-
price for the personal property as provided for herein on        ipated or actual harm caused by the breach; (2) the diffi-
or before May 1, 1986, Seller shall have the right to retain     culties of proof or loss; and (3) the difficulty [**6] of
all money paid pursuant to the terms and conditions of this      otherwise obtaining an adequate remedy as required by
Agreement, and cancel this Agreement.                            Section 2.718(a), and therefore, no valid liquidated
                                                                 damage provision has been established. Further, even if
     The contract further provides that the buyer has the
                                                                 this were so, under the facts of this case, forfeiture of the
option to cancel the contract or extend the closing date if
                                                                 sum would be precluded from being a sole remedy by the
the property becomes damaged by fire or other casualty. It
                                                                 provisions of Section 2.719(a)(2) which require express
also provides that if the seller is unable to convey the
                                                                 agreement for such a limitation of remedy. The language
property, the money shall be [*738] returned to buyer,           in this case expressly retains any remedy for breach of the
and the buyer has the right to cancel the agreement.             whole contract by the solitary use of the legal phrase
     In the interpretation of contracts, the primary concern     "cancel the agreement." It would be valid argument gen-
of courts is to ascertain and to give effect to the intentions   erally, however, that if a liquidated damage clause were
of the parties as expressed in the instrument. R & P             created under Section 2.718, it would logically self oper-
Enterprises v. LaGuarta, Gavrel & Kirk, Inc., 596 S.W.2d         ate to be the exclusive remedy selection as contemplated
517 (Tex. 1980). To achieve this object, the Court will          by Section 2.719.
examine and consider the entire instrument so that none of
                                                                      The movant for summary judgment has the burden of
the provisions will be rendered meaningless. If a written
                                                                 showing that there is no genuine issue of material fact and
instrument is so worded that a court may properly give it a
                                                                 that he is entitled to judgment as a matter of law. In de-
certain or definite legal meaning or interpretation, it is not
                                                                 ciding whether or not there is a disputed fact issue pre-
ambiguous. On the other hand, [**5] a contract is am-            cluding summary judgment. evidence favorable to the
biguous only when the application of the applicable rules        nonmovant will be taken as true. Every reasonable in-
of interpretation to the instrument leave it genuinely un-
                                                                 ference must be indulged in favor of the nonmovants and
certain which one of the two meanings is proper meaning.
                                                                 any doubts resolved in their favor. Nixon v. Mr. Property
Id. at 519.
                                                                 Management [**7] Company, Inc., 690 S.W.2d 546
     Tex.Bus.&Com.Code Ann sec. 2.106(d) states                  (Tex. 1985).
"'Cancellation' occurs when either party puts an end to the          Judgment of the trial court is reversed and the cause is
contract for breach by the other and its effect is the same      remanded for trial.
as that of 'termination' except that the cancelling party
                                                                                                               Page 1




               CHRISTOPHER MCGINNIS, INDIVIDUALLY, AND BY NEXT FRIEND, BUFFY
                 MCGINNIS, Plaintiffs, VS. UNION PACIFIC RAILROAD CO., Defendant and
                 Third-Party Plaintiff, METROPOLITAN TRANSIT AUTHORITY OF HARRIS
                  COUNTY, TEXAS, Intervenor VS. LIBERTY MUTUAL FIRE INSURANCE
                   COMPANY AND THOSE CERTAIN INDIVIDUAL UNDERWRITERS of
                  LLOYD'S LONDON, FORMING SYNDICATE 1861 AND SYNDICATE 2003
                SUBSCRIBING SEVERALLY TO POLICY NUMBER 576/UF7273700 FOR THE
                        2003 LLOYD'S YEAR OF ACCOUNT, Third-Party Defendants.

                                           CIVIL ACTION NO. 3:07-CV-32

                 UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
                                 TEXAS, GALVESTON DIVISION

                                  612 F. Supp. 2d 776; 2009 U.S. Dist. LEXIS 33687


                                                March 14, 2009, Decided

SUBSEQUENT HISTORY: Reconsideration granted
by, in part, Reconsideration denied by, in part McGinnis v.   For Tonicstar Limited, Member of Syndicate 1861 and
Union Pac. R.R. Co., 2009 U.S. Dist. LEXIS 81383 (S.D.        2003 and Catlin Sydicate Ltd., Member of Syndicate
Tex., Sept. 8, 2009)                                          2003, Subscribing Severally, and Not for One another to
                                                              Policy Number 576/UF2727300, Third Party Defendant:
PRIOR HISTORY: McGinnis v. Union Pac. R.R. Co.,               John Martin Ribarits, LEAD ATTORNEY, Preis Roy,
2008 U.S. Dist. LEXIS 112602 (S.D. Tex., Apr. 24, 2008)       Houston, TX.

                                                              For Metropolitan Transit Authority of Harris County,
COUNSEL: [**1] For Christopher McGinnis, Indi-                Texas, Intervenor: Bryan S Dumesnil, LEAD ATTOR-
vidually, and by next friend, Buffy McGinnis, Plaintiff:      NEY, Bracewell Giuliani LLP, Houston, TX; William G
George William Gore, LEAD ATTORNEY, Attorney at               Hagans, Bracewell & Giuliani LLP, Houston, TX.
Law, Houston, TX.
                                                              JUDGES: KEITH     [**2] P. ELLISON, UNITED
For Union Pacific Railroad Company, Defendant,                STATES DISTRICT JUDGE.
ThirdParty Plaintiff: John L Hagan, LEAD ATTORNEY,
Jones Day, Houston, TX; Benton R Bond, Union Pacific          OPINION BY: KEITH P. ELLISON
RR Co, Spring, TX.
                                                              OPINION
For Liberty Mutual Fire Insurance Company, Third Party
Defendant: Michael Phillips, LEAD ATTORNEY, Phil-              [*782] MEMORANDUM AND ORDER
lips Akers PC, Houston, TX.
                                                                  Before the Court are the Motions for Summary
                                                              Judgment of Third-Party Defendants Liberty Mutual Fire
For Certain Underwriters at Lloyd's, London, Subscribing
                                                              Insurance Company ("Liberty Mutual") (Docket Entry
to Policy Number 576/UF7273700, Third Party Defend-
                                                              ("Doc.") No. 64) and Underwriters of Lloyd's, London
ant: John Martin Ribarits, LEAD ATTORNEY, Preis
                                                              ("Lloyd's") (Doc. No. 66), and all objections, responses
Roy, Houston, TX; Jennifer E Michel, Preis & Roy,
                                                              and replies thereto (respectively, Doc. Nos. 74, 76, 84 &
Lafayette, LA; Leah N. Englehardt, Preis & Roy, A PLC,
                                                              85; Doc. Nos. 76, 81, 87, 88 & 90). Also before the Court
New Orleans, LA.
                                                              are the Partial Motions for Summary Judgment of
                                                                                                                       Page 2
                                612 F. Supp. 2d 776, *; 2009 U.S. Dist. LEXIS 33687, **


Third-Party Plaintiff Union Pacific Railroad Company           that accidents might arise from Siemens' use of the prop-
("UP") (Doc. Nos. 67 & 69) and Intervenor Metropolitan         erty. Due to the increased risk, Metro and UP agreed to
Transit Authority ("Metro") (Doc. No. 65), and all objec-      incorporate two important requirements into the lease
tions, responses and replies thereto (respectively, Doc.       agreement to protect UP. First, pursuant to the terms of
Nos. 71, 77, 89 & 91; Doc. Nos. 70, 78, 86).                   the lease agreement, [**5] Metro was required to pur-
                                                               chase specified insurance to protect UP from the increased
     After reviewing the Motions, all related filings, and
                                                               risk. The agreement provides:
the relevant law, the Court finds, for the reasons discussed
below, that Liberty Mutual's Motion for Summary
                                                                         [Metro] shall, at its sole costs and ex-
Judgment should be granted in part and denied in part, that
                                                                      pense, procure and maintain during the life
Lloyd's Motion for Summary Judgment should be denied,
                                                                      of this Agreement the following insurance
[**3] that UP's Motions for Partial Summary Judgment of
                                                                      coverage:
UP should be granted in part and denied in part, and that
Metro's Motion for Partial Summary Judgment should be                      A. Commercial General Liability in-
granted in part and denied in part.                                   surance. This insurance shall contain broad
                                                                      form contractual liability with a single
I. FACTUAL BACKGROUND                                                 limit of at least $ 5,000,000 each occur-
                                                                      rence or claim and an aggregate limit of at
A. Metro's Light Rail Project                                         least $ 10,000,000. Coverage must be
                                                                      purchased on a post 1998 ISO or equiva-
     In 2001, Metro began construction of a light rail
                                                                      lent form.
transportation system in Houston, Texas. The initial phase
of the light rail project included the construction of a 7.5               ***
mile light rail system with 16 stations, downtown street
                                                                          B. Railroad Protective Liability in-
improvements, a Transit Administration building, Park
                                                                      surance naming only [UP] as the insured
and Ride lots, a test track, a rail operations building, and
                                                                      with a combined single limit of $
the design, manufacture, assembly, testing and acceptance
                                                                      2,000,000 per occurrence with a $
of 18 light rail vehicles ("LRVs"). Metro obtained seven
                                                                      6,000,000 aggregate
major contracts for the construction of the light rail sys-
tem. One of Metro's contracts for construction was with                    ***
Siemens Transportation Systems ("Siemens"), the Vehi-
                                                                          C. Workers Compensation and Em-
cle and Systems Contractor. Metro's contract with Sie-
                                                                      ployers Liability insurance ...
mens was on a "ready to go" turnkey basis, which meant
that Siemens was responsible for virtually all aspects of                  ***
the light rail project related to the vehicles and systems,
including the track, the LRVs, fare collection, catenary,                  D. Umbrella or Excess Policies In the
sub-stations, signaling, and communications. In [**4]                 event [Metro] utilizes Umbrella or excess
particular, the "ready to go" contract made Siemens re-               policies, these policies shall "follow form"
sponsible for the installation of the 18 LRVs, which each             and afford no less coverage than the pri-
required separate testing before Metro would take final               mary policy.
acceptance for their use in its light rail transportation
system. This testing, [*783] or "burning-in" process,
also referred to as commissioning, necessitated Siemens'       (Doc. No. 55, Ex. A-4 at Bates 1590-91.)
use of a suitable test track. Siemens was also required to          Metro separately agreed to release and indemnify UP
provide Metro employees with operator training and to          for losses as follows:
supervise the LRVs.
                                                                         [Metro], to the extent it may lawfully do
B. Metro's Lease Agreement with Union Pacific                         so, waives and releases any and all claims
     In order to facilitate the installation or testing by            against [UP] for, and agrees to indemnify,
Siemens of Metro's new fleet of LRVs, Metro entered into              defend and [**6] hold harmless [UP], its
negotiations with Union Pacific ("UP") for a five year                affiliates, and its and their officers, agents
lease agreement to construct, maintain, and operate a test            and employees ("Indemnified Parties")
track on UP's land. Because the premises Metro sought to              from and against, any loss, damage (in-
lease for its light rail project were located in close prox-          cluding without limitation, punitive or
imity to a railroad right-of-way owned by UP, on which it             consequential damages), injury, liability,
operated two active rail lines, there was an increased risk           claim, demand, cost or expense (including,
                                                                                                                      Page 3
                                612 F. Supp. 2d 776, *; 2009 U.S. Dist. LEXIS 33687, **


       without limitation, attorneys' fees and                 ris County, Texas (Metro) and others, all as more fully set
       court costs), fine or penalty (collectively,            forth in the attached Policy Wording." The Declarations
       "Loss") incurred by any person (including,              listed the "Named Insured" as "THE METROPOLITAN
       without limitation, [UP], [Metro], or any               TRANSIT AUTHORITY OF HARRIS COUNTY,
       employee of [UP] or [Metro]) and arising                TEXAS (METRO), Contractors, Subcontractors of any
       from or related to (i) any use of the Prem-             tier and Consultants and Sub-Consultants of any tier, for
       ises by [Metro] or any invitee or licensee              whom any afore-mentioned Insureds have agreed by
       or [Metro], (ii) any act or omission of                 contract to furnish the insurance coverage provided under
       [Metro], its officers, agents, employees,               this policy per the project." (Id.) As set forth in the Dec-
       licensees or invitees, or (iii) any breach of           larations page, the Umbrella policy provided limits of $
       this Lease by [Metro].                                  50,000,000 per occurrence, $ 50,000,000 General Ag-
                                                               gregate (in accordance with Section III, Limits of Insur-
                                                               ance), and $ 50,000,000 Products-Completed Operations
(Id. at Bates 1587.) The agreement limited the indemnity       Aggregate for the period (otherwise in accordance with
to situations where UP was not solely negligent. (Id.)         Section III, Limits of Insurance). The Declarations page
                                                               also [**9] provided that there was a $ 25,000 "Self In-
C. The Insurance Policies                                      sured Retention (inclusive of Defense Costs)." (Id.)
     To secure insurance coverage for the light rail
                                                               D. The Accident, Subsequent Claims & Settlements
transportation system, Metro retained the services of
Willis of Texas, an insurance broker. With the assistance            On January 23, 2004, Christopher McGinnis, a UP
of Willis of Texas, Metro purchased a Railroad Protective      worker, was operating one of UP's Hyrail vehicles. He
Liability policy ("RPL"), a Wrap-Up policy, and an Um-         was traveling to a work site on the railroad tracks. As he
brella or Excess [*784] policy. First, with regard to the      waited behind another Hyrail vehicle that had already
RPL, in exchange for Metro's [**7] payment of a $              crossed the LRV test track and had maneuvered onto the
29,760 advance premium, which was based on a contract          rail road tracks, another UP employee manually lifted the
cost of $ 30,000,000, Liberty Mutual issued RPL policy         crossing arm so that McGinnis could also cross the test
number TE2-691-004173-031. The RPL listed "Union               track and maneuver his Hyrail vehicle onto the railroad
Pacific Railroad Company" as the Named Insured and             tracks. McGinnis was not aware that a LRV was ap-
"Metropolitan Transit Authority of Harris County" as the       proaching the crossing. The LVR, unable to stop, collided
"Designated Contractor." (Doc. No. 64, Ex. A.) The pol-        with McGinnis s Hyrail vehicle. The collision seriously
icy provided liability limits in the amount of $ 2,000,000     injured McGinnis. Several individuals on the LRV also
per occurrence, or an aggregate limit of $ 4,000,000. The      sustained injuries.
effective dates of coverage under the RPL were from
                                                                    Following the collision, the individuals on the LRV
March 14, 2001 to September 14, 2004. (Id.)
                                                               who were injured brought suit against UP and McGinnis,
     Liberty Mutual also issued Wrap-Up policy number          and McGinnis filed the instant suit against UP. UP placed
RG2-691-004173-011, in which "Metropolitan Transit             Liberty Mutual on notice of the loss, tendered both the
Authority of Harris County" was listed as the Named            claims and suits brought against it to Liberty Mutual
Insured. (Doc. No. 64, Ex. B.) The Wrap-Up policy,             under the RPL policy, and demanded a defense [*785]
consisting of three layers, included an Owner Controlled       and indemnity. In addition, pursuant to the contractual
Consolidated Insurance Program ("OCCIP"), a General            indemnification [**10] obligation in the Lease Agree-
Amendatory Endorsement ("GAE"), and a Commercial               ment, UP tendered the claims and suits brought against it
General Liability Insurance ("CGL") policy. (Id.) The          to Metro. Metro, in turn, tendered UP's demands for con-
policy provided a limit of liability for personal injury and   tractual indemnity to Liberty Mutual and demanded a
property damage to $ 2,000,000 per occurrence, a general       defense and indemnity under the CGL policy. Liberty
aggregate limit (other than Products-Completed Opera-          Mutual denied UP's demand for defense and indemnity
tions) of $ 4,000,000, and a Products-Completed Opera-         under the RPL policy. Liberty Mutual also denied Metro's
tions Aggregate [**8] Limit of $ 4,000,000. (Id.) The          demand for coverage. UP and Metro made similar de-
effective dates for coverage under this policy were from       mands for defense and indemnity to Lloyd's under the
March 14, 2001 to September 14, 2001.                          Umbrella policy, but their demands were denied.
    In addition, Lloyd's issued Commercial Umbrella or              After conducting an investigation of the accident, UP
Excess policy number 576/UF72727000, with effective            decided to settle the claims brought by the individuals on
dates of coverage from March 14, 2001 to September 14,         the train, as well as the lawsuit brought by McGinnis. UP
2004. (Doc. No. 65, Ex. B.) The "Schedule" listed "the         alleges that it paid close to six million dollars to settle all
Assured" as "The Metropolitan Transit Authority of Har-
                                                                                                                     Page 4
                                 612 F. Supp. 2d 776, *; 2009 U.S. Dist. LEXIS 33687, **


the bodily injury and property damages claims arising out        477 U.S. 242, 248, 106 S. Ct. 2505, 91 L. Ed. 2d 202
of the accident.                                                 (1986); see also United [*786] States v. Arron, 954
                                                                 F.2d 249, 251 (5th Cir. 1992). "An issue is genuine if the
II. PROCEDURAL BACKGROUND                                        evidence is sufficient for a reasonable jury to return a
                                                                 verdict for the nonmoving party." Cooper Tire & Rubber
     Plaintiff Christopher McGinnis filed his Complaint
                                                                 Co. v. Farese, 423 F.3d 446, 454 (5th Cir. 2005).
against UP on January 19, 2007. McGinnis settled his
claims UP on March 23, 2007. On March 29, 2007, before                Under Rule 56(c), [**13] the moving party bears the
the case was officially closed, UP filed its Third-Party         initial burden of informing the court of the basis for its
Complaint against Liberty Mutual and Lloyd's for the             belief that there is an absence of a genuine issue for trial
following: (1) breach of contract under the RPL and the          and of identifying those portions of the record that
Umbrella policy; (2) declaratory judgment; [**11] (3)            demonstrate such an absence. See Matsushita Elec. Indus.
violations of Sections 541.060, 541.061, 541.151, and            Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.
542.051 of the Texas Insurance Code; (4) fraud; and (5) in       Ct. 1348, 89 L. Ed. 2d 538 (1986); see also, Burge v.
the alternative, reformation of the policies based on mu-        Parish of St. Tammany, 187 F.3d 452, 464 (5th Cir.
tual mistake, and relief based on waiver and estoppel.           1999).
(Doc. Nos. 9 & 46.) Metro successfully intervened in the
                                                                      Where the moving party meets its initial burden un-
action on April 5, 2007. (Doc. Nos. 13 & 14.) Metro's
                                                                 der Rule 56(c), the burden then shifts to the nonmovant to
Complaint, and Amended Complaint in Intervention,
                                                                 show a genuine issue of material fact exists that precludes
allege the same causes of action brought by UP. (Doc. No.
                                                                 summary judgment. "[T]he nonmoving party must come
47.)
                                                                 forward 'with specific facts showing that there is a genu-
     Meanwhile, on April 5, 2007, Liberty Mutual and             ine issue for trial.'" Matsushita, 475 U.S. at 586-87
Lloyd's filed a lawsuit based on the same policies and           (quoting FED. R. CIV. P. 56(e)) (emphasis in original);
events in the 133rd Judicial District Court of Harris            see also, Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106
County, Texas, effecting service on April 10, 2007. Dis-         S. Ct. 2548, 91 L. Ed. 2d 265 (1986). To sustain the
covery in the state case was conducted for use in either         burder, the nonmoving party must produce evidence ad-
court. Thereafter on January 30, 2008, UP filed an               missible at trial. See Anderson, 477 U.S. at 242; see also,
Amended Third-Party Complaint (Doc. No. 46) and                  Thomas v. Price, 975 F.2d 231, 235 (5th Cir. 1992) ("To
Metro filed an Amended Intervenor Complaint (Doc. No.            avoid summary judgment, the nonmoving party must
47.) Amended Answers were then filed by Third-Party              adduce evidence which creates a fact issue.").
Defendants Liberty Mutual and Lloyd's.
                                                                       At the summary judgment stage, the court views the
     Each of the parties then filed Motions for Summary          facts in a light most favorable to [**14] the nonmoving
Judgment. On June 16, 2008, Liberty Mutual and Lloyd's           party and draws all reasonable inferences in favor of the
filed their respective Motions for Summary Judgment              nonmovant, but only when "there is a 'genuine' dispute as
with each maintaining that, for various reasons, no cov-         to those facts." Scott v. Harris, 550 U.S. 372, 127 S.Ct.
erage exists under the Railroad [**12] Protection Lia-           1769, 1776, 167 L.Ed.2d 686 (2007); see also Goodson v.
bility policy ("RPL"), the Wrap-Up policy, or the Um-            City of Corpus Christi, 202 F.3d 730, 735 (5th Cir. 2000)
brella policy. Also on June 16, 2008, Metro filed its Mo-        ("[T]he nonmoving party may not rest on the mere alle-
tion for Partial Summary Judgment (Doc. No. 65) and, on          gations or denial of its pleadings, but must respond by
June 19, 2008, UP filed Motions for Partial Summary              setting forth specific facts indicating a genuine issue for
Judgment with regard to the RPL and the Umbrella poli-           trial."). "[A] nonmovant cannot overcome summary
cy. (Doc. Nos. 67 & 69.) The parties have filed their re-        judgment with conclusory allegations and unsubstant ared
spective responses and replies and, thus, this case is ripe      assertions." Mace v. City of Palestine, 333 F.3d 621, 624
for adjudication.                                                n. 7 (5th Cir. 2003); see also Johnston v. City of Houston,
                                                                 Tex., 14 F.3d 1056, 1060 (5th Cir. 1994) ("only evi-
III. SUMMARY JUDGMENT STANDARD                                   dence-not argument, not facts in the complaint--will sat-
                                                                 isfy the burden."). Nor can the nonmovant overcome
      Summary judgment is appropriate "if the pleadings,
                                                                 summary judgment by showing "some metaphysical
depositions, answers to interrogatories, and admissions on
                                                                 doubt as to the material facts" in an attempt to create a
file, together with the affidavits, if any, show that there is
                                                                 genuine dispute. Matsushita, 475 U.S. at 584-86.
no genuine issue as to any material fact and that the
moving party is entitled to a judgment as a matter of law."
                                                                 IV. ANALYSIS
FED. R. CIV. P. 56(c). A fact is "material" if its resolution
in favor of one party might affect the outcome of the suit           Texas rules of contract interpretation apply in this
under governing law. See Anderson v. Liberty Lobby, Inc.,        diversity case. Canutillo Indep. Sch. Dist. v. National
                                                                                                                          Page 5
                                  612 F. Supp. 2d 776, *; 2009 U.S. Dist. LEXIS 33687, **


Union Fire Ins. Co., 99 F.3d 695, 700 (5th Cir.1996). The          UP also contends that it is entitled to recover attorney fees
interpretation [**15] of insurance contracts is governed           from Liberty Mutual. (Id.)
by the same rules that apply to contracts generally. Id.
They must be interpreted to effectuate the intent of the           B. Coverage for Bodily Injury and Property Damage
parties at the time the contracts were formed. Kel-
                                                                        Liberty Mutual contends that, under the RPL policy,
ley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462,
                                                                   the covered work, as described in the Declarations, was
464 (Tex. 1998); Glover v. Nat'l Ins. Underwriters, 545
                                                                   clearly and unambiguously limited to laying the test track,
S.W.2d 755, 761 (Tex. 1977). When the words of a policy
                                                                   and the accident occurred after the test track was com-
are unambiguous, they are to be given their plain, ordi-
                                                                   pleted. Conversely, UP maintains that the covered work,
nary, and generally accepted meaning, unless the policy
                                                                   as described in the Declarations, was not limited to (or
clearly indicates that the contractual terms have been used
                                                                   intended to be limited to) the construction of the test track,
in a different of technical sense. Puckett v. U.S. Fire Ins.
                                                                   but also included the testing or commissioning of the LRV
Co., 678 S.W.2d 936, 938 (Tex. 1984). When the language
                                                                   on the test track.
of a policy is susceptible to more than one construction,
however, it should be construed strictly against the insurer            The Court starts with the policy language. As con-
and liberally in favor of the insured. Barnett v. Aetna Life       tained in "Section I - Coverages," the RPL provides:
Ins. Co., 723 S.W.2d 663, 666 (Tex. 1987); see also, Nat'l
Union Fire Ins. Co. v. Hudson Energy Co., 811 S.W.2d                          ... [Liberty Mutual] will pay those sums
552, 555 [*787] (Tex. 1991) (holding that any ambi-                        that the insured becomes legally obligated
guities in a policy are construed against the drafter).                    to pay as damages because of "bodily in-
Where the question of interpretation involves an excep-                    jury" or "property damage" ... [artsing] out
tion or limitation on the insurer's liability under the policy,            of acts or omissions at the "job location"
an even more stringent construction [**16] is required.                    which are related to or are in connection
Barnett, 723 S.W.2d at 666.                                                with the "work" described [**18] in the
                                                                           Declarations.
V. RAILROAD PROTECTIVE LIABILITY ACT

A. Liberty Mutual and UP's Cross Motions for                       (Doc. No. 64, Ex. A; Doc. No. 65, Ex. A-6.)
Summary Judgment
                                                                        There is no dispute that UP is the named insured
     Liberty Mutual and UP have filed cross motions for            under the policy. (Doc. No. 64, Ex. A.) Nor can there be
Summary Judgment regarding the RPL policy. Liberty                 any dispute that UP was "legally obligated to pay" dam-
Mutual contends that there is no coverage for UP under             ages because of "bodily injury" or "property damage."
the RPL for the following reasons: (1) the bodily injury           Lennar Corp. v. Great Am. Ins. Co., 200 S.W.3d 651, 680
and property damage were not related to or in connection           (Tex.App.--Houston [14th Dist.] 2006, pet. denied) (in-
with the "work" described in the policy; and (2) any cov-          terpreting "legally obligated to pay" to mean an obligation
erage would be excluded based on the "completed work"              imposed by law, such as an obligation to pay pursuant to a
exclusion, the non-insured's contractual liability exclu-          judgment, settlement, contract or statute); Comsys Info.
sion, and the sole proximate cause exclusion. (Doc. No.            Tech. Servs. v. Twin City Fire Ins. Co., 130 S.W.3d 181,
64.) UP responds that the bodily injury and property               189 n. 3 (Tex.App.--Houston [14th Dist.] 2003, pet. de-
damage fall were covered, and that Liberty Mutual failed           nied) (recognizing a judgment is not the only manner by
to establish the application of its policy exclusions. (Doc.       which an insured can become legally obligated to pay
No. 74.)                                                           because a legal obligation can also arise [*788] out of a
                                                                   contract, such as a settlement); Texas Prop. & Cas. Ins.
     UF seeks declaratory relief under the RPL policy
                                                                   Guar. Ass'n v. Boy Scouts of Am., 947 S.W.2d 682, 691
based on the following grounds: (1) that the policy pro-
                                                                   (Tex.App.--Austin 1997, no writ). The policy defines "job
vides coverage for bodily injury or property damage
                                                                   location" as follows: "the job location designated in the
arising out of acts or omissions at the test track and related
                                                                   Declarations including any area directly related to the
to work or operations performed by Metro or its subcon-
                                                                   'work' designated in the Declarations. 'Job location' in-
tractors; (2) that liability is established, as a matter of law,
                                                                   cludes the ways next to [**19] it." (Doc No. 64, Ex. A,
by the settlement of the underlying claims; (3) that
                                                                   Section V -- Definitions.) The Declarations page desig-
[**17] Liberty Mutual breached its duty to defend UP; (4)
                                                                   nates "Houston, Texas" as the "job location." (Id.) 1 The
that the "completed work" exclusion does not apply; and
                                                                   bodily injury or property damage arose out of acts or
(5) that Liberty Mutual breached its duty to pay for
                                                                   omissions at the job location, which was Houston, Texas.
property damage to UP's Hyrail vehicle. (Doc. No. 67.)
                                                                                                                         Page 6
                                  612 F. Supp. 2d 776, *; 2009 U.S. Dist. LEXIS 33687, **


        1 Inconsistent with the Declarations page, Lib-           (Doc. No. 64, Ex. A.) Liberty Mutual contends that "[t]he
        erty Mutual erroneously refers to the Job Location        above designation unambiguously limits the scope of the
        as "a two-mile span 25 feet from existing track."         'work' to the laying of a two-mile test track" and since the
        (Doc. No. 64 at 6.)                                       accident occurred after the test track was completed, there
                                                                  is no coverage. UP counters that Liberty Mutual's position
      The dispute between the parties is over the policy
                                                                  is flawed for several reasons. First, UP contends that
provision which requires that the acts or omissions at the
                                                                  Liberty Mutual only reaches this interpretation by reading
"job location" must be related to or connected with the
                                                                  the first and second sentences together and, thus, arguing
"work" as described in the Declaration. "Related to or
                                                                  that the work described in the Declarations only consisted
connected with" is not defined in the policy. Texas courts
                                                                  only of laying the "[t]wo mile test track" that was "25 feet
have broadly construed the phrase "aris[ing] out of [or] . .
                                                                  from existing track." UP maintains that Liberty Mutual
. related to or . . . in connection with." Utica Nat'l Ins. Co.
                                                                  has improperly [*789] merged the two sentences to-
v. American Indem. Co., 141 S.W.3d 198, 203 (Tex. 2004)
                                                                  gether because each sentence actually refers to a separate
("'arise out of' means that there is simply a 'causal con-
                                                                  job site. In support of its argument, UP offers evidence, in
nection or relation,' which is interpreted to mean that there
                                                                  the form of the RPL Policy Questionnaire, which it states
is but for causation, though not necessarily direct or
                                                                  clarifies that the two sentences, in fact, refer to two sep-
proximate causation"); Scottsdale Ins. Co. v. Texas Sec.
                                                                  arate areas or job sites where an exposure point [**22]
Concepts & Investigation, 173 F.3d 941, 943 (5th Cir.
                                                                  existed. Second, UP argues that, once clarified, Item 6 is
1999) (phrase "arising out of" means that "a [**20]
                                                                  ambiguous because it can reasonably be read as describ-
claim need only bear an incidental relationship to the
                                                                  ing the job site (i.e., the two-mile test tract which was built
described conduct[.]"); Fontenot v. Mesa Petroleum Co.,
                                                                  25 feet from an existing track) as opposed to providing a
791 F.2d 1207, 1214 (5th Cir. 1986) (language "arising in
                                                                  description of the work to be done at this location.
connection herewith" contained in indemnity agreement
unambiguously encompasses all activities reasonably
                                                                  1. Whether an Ambiguity Exists
incident to or anticipated by principal activity of contract).
The policy defines "work" to mean "work or operations                  Determining whether an ambiguity exists in a con-
performed by the 'contractor' including materials, parts or       tract is a question of law which a court decides in light of
equipment furnished in connection with the work or op-            the surrounding circumstances. R&P Enterprises
erations." "Operations," while not defined in the policy, 2       LaGuarta, Gavrel & Kirk, Inc., 596 S.W.2d 517, 518 (Tex.
ordinarily means "the operating of or putting and main-           1980). "A court may conclude that a contract is ambigu-
taining in action of something (as a machine or an indus-         ous even in the absence of such pleading by either party."
try)." WEBSTER'S THIRD NEW INTERNATIONAL                          Sage Street Assocs. v. Northdale Construction Co., 863
DICTIONAEY 1581 (1993).                                           S.W.2d 438, 445 (Tex. 1993); see also, Texas v. American
                                                                  Tabacco Co., 463 F.3d 399, 407 n. 14 (5th Cir. 2006). A
        2 When not defined in an insurance policy, a              contract is not ambiguous if it can be given a definite or
        court will give the terms used in the insurance           certain meaning as a matter of law. Nat'l Union Fire Ins.
        contract their ordinary and generally accepted            Co. v. CBI Industries, Inc., 907 S.W.2d 517, 520 (Tex.
        meaning. Pa. Pulp & Paper Co. v. Nationwide               1995). An ambiguity will exist if the contract language is
        Mut. Ins. Co., 100 S.W.3d 566, 574                        "uncertain and doubtful or it is reasonably susceptible to
        (Tex.App.--Houston [14th Dist.] 2003, pet. de-            more than one meaning." Coker v. Coker, 650 S.W.2d
        nied).                                                    391, 393 (Tex. 1983). An ambiguity does not arise
                                                                  [**23] based merely on conflicting interpretations of the
     The cornerstone of the parties' dispute centers on the
                                                                  contract language. Forbau v. Aetna Life Ins. Co., 876
meaning and scope of the "work" described in the Dec-
                                                                  S.W.2d 132, 134 (Tex. 1994). Parole evidence is also not
larations. In particular, Item 6 of the Declarations page,
                                                                  admissible to render a contract ambiguous. Sun Oil Co.
which is titled the "Designation [**21] of the Job Site
                                                                  (Delaware) v. Madeley, 626 S.W.2d 726, 732 (Tex. 1981).
and Description of Work," provides the following:
                                                                       An ambiguity may be patent (i.e., evident on the face
           Two mile test track built 25 feet from                 of the contract), or latent (i.e., apparent when a contract is
        existing track. Metro will be laying track                applied to the subject matter with which the contract
        across an existing bridge that runs over                  deals). CBI Indus., Inc., 907 S.W.2d at 520 (a latent am-
        Union Pacific tracks (no bridge construc-                 biguity exists when the contract appears to convey a sen-
        tion).                                                    sible meaning on its face, but it cannot be carried out
                                                                  without further clarification). When a latent ambiguity
                                                                  arises, the focus shifts to the facts and circumstances
                                                                  under which the agreement was made (Centerpoint En-
                                                                                                                       Page 7
                                  612 F. Supp. 2d 776, *; 2009 U.S. Dist. LEXIS 33687, **


ergy Houston Elec., L.L.P. v. Old TJC Co., 177 S.W.3d             [**26] The rail yard where the light rail vehicles (LRVs)
425, 431 (Tex.App.--Houston [1st Dist.] 2005, pet. de-            are being assembled and tested and railroad overpass. The
nied)), and parol evidence is admissible for the purpose of       overpass is an existing bridge." (Id.)
ascertaining the true intention of the parties as expressed
                                                                       In light of the surrounding circumstances of the con-
in the agreement. CBI Indus., Inc., 907 S.W.2d at 520; see
                                                                  tract, the two sentence description contained in Item 6
also, Balandran v. Safeco Ins. Co. of America, 972 S.W.2d
                                                                  referred to two different sites. Given this clarification, as
738, 741 (Tex. 1998) (court examined surrounding cir-
                                                                  urged by UP, the Court agrees that an ambiguity exists
cumstances); Bache Halsey Stuart Shields, Incorp. v.
                                                                  because an alternate, but just as reasonable, interpretation
Alamo Savings Assoc. of Texas, 611 S.W.2d 706, 708
                                                                  of Item 6 is that the first sentence ("Two mile test track
(Tex.Civ.App.--San Antonio 1980, no writ) [**24]
                                                                  built 25 feet from existing track) merely describes the
(quoting Murphy v. Dilworth, 137 Tex. 32, 151 S.W.2d
                                                                  location where work would be done, but not the action to
1004, 1005 (Tex. 1941) ("[W]here a question concerning
                                                                  be taken at that location.
the interpretation of a contract arises, a court will 'take the
wording of the instrument, consider the same in light of
                                                                  2. The Effect of the Ambiguity
the surrounding circumstances and apply the pertinent
rules of construction thereto and thus settle the meaning of           Generally, Texas law provides that, when an insur-
the contract.'")). "This does not mean, however, that the         ance contract is susceptible to more than one reasonable
parties may prove the making of an agreement different            interpretation, a court must resolve the uncertainty by
from that expressed in the written contract, nor that the         adopting the construction that most favors the insured.
unambiguous language used in the contract may be vio-             Barnett, 723 S.W.2d at 666. This rule is derived from the
lated or the legal effect thereof changed." Murphy, 151           more general rule that ambiguous contracts are construed
S.W.2d at 1005. Instead, "[i]t can do no more than explain        against the drafter. Balandran, 972 S.W.2d at 741 n.1;
the doubtful relations of the instrument consistently with        Temple-Eastex, Inc. v. Addison Bank, 672 S.W.2d 793,
the relations of the parties, the subject matter of the con-      798 (Tex. 1984). However, in the present case, the Court's
tract, and the other incidents thereof." Id. at 1006.             concern is that the description of the [**27] work found
                                                                  in Item 6 of the Declarations was derived, almost verba-
     [*790] In the instant case, in an attempt to show the
                                                                  tim, from the RPL application that Willis of Texas com-
surrounding circumstances from which a latent ambiguity
                                                                  pleted and provided to Liberty Mutual, and, given the
emerged, UP asks the Court to consider the RPL Policy
                                                                  incorporated language, it is far from clear what the parties
Questionnaire. While Liberty Mulual objects to the in-
                                                                  actually intended. Therefore, the Court cannot automati-
troduction of the RPL Application on the ground that
                                                                  cally find coverage based on ambiguity in the insurance
consideration of the extrinsic evidence it is improper, the
                                                                  agreement. Because the Court finds that this coverage
Court OVERRULES the objection as the [**25] evi-
                                                                  dispute cannot be resolved based on available rules of
dence is permissible to show the circumstances sur-
                                                                  contract interpretation, the court must resort to parole
rounding the contract.
                                                                  evidence to determine whether the contracting parties
     As urged by UP, the RPL Policy Questionnaire clar-           intended the RPL to provide coverage for building the test
ifies the circumstances surrounding the policy. The re-           track, as well as for the use of the track to commission the
sponses to the RPL Policy Questionnaire were provided to          LRVs. While it is true that the parties have offered parole
Liberty Mutual by Willis of Texas. (Doc. No. 67, Ex. 4.)          evidence regarding their intent, the scope of the light rail
The responses to the questionnaire provided that the total        project, the carrier's classification of the policy, the
estimated cost of the job was $ 30 million with an esti-          amount of the premium paid in relation to the project, and
mated $ 4.5 to $ 4.7 million of the total amount attributed       the purported post-accident conduct by Liberty Mutual in
to the cost of the work within 50 feet of the railroad tracks.    extending the policy for testing, [*791] genuine issues
(Id.) In response to a quest on regarding the "duration of        of material fact exist which preclude this Court from
the work within 50 feet of tracks," Willis of Texas re-           deciding this issue as a matter of law. Instead, the Court
sponded that "[b]ecause LRV testing will be done assume           reserves for the trier of fact the disputed issue concerning
testing will occur on tracks within 25 feet of existing track     [**28] the scope of the work as set forth in the Item 6 of
for the term." (Id.) Further, when asked about the "Loca-         the Declarations. Accordingly, on the issue of coverage
tion/Description of Project plus work directly affecting          under the RPL policy, Liberty Mutual's Motion for
railroad operations," Willis of Texas responded that              Summary Judgment and UP's Motion for Partial Sum-
"[t]here will be a two mile test track built 25 feet from         mary Judgment on this issue of coverage under the RPL
existing track. Metro will by laying track across an ex-          policy are both denied.
isting bridge that runs over Union Pacific tracks (no
bridge construction)." (Id.) However, Willis of Texas             C. Coverage for UP's Property Damage
further qualified that "[t]wo exposure points exist.
                                                                                                                     Page 8
                                612 F. Supp. 2d 776, *; 2009 U.S. Dist. LEXIS 33687, **


     UP also seeks a declaration that it is entitled to cov-   D. The Completed Work Exclusion
erage for the damage to its property. (Doc. No. 67 at 21.)
                                                                    Liberty Mutual and UP have also filed cross-motions
Liberty Mutual responds that the policy's liability cover-
                                                               on whether the RPL excludes coverage for bodily injury
age will not extend to cover damage to UP's own property.
                                                               or property damage that occurs after the work is com-
(Doc. No. 71 at 17.) UP clarifies that it is not making a
                                                               pleted. In particular, the Completed Work Exclusion in
claim under Coverage A (Liability), but is instead making
                                                               the policy provides:
a claim under Coverage B (first-party property damage
coverage). (Doc. No. 91 at 19.) Coverage B provides:
                                                                           The "work" will be deemed completed
                                                                       at the earliest of the following times:
          We will pay for "physical damage to
       property" to which this insurance applies.
                                                                                   (1) When all the "work"
       The "physical damage to property" must
                                                                               called for in the "contrac-
       occur during the policy period. The
                                                                               tor's" contract has been
       "physical damage to property" must arise
                                                                               completed.
       out of acts or omissions at the "job loca-
       tion" which are related to or in connection                                  [*792] (2) When all
       with the "work" described in the Declara-                               the "work" to be done at the
       tions. The property must be owned by or                                 "job location" has been
       leased or entrusted to you under a lease or                             completed.
       trust agreement.
                                                                                    (3) When that part of
                                                                               the "work" done at the "job
(Doc. No. 64, [**29] Ex. A.) The policy defines "phys-                         location" has been put to its
                                                                               intended use by you, the
ical damage to property" as "direct and accidental loss of
                                                                               governmental authority or
or damage to rolling stock and their contents, mechanical
                                                                               other contracting party.
construction equipment or motive power equipment,
railroad tracks, roadbeds, catenaries, signals, bridges or
buildings." (Id.)
     Liberty Mutual does not dispute that the damage to
UP's signal clearly falls within the definition of "physical   "Contractor" is defined under the policy to mean [**31]
damage to property." Liberty Mutual disputes whether the       "the contractor designated in the Declarations and in-
Hyrail vehicles involved in the accident fall within the       cludes all subcontractors working directly or indirectly for
definition of "physical damage to property" because they       that 'contractor' but does not include you." Metropolitan
are not mechanical construction equipment or motive            Transit Authority of Houston is listed on the Declarations
power equipment." (Doc. No. 71 at 17.) The policy does         page as the "Designated Contractor." In addition, the
not define "mechanical construction equipment" or "mo-         policy defines "work" to mean "work or operations per-
tive power equipment" and, as such, the terms should be        formed by the 'contractor,' including materials, parts or
given their plain, ordinary meaning. (Doc. No. 91 at 19.)      equipment furnished in connection with the work or op-
UP urges that the "undisputed evidence is that the two         erations."
[Hyrail] vehicles involved in the Accident were
                                                                    There is no real dispute that the test track at this job
'mechanical [track] construction equipment' and/or
                                                               location was laid or that the testing of the light rail trains
'motive power equipment' in the ordinary sense of those
                                                               was in progress. Instead, once again, the dispute centers
words." (Id.) The Court agrees with UP; however, this
does not resolve the dispute. Similar to the coverage pro-     on the meaning and scope of "work" as defined in the
vision discussed above, Coverage B still requires [**30]       policy and as harmonized with the "work" described in the
                                                               Declarations. (See Doc. No. 91 at 18.) Liberty contends
that the "physical damage to property must arise out of
                                                               that the completed work exclusion was triggered because
acts or omissions at the 'job location' which are related to
                                                               the earliest of the times delineated was when Metro
or in connection with the 'work' described in the Declara-
                                                               completed laying the test track 25 feet from the UP track,
tions." (Doc. No. 64, Ex. A.) For the same reasons pre-
viously discussed, the Court reserves for the trier of fact    and the test track was put to its intended use by the con-
the disputed issue concerning the scope of the work as set     tracting party, whereas UP counters that the "work" did
                                                               not just consist of laying the track, but also included the
forth in the Item 6 of the Declarations. Accordingly, UP's
                                                               testing or commissioning of each of the light rail trains.
Motion for Partial Summary Judgment as to the RPL's
                                                               [**32] Once again, for the same reasons previously dis-
coverage for property damage is denied.
                                                               cussed, the Court reserves for the trier of fact the disputed
                                                                                                                  Page 9
                                612 F. Supp. 2d 776, *; 2009 U.S. Dist. LEXIS 33687, **


issue concerning the scope of the work as set forth in the     tors; (3) your stockholders; and (4) any railroad operating
Item 6 of the Declarations. Accordingly, both Liberny          over your tracks." (Id., Ex. A at 3.) Notably, as urged by
Mutual's Motion for Summary Judgment and UP's Motion           UP, the policy's definition of "insured" does not include
for Partial Summary Judgment on this point must be de-         all UP employees. 3
nied.
                                                                      3 Although irrelevant given the facts in this
E. The Non-Insured Contract Liability Exclusion                       case, the policy also defined "insured" to include
                                                                      "your designated employees" which were defined
     Liberty Mutual maintains that coverage does not ex-
                                                                      as: "(a) [a]ny supervisory employee of yours at the
tend to UP under the RPL due to the non-insured contract
                                                                      'job location'; (b) [a]ny employee of yours while
liability exclusion. (Doc. No. 64 at 11-12.) The policy
                                                                      operating, attached to or engaged on work trains or
excludes coverage "for which the insured is obligated to
                                                                      other railroad equipment at the 'job location' which
pay damages by reason of the assumption of liability in a
                                                                      are assigned exclusively to the 'contractor'; or (c)
contract or agreement." (Doc. No. 64, Ex. A.) For the
                                                                      [a]ny employee of yours not described in a. or b.
purposes of the exclusion, Union Pacific did not assume
                                                                      above who is specifically loaned or assigned to the
the liability in a contract or agreement; rather, it was
                                                                      work of the 'contractor' for the prevention of ac-
Metro who assumed the liability, and Metro is not an
                                                                      cidents or protection of property." (Doc. No. 64,
insured as defined under the policy. Thus, this exclusion is
                                                                      Ex. A at 7.)
inapplicable and Liberty Mutual's Motion for Summary
Judgment on this point is denied.                                   Under Texas law, exclusions in an insurance policy
                                                               must be construed narrowly. Barnett, 723 S.W.2d at 666;
F. Sole Proximate Cause of Loss Exclusion                      Glover, 545 S.W.2d at 761. Had Liberty Mutual wanted to
                                                               exclude coverage when the sole proximate cause of the
     Liberty Mutual claims that "Union Pacific is solely to
                                                               loss was caused by either UP or any of UP's employees, it
blame for the accident" and, therefore, coverage is pre-
                                                               could have explicitly done so, and the failure to include
cluded based on the policy's [**33] sole proximate cause
                                                               UP's employees [**35] within the explicit definition of
of loss exclusion. (Doc. No. 64 at 12.) The RPL policy
                                                               "insured" suggests that this particular policy exclusion
contains an exclusion for "Acts or Omissions of Insured."
                                                               should be construed against Liberty Mutual. Barnett, 723
The exclusion provides:
                                                               S.W.2d at 665. Notwithstanding this fact, summary
                                                               judgment is inappropriate because, as conceded by the
          "Bodily injury" or "property damage",
                                                               parties (See Doc. No. 74 at 16-20; Doc. No. 84 at 9 n. 11),
       the sole proximate cause of which is an act
                                                               the determination of whether UP's acts or omissions were
       or omission of any insured other than acts
                                                               the sole proximate cause of the collision is normally a
       or omissions of any of "your designated
                                                               question of fact. See generally, Texas Pacific Indem. Co.
       employees". This exclusion does not apply
                                                               v. Bldg Material Distrib. Inc., 508 S.W.2d 488, 489
       to injury or damage sustained at the "job
                                                               (Tex.Civ.App.--Waco 1974, writ ref'd n.r.e.) (sole proxi-
       location" by any of "your designated em-
                                                               mate cause was defined for a jury to mean "the only
       ployees" or employee of the "contractor",
                                                               proximate cause [and] [i]f there is more than one proxi-
       or by any employee of the governmental
                                                               mate cause of an event, then no single proximate cause
       authority or any other contracting party
                                                               can be the sole proximate cause."). Furthermore, as urged
       (other than you) specified in the Declara-
                                                               by UP, this exclusion does not apply to bodily injury or
       tions.
                                                               property damage sustained by employees of the "con-
                                                               tractor," or by any employee of the governmental author-
                                                               ity, or any other contracting party specified in the decla-
(Doc. No. 54, Ex. A at 2.)
                                                               rations. "Contractor" is defined to include the contractor
     UP counters that Liberty Mutual has not established,      designated in the Declarations, which is Metro, and "all
as a matter of law, that UP was "the sole proximate cause"     subcontractors working directly for that 'contractor'
of this accident. UP initially maintains that this exclusion   [**36] [Metro]." (Doc. No. 64, Ex. A. at p. 6 of 7.) Thus,
is limited to UP or its corporate [*793] executives and        with regard to the injury or damage sustained by either
does not apply to any alleged negligence on the part of        Metro employees or employees of its subcontractors, the
either UP worker Christopher McGinnis or the other UP          exception to the exclusion applies. Thus, this exclusion
worker involved in the accident. For purposes of this          would not preclude coverage for the $ 465,702.05 UP paid
exclusion, the policy defines "insured" as: "(1) 'you' (the    to settle injury or damage claims brought by either Metro
named insured shown in the declarations or [UP]); (2)          employees or its subcontractors. (Doc. No. 74 at 17.)
your 'executive officers' and directors, but only with re-
spect [**34] to their duties as your officers and direc-
                                                                                                                  Page 10
                                612 F. Supp. 2d 776, *; 2009 U.S. Dist. LEXIS 33687, **


     Accordingly, based on the reasons stated, Liberty         and (2) recover [actual] damages."); see also, Mustang
Mutual's Motion for Summary Judgment based on the              Pipeline Co. v. Driver Pipeline Co., 134 S.W.3d 195, 201
sole proximate cause of loss exclusion is denied.              (Tex.2004) (per curiam) (noting that even though the
                                                               claimant had a valid claim, it "was not entitled to recover
G. Fraud, Mutual Mistake And Estoppel                          attorney's fees because it was not awarded damages on its
                                                               breach of contract claim"). In this case, it is premature to
     Liberty Mutual seeks dismissal of UP and Metro's
                                                               consider UP's entitlement, if any, to attorney's fees under
claims of fraud, mutual mistake and estoppel as it relates
                                                               Section 38.001. See Solis, 951 S.W.2d at 390.
to the RPL policy. (Doc. No. 64 at 21-24.) These issues,
however, are inextricably linked to the determination               Section 37.009 of the Texas Civil Practice & Reme-
regarding the scope of work to which the RPL policy            dies Code provides that in any proceeding under the Texas
applied. The Court, having reserved the disputed issue         Uniform Declaratory Judgments Act ("DJA"), "the court
concerning the scope of the work to a trier of fact, defers    may award costs and reasonable and necessary attorney's
these issues as well. Liberty Mutual's Motion for Sum-         [**39] fees as are equitable and just." TEX. CIV. PRAC. &
mary Judgment on the ground that [*794] UP and                 REM.CODE §37.009. However, as urged by Liberty
Metro's claims for fraud, mutual mistake, and estoppel         Mutual, the Fifth Circuit's holding in Utica forecloses
with regard to the RPL is denied.                              UP's request for attorney's fees under Section 37.009.
                                                               Utica Lloyd's of Texas v. Mitchell, 138 F.3d 208, 209 (5th
H. UP's Insurance Code Claims                                  Cir. 1998) (holding that "a party may not rely on the
                                                               Texas DJA to authorize attorney's fees in a diversity case
     Liberty Mutual seeks dismissal [**37] of UP's
                                                               because the statute is not substantive law."); see also,
claims which allege violations of various insurance pro-
                                                               Camacho v. Texas Workforce Comm'n, 445 F.3d 407,
visions. Liberty Mutual contends that where there is no
                                                               409-410 (5th Cir.) (reaffirming validity of Utica), cert.
coverage, there can be no violation. Liberty Mutual also
                                                               denied, 549 U.S. 826, 127 S. Ct. 349, 166 L. Ed. 2d 44
asserts that UP's claims under the insurance code are
                                                               (2006).
barred by limitations. (Doc. No. 64 at 20.) The Court
concludes that the determination of these issues is best            UP's Motion for Partial Summary Judgment seeking
deferred pending the resolution of the coverage issues.        attorney's fees under Section 37.009 is denied with prej-
Liberty Mutual's Motion for Summary Judgment on this           udice, but its request for attorney's fees under Section
ground is, therefore, denied without prejudice to recon-       38.001 is denied, without prejudice, as premature.
sideration if appropriate.
                                                               VI. WRAP UP POLICY
I. Attorney's Fees
                                                               A. Liberty Mutual's Motion for Summary Judgment
     UP seeks to recover attorney fees for the prosecution
and defense of this suit pursuant to Sections 37.009 and
                                                               1. Whether UP is an Insured
38.001 of the Texas Civil Practice and Remedies Code.
(Doc. No. 67 at 22.) Liberty Mutual argues that UP is not            Liberty Mutual maintains that UP is not an insured
entitled to recover attorney's fees under Section 38.001       under the Wrap Up [*795] policy. UP responds by
because it has not prevailed. (Doc. No. 71 at 24.) Liberty     requesting the Court to defer any determination of
Mutual also argues, relying on Utica Lloyd's of Texas v.       whether it is an insured under this policy until after ad-
Mitchell, 138 F.3d 208, 209 (5th Cir. 1998), that UP is not    dressing the RPL policy. In particular, UP argues that if
entitled to attorney's fees under Section 37.009. (Doc. No.    no coverage is afforded under the RPL, then it may qual-
71 at 24.)                                                     ify as an [**40] insured under the GAE. However, con-
                                                               sidering UP's response to Liberty Mutual's Motion, the
     Section 38.001 of the Texas Civil Practice & Reme-
                                                               Court sees no compelling reason to defer this determina-
dies Code, in relevant part, provides that "[a] person may
                                                               tion.
recover reasonable [**38] attorney's fees from an indi-
vidual or corporation, in addition to the amount of a valid         Metro procured a Wrap-Up policy for the Light Rail
claim and costs, if the claim is for: ... an oral or written   Project. As explained by Liberty Mutual, the Wrap Up
contract." TEX. CIV. PRAC. & REM.CODE § 38.001. In             policy consists of "a three-layered pyramid" of coverage
order to recover attorney's fees pursuant to Section           with the base layer being the Commercial General Lia-
38.001, a party must be a prevailing party and recover         bility ("CGL") policy, which was modified by a General
actual damages on its claim. See Green Int'l, Inc. v. Solis,   Amendatory Endorsement ("GAE"), and then further
951 S.W.2d 384, 390 (Tex.1997) ("To recover attorney's         modified by the Owner Controlled Consolidated Insur-
fees under Section 38.001, a party must (1) prevail on a       ance Program Amendment of Coverage ("OCCIP"
cause of action for which attorney's fees are recoverable,     Amendments). (Doc. No. 64 at 12-13, Ex. B.)
                                                                                                                  Page 11
                               612 F. Supp. 2d 776, *; 2009 U.S. Dist. LEXIS 33687, **


     The OCCIP Amendment provides that the insureds                   limits of insurance of this policy exceed
protected by the Wrap Up policy include the First Named               those of such other insurance or whether
Insured (Metro), the Additional Named Insureds set forth              such other insurance is valid and collecti-
in the Schedule of the OCCIP Amendment, and any Ad-                   ble.
ditional Named Insureds identified in the underlying CGL
or GAE. (Doc. No. 64, Ex. B at Bates "Metro 1484".) The
"ADDITIONAL NAMED INSURED SCHEDULE"                          (Doc. No. 64, Ex. B at Bates "Metro 1479".) In the present
provides:                                                    case, while it is true that Metro was required by the Lease
                                                             Agreement to provide coverage for UP, there is no dispute
          All subcontractors of any tier, as their           that Metro procured separate liability insurance for UP in
       interests may appear, for whom the First              the form of the RPL. 4 Nor is there any dispute [*796]
       Named Insured has agreed by contract to               that the RPL policy was in effect on the date of the inci-
       provide general liability coverage under              dent. The Court, therefore, grants Liberty Mutual's Mo-
       the owner controlled insurance program,               tion for Summary Judgment on the ground that UP is not
       excluding vendors, suppliers,       [**41]            an insured under the Wrap-Up policy.
       off-site fabricators, material dealers and
       others who merely make deliveries to or                        4 By the terms of the terms of the Lease of
       from the Project Site(s).                                      Property agreement, Metro was required, at its
                                                                      own cost and expense, to procure an RPL policy
                                                                      for UP. (Doc. No. 64, Ex. C.)
(Doc. No. 64, Ex. B at Bates "Metro 1485".) UP is not a
subcontractor of Metro. Thus, UP is not an additional        VII. METRO'S CLAIM FOR DECLARATORY
insured under the provisions of the OCCIP policy. UP         RELIEF
also does not qualify as the Named Insured or as an addi-         5

tional insured under the definitions contained in the CGL
policy. (Doc. No. 64, Ex. B at Bates "Metro 1465; 1509;               5 The issue regarding whether Metro's action
1519-20".)                                                            presents a justiciable controversy is one which is
     Finally, the GAE policy contains a "Blanket Addi-                raised against Metro by both Liberty Mutual and
tional Insured" Amendment that provides:                              Lloyds under their respective policies. In fact,
                                                                      [**43] in their respective Motions for Summary
           SECTION II - WHO IS AN INSURED                             Judgment against Metro, Liberty Mutual and
       is amended to include as an insured any                        Lloyd's adopted and incorporated by reference
       person, organization, state or other politi-                   each others arguments. To avoid unnecessary du-
       cal subdivision, trustee or estate for whom                    plication, the Court addresses all the insurance
       you have agreed in writing to provide lia-                     carriers arguments against Metro based on
       bility coverage. But:                                          justiciability herein.
          The insurance provided by this                         Liberty Mutual and Lloyd's assert that Metro should
       amendment:                                            not be permitted to proceed with its Complaint in Inter-
                                                             vention seeking declaratory relief because no justiciable
           1. Applies only to "personal injury" or           controversy exists between the parties--namely, Metro
       "property damage" arising out of (a) "your            and UP.
       work" or (b) premises or other property
       owned by or rented to you;                                 The federal Declaratory Judgment Act provides, in
                                                             part, the following:
            2. Applies only to coverage and limits
       of insurance required by the written                               In a case of actual controversy within
       agreement, but in no event exceeds either                      its jurisdiction, ... any court of the United
       the scope of coverage or the limits of in-                     States, upon the filing of an appropriate
       surance provided in this policy; and                           pleading, may declare the rights and other
            3. Does not apply to any person, or-                      legal relations of any interested party
       ganization, state or [**42] other political                    seeking such declaration, whether or not
       subdivision, trustee or estate for whom you                    further relief is or could be sought.
       have procured separate liability insurance
       while such insurance is in effect, regard-
       less of whether the scope of coverage or
                                                                                                                   Page 12
                                612 F. Supp. 2d 776, *; 2009 U.S. Dist. LEXIS 33687, **


28 U.S.C. § 2201. The purpose of the Act "is to settle         surance contract and, thus, it is entitled to seek a declara-
'actual controversies' before they ripen into violations of    tion of its rights against the carriers. (Id.) The Court
law or a breach of contractual duty." Hardware Mut. Cas.       agrees. See TEX. CIV. PRAC. & REM.CODE ANN. §
Co. v. Schantz, 178 F.2d 779, 780 (5th Cir. 1949). A           37.004(a) (Vernon Supp. 2007) (authorizing a person
district court has discretion in deciding whether to enter-    interested under a written contract to seek declaratory
tain a declaratory judgment action. St. Paul Ins. Co. v.       relief); American States Inc. Co. v. Bailey, 133 F.3d 363,
Trejo, 39 F.3d 585, 590 (5th Cir. 1994). [**44] In             368 (5th Cir. 1998) (recognizing that even where a tort
making this determination, the court must consider (1)         action has not proceeded to judgment, a dispute con-
whether the declaratory action is justiciable; (2) whether     cerning an insurer's duty to defend or indemnify its in-
the court has authority to grant declaratory relief; and (3)   sured for losses sustained by a third party presents an
whether to exercise its discretion to decide or dismiss the    actual controversy within the meaning of the federal De-
action. Orix Credit Alliance, Inc. v. Wolfe, 212 F.3d 891,     claratory Judgment Act); Farmers Texas County Mut. Ins.
895 (5th Cir. 2000).                                           Co. v. Griffin, 955 S.W.2d 81, 84 (Tex. 1997) (recognizing
                                                               the necessity of a declaratory judgment action to deter-
     The law provides that for an action to be justiciable,
                                                               mine the party's obligation to defend or indemnify even
an "actual controversy" must exist between the parties.
                                                               before either a judgment is rendered or a settlement
Wolfe, 212 F.3d at 895. In other words, to be justiciable,
                                                               reached); see generally, Collier v. Allstate County Mut.
the action "must be such that it can presently be litigated
                                                               Ins. Co., 64 S.W.3d 54, 62 (recognizing duty to indemnify
and decided and not hypothetical, conjectural, conditional
                                                               arises after claim has been adjudicated by judgment, set-
or based on the possibility of a factual situation that may
                                                               tlement or contract to be legally responsible to pay dam-
never develop." AXA RE Prop. & Cas. Ins. Co. v. Day,
                                                               ages).
162 Fed. Appx. 316, 319 (5th Cir. 2006) (quoting Brown
& Root, Inc. v. Big Rock Corp., 383 F.2d 662, 665 (5th              Third, Liberty Mutual and [**47] Lloyd's contend
Cir. 1967)); see generally, 10B Charles A. Wright, et al.,     that Metro's contractual indemnity obligation to UP is
FEDERAL PRACTICE AND PROCEDURE § 2757                          "wholly illusory" and, thus, unenforceable, for the fol-
(2008).                                                        lowing reasons: (1) the indemnity obligatior does not
                                                               satisfy the basic conspicuous test required of indemnity
     In the present case, Liberty Mutual and Lloyds con-
                                                               agreements in Texas; (2) a condition precedent to in-
tend that no substantial controversy exists between the
                                                               demnity by Metro is the lack of sole negligence on the part
parties for several reasons. First, they contend that Metro
                                                               of UP; (3) Metro is not legally liable for any claims
"has never been sued by the McGinness [sic] Plaintiffs or
                                                               stemming from the accident because it enjoys sovereign
any other person injured in the Accident," [**45] and
                                                               immunity; and (4) Metro's indemnity agreement with UP
"[a]t this point in time, more than four years after the
                                                               is void because it violates Article XI, § 7 of the Texas
Accident, it is clear that no meritorious bodily injury
                                                               Constitution, which forbids a governmental entity from
claims will ever be made against METRO." (Doc. No. 64
                                                               creating a debt. (Doc. No. 64 at 19; Doc. No. 66 at 5-10.)
at 18.) This argument is not persuasive. Even if the injured
                                                               The Court will address each argument in turn. 6
parties' suits against Metro were barred by the statutory
limitation period for torts, any such bar would not pre-
                                                                      6 The Court once again notes that, while pre-
clude UP from pursuing Metro on its contractual indem-
                                                                      sented in a different order, these same arguments
nity claim. See Houston Lighting & Power Co. v. Eller
                                                                      are made by both Liberty and Lloyd's in their
Outdoor Advertising Co. of Texas, 635 S.W.2d 133,
                                                                      Motions for Summary Judgment. (Doc. No. 66 at
134-35 (Tex.App.-Houston [1st Dist.] 1982, writ ref'd
                                                                      5-10.)
n.r.e).
     Second, Liberty Mutual and Lloyd's argue that, de-        A. Whether Validity Of Indemnity Agreement & The
spite the contractual indemnity agreemens, Metro "has          Express Negligence Rule Precludes Metro From
never paid a dime to Union Pacific as a result of the Ac-      Bringing This Action
cident," [*797] and "[w]hatever demands, if any, Un-
                                                                    Under Texas law, release or indemnity agreements
ion Pacific may have made to METRO, the demands were
                                                               are valid and enforceable. However, because such provi-
never reduced to a final judgment and are not the subject
                                                               sions involve an extraordinary shifting of risk, Texas
of any pending litigation." (Doc. No. 64 at 18.) Metro
                                                               requires [**48] compliance with fair notice require-
counters that the carrier's argument "completely ignores
                                                               ments. See Dresser Indus., Inc. v. Page Petroleum, Inc.,
the fact that the critical inquiry is whether METRO has a
                                                               853 S.W.2d 505, 508-09 (Tex. 1993). The fair notice re-
justiciable controversy," not with UP, but with the in-
                                                               quirement is two-fold: (1) the party seeking to enforce a
surance carriers. (Doc. No. 76 at 3.) Metro maintains that
                                                               release provision must comply with the express negli-
a controversy exists between itself and [**46] the in-
                                                               gence doctrine, and (2) the provision must be conspicu-
surance carriers regarding the obligations under the in-
                                                                                                                   Page 13
                                 612 F. Supp. 2d 776, *; 2009 U.S. Dist. LEXIS 33687, **


ous. Id. Under the express negligence rule, "a party's          declaratory judgment is proper even though there are
intent to be released from [or indemnified for] all liability   future contingencies that will determine whether a con-
caused by its own future negligence must be expressed in        troversy ever actually becomes real"). Further, at issue is
unambiguous terms within the four corners of the con-           Metro's contract with its insurance carrier, not with UP.
tract." Arthur's Garage, Inc. v. Racal-Chubb Sec. Sys.
Inc., 997 S.W.2d 803, 814 (Tex.App.--Dallas 1999, no            C. Whether Sovereign Immunity Precludes Metro
pet.) (citing Ethyl Corp. v. Daniel Const. Co., 725 S.W.2d      from Bringing This Action
705, 708 [*798] (Tex. 1987); see also, Storage &
                                                                     Liberty Mutual and Lloyd's claims that no substantial
Processors, Inc. v. Reyes, 134 S.W.3d 190, 192 (Tex.
                                                                controversy exists because Metro enjoys sovereign im-
2004). The conspicuousness rule provides that the re-
                                                                munity and, thus, will never be legally liable for any
leasing language must be conspicuously written so that a
                                                                damages. (Doc. No. 64 at 19; Doc. No. 66 at 6-9.) Metro
reasonable person against whom it is to operate should
                                                                counters that it lawfully purchased insurance [**51] to
notice it. Reyes, 134 S.W.3d at 192; Dresser, 853 S.W.2d
                                                                cover UP's potential liability stemming from and as a
at 508 n.2; Cate v. Dover Corp., 790 S.W.2d 559, 561
                                                                condition of the Lease Agreement, a fact known to the
(Tex. 1990) (party who, prior to entering into contract, has
                                                                carriers, and, in the alternative, any immunity Metro may
actual knowledge of its terms cannot escape enforcement
                                                                enjoy does not shield the insurance carriers or excuse their
of those terms [**49] on the ground that the terms are
                                                                performance under the insurance contract. (Doc. No. 76 at
inconspicuous); Costal Transp. Co. v. Crown Cent. Pe-
                                                                12-20; Doc. No. 86 at 4-8.)
troleum Corp., 20 S.W.3d 119, 126 (Tex.App.--Houston
[14th Dist. 2000, pet. denied) (holding indemnity agree-             In Texas, sovereign or governmental immunity de-
ment read by indemnitor conspicuous and rejecting               prives a trial court of subject matter jurisdiction for law-
indemnitor's argument that indemnitee must show that            suits in which the state or certain governmental units have
indemniton actually noticed the indemnity language when         been sued unless the entity consents to suit. Texas Dep't of
reading the agreement).                                         Transp. v. Jones, 8 S.W.3d 636, 638 (Tex. 1999); Fed.
                                                                Sign v. Tex. S. Univ., 951 S.W.2d 401, 405 (Tex. 1997),
     The language "any negligence" contained in the
                                                                superseded by statute on other [*799] grounds as stated
Lease Agreement (Doc. No. 65, Ex. A-4, at Bates 1587)
                                                                in General Serv. Com'n v. Little-Tex Insulation Co., Inc.,
expressly identifies Metro's intent to release UP from
                                                                39 S.W.3d 591, 593 (Tex. 2001); Duhart v. State, 610
liability for UP's negligence (see Reyes, 134 S.W.3d at
                                                                S.W.2d 740, 741 (Tex. 1980); Hosner v. De Young, 1 Tex.
192); thus, the provision satisfies the express negligence
                                                                764, 769 (1847). Governmental immunity includes two
doctrine. See Atlantic Richfield Co. v. Petroleum Pers.
                                                                distinct principles, immunity from suit and immunity
Inc., 768 S.W.2d 724, 726 (Tex. 1989) (although not dif-
                                                                from liability. Jones, 8 S.W.3d at 638; Fed. Sign, 951
ferentiating between degrees of negligence, a contractual
                                                                S.W.2d at 405. Immunity from liability is an affirmative
indemnity provision that incluced "any negligent act of
                                                                defense, while immunity from suit deprives a court of
ARCO" was sufficient to satisfy the express negligence
                                                                subject matter jurisdiction. Jones, 8 S.W.3d at 638; Fed.
doctrine). Turning to the conspicuousness rule, Metro
                                                                Sign, 951 S.W.2d at 405.
concedes that it had actual knowledge of the release pro-
vision in the agreement which renders compliance with                It [**52] is true that a governmental entity does not
the fair notice requirement irrelevant. See Reyes, 134          waive immunity from suit simply by contracting with a
S.W.3d at 192 (conspicuousness rule satisfied where party       private party. LittleTex, 39 S.W.3d at 594. Nevertheless,
[**50] has actual knowledge). The indemnity provision           "legislative control over waiving immunity from suit does
contained in the Lease Agreement is valid and enforceable       not mean that the State can freely breach contracts with
under Texas law.                                                private parties, or that the State can use sovereign im-
                                                                munity as a shield to avoid paying for benefits the State
B. Whether Condition Precedent In Indemnity                     accepts under a contract." Rather, when a governmental
Agreement Precludes Metro From Bringing This Ac-                entity contracts with a private party, it waives immunity
tion                                                            from liability. Id.; Tooke v. City of Mexia, 197 S.W.3d
                                                                325, 344-45 (Tex. 2006); Ben Bolt-Palito Blanco Consol.
     Liberty Mutual and Lloyd's next argue that no sub-
                                                                Indep. School Dist. v. Political Subdivisions
stantial controversy exists between Metro and UP because
                                                                Prop./Casualty Joint Self-Insurance Fund, 212 S.W.3d
Metro's contractual obligation to indemnify UP is con-
                                                                320, 327 (Tex. 2006); Catalina Development Inc. v.
tingent on a determination that UP is not solely negligent.
                                                                County of El Paso, 121 S.W.3d 704, 705 (Tex. 2003).
(Doc. No. 64 at 19.) This argument is not persuasive. See
generally, 10B Charles A. Wright, et al., FEDERAL                    In the present case, the insurance carriers 7 contend
PRACTICE AND PROCEDURE § 2757 at 476 (2008)                     that even if Metro had waived immunity from liability by
(recognizing that "[i]t is clear that in some instances a       entering into the lease agreement with UP, its immunity
                                                                                                                     Page 14
                                 612 F. Supp. 2d 776, *; 2009 U.S. Dist. LEXIS 33687, **


from suit has not been waived and, as such, the carriers are
shielded from indemnity. In support of their position, the       D. Whether Article XI, § 7 Of The Texas Constitution
carriers rely on cases that hold that, unless waived, a          Precludes Metro From Bringing This Action
governmental entity, like Metro, is immune from [**53]
                                                                      Liberty Mutual and Lloyd's contend that the indem-
suit. Notably, however, the carriers point to no authority
                                                                 nity clause in the lease agreement is void because it cre-
that extends the immunity of a governmental entity to its
                                                                 ates an impermissible debt under the Texas Constitution.
insurance carriers. Instead, as urged by Metro, analogous
                                                                 Article 11, § 7 of the Texas Constitution, Vernon's Ann.
case law supports the opposite conclusion--namely, that
                                                                 St., provides, in part, that:
Metro's immunity will not shield the insurance carrier.
United Services Auto. Ass'n v. Blakemore, 782 S.W.2d
                                                                           (N)o debt for any purpose shall ever be
277, 279 (Tex.App--Waco 1989, writ denied) (in a case
                                                                        incurred in any manner by any city or
where the driver enjoyed sovereign immunity from both
                                                                        county unless provision is made, at the
suit and damages, the court determined that the driver's
                                                                        time of creating the same, for levying and
immunity did not preclude recovery from the insurance
                                                                        collecting a sufficient tax to pay the inter-
carrier who provided uninsured motorist coverage; to hold
                                                                        est thereon and provide at least two per
otherwise, "[t]he policy language would be rendered ab-
                                                                        cent (2%) as a sinking fund; * * *.
solutely meaningless by interpreting 'legally entitled to
recover' as the ability to sue the United States" when
sovereign immunity precluded suit). Similarly, in the
                                                                 This section, by its own terms, appears limited to city and
context of bankruptcy cases, courts have determined that,
                                                                 counties. Moreover, neither insurance carrier offers any
even where a debtor is discharged, this does not preclude
                                                                 authority to indicate that this section would be applied to a
recovery from an insurance carrier who may be liable on
                                                                 governmental entity such as Metro.
behalf of the debtor. Watkins v. United States, 462
F.Supp. 980, 991 (S.D. Ga. 1977) (explaining that "any                Assuming Section 7 applied to Metro, Texas law does
difference between [sovereign immunity] and the effect of        provide that an indemnity agreement is a "debt" within the
a bankruptcy discharge, is [**54] legally insufficient"          meaning of [**56] Article 11, § 7 of the Texas Consti-
and, therefore, concluding that uninsured motorist cov-          tution. Brown v. Jefferson County, 406 S.W.2d 185, 188
erage was available even though state enjoyed sovereign          (Tex. 1966); Texas & New Orleans R.R. v. Galveston
immunity); Matter of Edgeworth, 993 F.2d 51, 54 (5th             County, 141 Tex. 34, 169 S.W.2d 713 (1943) (citing to
Cir. 1993) (recognizing that "scope of a section 524(a)          McNeill v. City of Waco, 89 Tex. 83, 33 S.W. 322 (1895)
injunction does not affect the liability of liability insurers   and Stevenson v. Blake, 131 Tex. 103, 113 S.W.2d 525
and does not prevent establishing their liability by pro-        (1938)). However, this does not mean, as suggested by the
ceeding against a discharged debtor."); In re Jet Florida        insurance carriers, that the indemnity obligation contained
Systems, Inc., 883 F.2d 970, 975 (11th Cir. 1983) (em-           in the Lease Agreement created an impermissible debt in
phasizing that neither bankruptcy's "'fresh start' policy"       violation of the Texas Constitution. For example, in
nor "§ 524 was designed to immunize 'third parties such as       Brown, the Texas Supreme Court concluded that an in-
insurers who may be liable on behalf of the debtor,' and         demnification obligation incurred by a county govern-
the insurer [*800] should not gain a benefit that was            ment was valid and enforceable, even though there was a
not intended or in any way computed within the rate              theoretical possibility that the county's future financial
charged for its policy."). As aptly explained by one court,      obligations under the indemnity obligation might exceed
"[a]ny other outcome would result in a windfall to insur-        the county's taxing authority. Brown, 406 S.W.2d at
ers, which receive premiums as the quid pro quo for              189-90. Distinguishing the facts of its case from Texas &
providing insurance. Any other outcome would also dis-           New Orleans R.R. v. Galveston County, where the county
advantage both innocent, third party, personal injury            incurred an open-ended indemnity agreement, which
claimants ...." In re White, 73 B.R. 983, 985 (Bkrtcy D.         spanned 99 years, without providing any mechanism for
D.C. 1988). Further, to allow the insurance carrier to           paying a future claim under the obligation, the Court in
escape liability on this basis would be "fundamentally           Brown upheld the county's obligation because, at the time
wrong." In re Lembke, 93 B.R. 701, 703 (Bkrtcy D. N.D.           it agreed to the indemnification, [**57] the county put in
1988). [**55] The holdings in these cases persuades this         place sufficient provisions to ensure the satisfaction of
Court that, while the purpose of sovereign immunity is to        any claim on the obligation. Id.
protect Metro (and the public), it will not shield third
                                                                      Similar to Brown, when Metro assumed the indem-
parties, like insurance carriers, who may be liable on
                                                                 nity obligation, it provided a mechanism for the payment
behalf of Metro.
                                                                 of claims that might arise under the indemnity agreement
                                                                 by purchasing the insurance policies. In addition, Metro
        7   Supra note 8.
                                                                 can levy any necessary taxes to fund its obligations in-
                                                                                                                   Page 15
                                612 F. Supp. 2d 776, *; 2009 U.S. Dist. LEXIS 33687, **


curred in connection with the light rail project. Thus, the
Court cannot conclude that the indemnity obligation            (Doc. No. 64, Ex. B (CGL policy tab).) According to the
contained in the Lease Agreement created an impermis-          OCCIP Amendment, the insurance agreement only ap-
sible [*801] debt in violation of the Texas Constitu-          plies to bodily injury, property damage, and personal
tion.                                                          injury arising out of:
                                                                           1. Operations performed for the First
E. Whether Metro's Allegations Of Insurance Code                       Named Insured or Additional Named In-
Violations Should Be Dismissed In Absence Of Cov-                      sured by an Additional Named Insured at a
erage Under the Policy                                                 Project Site listed in the Designated Pro-
                                                                       ject Schedule; or
     Liberty Mutual seeks dismissal of Metro's claims
under various provisions of the Insurance Code on the                      2. Acts or omissions of the First
grounds that where there is no coverage, there can be no              Named Insured in connection with its su-
violation of the Insurance Code provisions. Liberty Mu-               pervision of operations performed by an
tual also contends Metro's claims are barred by the two               Additional Named Insured at a Project Site
year stature of limitations. (Doc. No. 64 at 20.) Metro               listed in the Designated Project Sched-
responds by urging that, to the extent there is coverage              ule....
under the policy, it would be premature for the Court to
address the viability of the extra-contractual [**58]
issues, particularly before any discovery is completed.        (Doc. No. 64, Ex. B (OCCIP Amendment tab).)
The Court agrees. Liberty Mutual's Motion for Summary
                                                                    Metro contends that the undisputed facts giving rise
Judgment on this ground is denied without prejudice.
                                                               to the accident establish coverage under the insuring
                                                               agreement. First, for purposes of the insuring agreement,
VIII. Metro's Motion for Partial Summary Judgment
                                                               there is no dispute [**60] that the First Named Insured is
on the Wrap-Up Policy
                                                               Metro. Second, Metro maintains that Siemens was an
     Metro seeks a declaration that the accident and the       Additional Named Insured under the Wrap-Up policy. In
resulting liability of Metro and UP triggered Liberty          order to qualify as an Additional Named Insured, Siemens
Mutual's obligations under the CGL policy. Metro con-          must be [*802] Metro's subcontractor for whom Metro
tends that "[t]he general liability policy issued by Liberty   "agreed by contract to provide general liability coverage
Mutual to Metro contractually obligates Liberty Mutual to      under the owner controlled insurance program ["OCIP"],
indemnify Metro and Union Pacific for personal injuries        excluding vendors, suppliers, off-site fabricators, material
and property damage claims resulting from the accident         dealers and others who merely make deliveries to or from
that gives rise to this coverage dispute." (Doc. No. 65 at     the Project Site(s)." (Doc. No. 64, Ex. B (OCCIP
3.) Metro also contends that "Liberty Mutual incorrectly       Amendment tab) at Bates "Metro 1484".) While Liberty
states that at least two exclusions preclude coverage: (1)     Mutual concedes that "the Siemens contract provides that
the 'Products-Completed Operations Hazard' exclusion           Metro will provide an OCIP policy for Siemens," it asserts
and (2) the 'auto' exclusion." (Id.) In response Liberty       that "it is not clear that Siemens is Metro's subcontractor
Mutual asserts the following: (1) whatever coverage ap-        or that Siemens is not a vendor or off-site fabricator."
plies to Metro as a result of the accident is not ripe for     (Doc. No. 70 at 6.) Based on the plain language of this
adjudication in this declaratory judgment action; (2)          policy provision, vendors and off-site fabricators are
Metro is not "legally obligated to pay" any damages be-        excluded only if they "merely" make deliveries to or from
cause of bodily injury or property damage; and (3) Liberty     the Project Site, which, based on the undisputed evidence,
Mutual does not [**59] contend that the "Prod-                 would clearly not have included Siemens.
ucts-Completed Operations hazard" precludes coverage
                                                                    Third, Metro contends that there is no dispute that:
under the Wrap-Up policy. (Doc. No. 70 at 2-4.) The
                                                               (1) the bodily injury and property damage arose out of the
Court proceeds to address the issues.
                                                               commissioning of [**61] LRV 115; (2) that Siemens
    In the Wrap-Up policy, the CGL Coverage Form               was performing operations for Metro by supervising the
contains an insuring agreement which provides:                 commissioning of LRV 115; and (3) that Siemens was
                                                               engaged in these operations for Metro at a "Project Site
          We will pay those sums that the insured              listed in the Designated Project Schedule." (Doc. No. 65
       becomes legally obligated to pay as dam-                at 13-15.) In support of its contentions, Metro relies on the
       ages because of "bodily injury" or "prop-               affidavit of Sharon K. Messa, the Risk Manager for Metro
       erty damage" to which this insurance ap-                who monitored and directed the resolution of any claims
       plies.                                                  resulting from the light rail project. (Doc. No. 65, Ex. A at
                                                               2, PP 1-3.) In her affidavit, Messa swears to the following:
                                                                                                                    Page 16
                                 612 F. Supp. 2d 776, *; 2009 U.S. Dist. LEXIS 33687, **


                                                                occurred. Nor is there any dispute that, in the Lease
           Siemens delivered the first LRV to                   Agreement, Metro contractually agreed to assume UP's
       METRO in April 2003 and the installation                 tort liability as long as UP was not the sole, direct cause of
       and commissioning of these vehicles, in-                 the loss. Finally, there is no dispute that UP has paid to
       cluding the training fo METRO's LRV                      settle the claims arising from this accident and requested
       operators, began shortly thereafter. On                  Metro indemnify it for the amount it paid pursuant to the
       January 23, 2004, a light rail vehicle                   indemnity agreement.
       ("LRV 115") being commissioned by
                                                                     Turning back to the insurance policy, the Court finds
       Siemens and being operated by a METRO
                                                                that the phrase "legally obligated to pay" is not defined in
       employee on the test track located on the
                                                                the policy. However, giving the phrase its ordinary
       Lease premises collided with a Union Pa-
                                                                meaning (Pa. Pulp & Paper Co. v. Nationwide Mut. Ins.
       cific welding truck at crossing # 755612H,
                                                                Co., 100 S.W.3d 566, 574 (Tex.App.--Houston [14th
       also identified as the intersection of Kirby
                                                                Dist.] 2003, pet. denied) [**64] (recognizing that courts
       Drive and the railroad tracks in Houston,
                                                                give terms used in an insurance contract their ordinary and
       Harris County, Texas (the "Accident"). At
                                                                generally accepted meaning unless the policy shows the
       the time of the Accident, Siemens was
                                                                words were meant in a technical sense)), "it means an
       training and supervising the METRO em-
                                                                obligation imposed by law, such as an obligation to pay
       ployee that was operating LRV [**62]
                                                                pursuant to a judgment, settlement, contract, or statute."
       115.
                                                                Lennar Corp., 200 S.W.3d at 680; see also, Comsys, 130
                                                                S.W.3d at 189 n. 3 (recognizing a judgment is not the only
                                                                manner by which an insured can become "legally obli-
(Id. at 8-9, P 20.) Liberty Mutual asserts that, aside from
                                                                gated to pay," because a legal obligation can also arise out
the affidavit of Sharon K. Messa, which it claims is
                                                                of a contract or a settlement); Boy Scouts of America, 947
conclusory and not based on personal knowledge, there is
                                                                S.W.2d at 691 (same). Here, Metro's legal obligation to
no evidence that Siemens was "even present at the time of
                                                                pay is by contract. Once UP settled the claims and suits
the Accident, let alone conducting operations." (Doc. No.
                                                                arising from this accident, Metro's obligation under the
70 at 6.) However, given Messa's position with Metro
                                                                agreement was triggered. Accordingly, Metro's Motion
(i.e., Risk Manager who monitored and directed the res-
                                                                for Partial Summary Judgment on the grounds that cov-
olution of any claims resulting from the light rail project),
                                                                erage is triggered under the Wrap-UP policy is granted. 8
the Court simply cannot agree with Liberty Mutual and,
therefore, overrules Liberty Mutual's objection to Messa's
                                                                        8 Metro also moves for summary judgment on
affidavit.
                                                                        whether the Wrap-Up policy's auto exclusion
     Fourth, Metro contends that the accident did not oc-               precluded coverage and whether the Lease
cur within the "Products-Completed Operations Hazard."                  Agreement constituted the Insured Contract. Lib-
(Doc. No. 65 at 15-16.) Metro claims that the undisputed                erty Mutual does not dispute Metro's position on
facts demonstrate that Metro's "work" was ongoing at the                either; therefore, Metro's Motion for Partial
time of the accident because the Siemens' Contract called               Summary [**65] Judgment is granted as on both
for commissioning of all 18 LRVs prior to final ac-                     issues.
ceptance for use in Metro's operation of the Light Rail
system. Notably, however, in its response, Liberty Mutual       IX. UMBRELLA POLICY
clearly states that it "does not contend that the "prod-
ucts-completed operations hazard" precludes coverage            A. Lloyd's, Metro, and UP's Motions for Summary
under the Wrap-Up policy. (Doc. No. 70 at 3.)                   Judgment
     Finally, perhaps the central [**63] issue related to            With regard to the Umbrella policy, the parties have
the insuring agreement is whether Metro is "legally ob-         filed competing Motions for Summary Judgment. In its
ligated to pay" for bodily injury or property damage.           Motion for Summary Judgment, Lloyd's maintains that
Liberty Mutual maintains that "legally obligated to pay"        the action against it must be dismissed on the following
can only be established by a judgment against the insured,      grounds: (1) Metro and UP lack standing to pursue their
and since Metro [*803] is immune from suit, this has            claims (Doc. No. 66 at 5-6); (2) immunity bars UP from
not been established, and, until such point in time as it is,   asserting any claim against Metro (Id. at 6-9); (3) the
Liberty Mutual is under no obligation to pay under the          indemnity provision in the lease agreement is void (Id. at
Wrap-Up policy. There is, of course, no dispute that the        9-10); (4) UP is not an additional insured under the Um-
Lease Agreement contained the indemnity agreement or            brella policy (Id. at 11-12); (5) the auto exclusion pre-
that the agreement was entered into before the accident         cludes coverage for the accident (Id. at 12-13); (6) the
                                                                                                                   Page 17
                                 612 F. Supp. 2d 776, *; 2009 U.S. Dist. LEXIS 33687, **


Umbrella policy only provides coverage during construc-         qualifies as an insured based on the definitions contained
tion (Id. at 13-15); (7) the claims are barred by late notice   in the Umbrella policy. (Doc. No. 81 at 2, 8.)
(Id. at 15); (8) the insured(s) failed to obtain Lloyd's
                                                                     It is true that by the terms of the Lease Agreement,
consent to settle the McGinnis case (Id. at 15-16); (9) the
                                                                Metro was required, at its own cost and expense, to pro-
Umbrella policy restricts legal action against the insurer
                                                                cure and maintain commercial liability insurance, railroad
because the sums sought by Metro and UP were not ju-
                                                                protection insurance, liability insurance, worker's com-
dicially determined (Id. at 16-17); (10) Lloyd's had no
                                                                pensation and [**68] employer's liability insurance, and
duty to defend because the Complaint alleged facts ex-
                                                                umbrella or excess policies, in the event lessee utilizes
cluded by the policy (Id. at 17); [**66] and (11) even to
                                                                umbrella and excess policies .... (Doc. No. 64, Ex. C).
the extent coverage existed, Lloyd's did not act in bad
                                                                Further, Exhibit C of the Lease provides that "[a]ll poli-
faith (Id. at 17-18). Metro and UP have responded to each
                                                                cy(ies) required above (excluding Workers Compensa-
of Lloyd's arguments.
                                                                tion) ... name [UP] as an additional insured." (Id.) Con-
      In addition, both UP and Metro have filed Motions         trary to UP's contentions, as written, this provision cannot
for Partial Judgment. In its [*804] Motion, UP main-            be read as requiring Metro to buy an umbrella or excess
tains that it is an insured under the Umbrella policy (Doc.     policy under the Lease Agreement for UP. Instead, the
No. 69 at 8-12), the scope of coverage includes the test        Lease Agreement merely provides that "in the event"
track and operations on the test track as required under the    Metro purchases one, it shall "follow form" and "afford no
contract documents (Id. at 18-19), the auto exclusion does      less coverage than the primary policy." UP's argument,
not preclude coverage under the policy (Id. at 13-18), and      therefore, fails.
it is entitled to attorneys fees from Lloyd's under section
                                                                     The Court now examines the definitions of "insured"
38.006 of the Texas Civil Practice and Remedies Code.
                                                                found in the policy. The Umbrella policy, in relevant part,
(Id. at 12-13).
                                                                defines "insured" as follows:
     In its Motion, Metro maintains that Lloyd's is obli-
gated to indemnify Metro for the amounts it owes UP                       4. Any person or organization, other
(Doc. No. 65 at 15), the "Products-Completed Operations                than the Named Insured, included as an
Hazard" is not applicable because Metro's work was not                 additional insured in the policies listed in
complete on the date of the accident (Id. at 16), the auto             the Schedule of Underlying Insurance but
exclusion does not preclude coverage (Id. at 16-22), and               not for broader coverage than is available
all the conditions precedent of the Umbrella policy have               to such person or organization under such
been performed. (Id. at 22).                                           underlying policies.
                                                                            ****
B. Metro's Standing
                                                                            7. Any person, organization, trustee,
    In its Motion, similar to the claim asserted by Liberty
                                                                       or estate to whom you are obligated by a
Mutual, Lloyd's maintains that Metro lacks [**67]
                                                                       written Insured Contract to provide in-
standing to bring this suit. (Doc. No. 66 at 5-6.) Having
                                                                       surance [**69] such as is afforded by this
discussed the issue above, the Court will not reiterate it
                                                                       policy but only with respect to:
herein. Lloyd's Motion for Summary Judgment on the
ground that Metro lacks standing to bring this Declaratory
                                                                                 a. liability arising out of
Judgment is denied.
                                                                               operations conducted by
                                                                               you or on your behalf; or
2. Whether UP Lacks Standing Because It Is Not An
Additional Insured                                                                 [*805] b. facilities
                                                                               owned or used by you.
     Lloyd's maintains that UP is not an insured under the
Umbrella policy. Lloyd's also maintains that Texas is not
a direct action state and UP, being nothing more than a
third-party claimant, "has no standing to pursue any
claims against [it]." (Doc. No. 66 at 6; 11-12.) Con-
                                                                (Doc. No. 66, Ex. B at 10.) The term "Insured Contract"
versely, in its Motion, UP maintains that it is an insured
                                                                means: "[a]ny oral or written contract or agreement en-
under the Umbrella policy based on the following: (1)
                                                                tered into by you and pertaining to your business under
pursuant to the terms of the Lease Agreement, if Metro
                                                                which you assume the tort liability of another party to pay
purchased an Umbrella or Excess policy, Metro was re-
                                                                for Bodily Injury, Property Damage, Personal Injury or
quired to name UP as an additional insured; and (2) UP
                                                                Advertising Injury to a third person or organization. Tort
                                                                liability means a liability that would be imposed by law in
                                                                                                                   Page 18
                                 612 F. Supp. 2d 776, *; 2009 U.S. Dist. LEXIS 33687, **


the absence of any contract or agreement." (Id. at 11.)
Under the policy "you" "refers to the Named Insured"            3. Whether Governmental Immunity Or Article XI, §7
which, in this case, is Metro. (Id. at 7, 10.)                  Of The Texas Constitution Preclude This Action
     For purposes of paragraph (4), while the Schedule of           Lloyd's contends, similar to Liberty Mutual's argu-
Underlying Insurance includes the RPL and the Wrap-Up           ments, that governmental immunity (Doc. No. 66 at 6-9),
policy, UP was the named insured, not an additional in-         and a violation of Article 11, § 7 of the Texas Constitution
sured, under the RPL policy. Further, UP was not a named        precludes this action. (Id. at 9-10.) Having addressed
or additional insured under the Wrap-Up policy. 9 Ac-           these issues above, the Court will not reiterate its discus-
cordingly, contrary to its argument, UP would not qualify       sion here. Lloyd's Motion for Summary Judgment on
as an insured under subparagraph 4.                             these points is denied.

       9 An issue would appear to exists as to whether,         4. Whether the Auto Exclusion Precludes Coverage
       based on the Lease Agreement, Metro was re-
                                                                     Lloyd's, [**72] Metro and UP all seek summary
       quired to name UP as [**70] an additional in-
                                                                judgment regarding the application [*806] of the auto
       sured under the CGL. However, since this issue
                                                                exclusion. In its Motion, Lloyd's argues that UP and
       was not clearly raised by the parties, the Court
                                                                Metro's claims are specifically excluded because the ac-
       declines to address it.
                                                                cident arises from the use of an auto, which, by en-
     Turning to paragraph (7), UP maintains that the Lease      dorsement, is not covered under the policy. (Doc. No. 66
Agreement, which required Metro to indemnify UP for             at 12-13.) In their respective Motions, Metro and UP
tort liabilities, is an "Insured Contract" under the Um-        dispute Lloyd's contention that the auto exclusion applies
brella policy. Lloyd's disputes UP's contention on the          and argue that a Hyrail vehicle is "mobile equipment" and,
basis that the Lease Agreement is invalid. Lloyd's argu-        thus, not excluded. (Doc. No. 65 at 21-27; Doc. No. 69 at
ment is unavailing. A concern regarding the validity of the     13-18.)
indemnity agreement is a separate and distinct determi-
                                                                     The auto exclusion in the Umbrella policy is found in
nation from construing the scope of an "insured contract"
                                                                "Endorsement No. 16." The exclusion reads: "It is under-
under an insurance policy. Mid-Continent Cas. Co. v.
                                                                stood and agreed that this Insurance does not apply to
Swift Energy, 206 F.3d 487, 492-93 (5th Cir. 2000)
                                                                Bodily Injury or Property Damage arising out of the
(construing "insured contract" broadly when carrier
                                                                ownership, maintenance, operation, use, loading or un-
challenged demand for coverage); LeBlanc v. Global
                                                                loading of any Auto." 11 Under the policy, "auto" is de-
Marine Drilling Co., 193 F.3d 873, 875 (5th Cir. 1999);
                                                                fined as "a land motor vehicle, trailer or semi trailer de-
Certain Underwriters at Lloyd's London v. Oryx Energy
                                                                signed for travel on public roads, including any attached
Co., 142 F.3d 255, 258 (5th Cir. 1998); see also, Motiva
                                                                machinery or equipment. But auto does not include mo-
Enterprises, L.L.C. v. Liberty Mut. Ins. Co., 2006 U.S.
                                                                bile equipment." (Doc. No. 66, Ex. A, at Bates
Dist. LEXIS 81373, 2006 WL 3246039, * 9-10 (S.D.Tex.
                                                                UW/Wil00009.)
2006). As urged by UP, the indemnity agreement con-
tained in the Lease Agreement is an "Insured Contract"
                                                                       11 Unlike the CGL policy, which by its terms is
for purposes of the Umbrella policy. Thus, under para-
                                                                       limited to the operation and use of an auto by "any
graph IV.E.7, [**71] UP is an "insured" under the Um-
                                                                       insured," the auto exclusion [**73] in the um-
brella policy. 10
                                                                       brella policy is more broadly worded and applies
                                                                       to the use of "any auto" regardless of insured sta-
       10 UP's coverage as an additional insured under
                                                                       tus.
       the Umbrella policy is separate from Metro's
       coverage as the named insured. See Evanston Ins.              Based on the policy language, Lloyd's argues that the
       Co. v. Atofina Petrochemicals, Inc., 256 S.W.3d          truck or welding truck, as referred to in various docu-
       660, 663-64 (Tex. 2008) (recognizing difference          ments, 12 is a land motor vehicle and, being licensed and
       between contractual liability coverage supporting        registered, was designed for travel on the public roads
       the contractor's (named insured's) indemnity, and        and, thus, it is clearly an "auto.". Conversely, Metro and
       the coverage owed directly to Atofina as an addi-        UP contend that the Hyrail vehicle qualifies as "mobile
       tional insured).                                         equipment," as defined in the policy, for two reasons.
                                                                First, Metro and UP maintain that the Hyrail vehicle falls
     Accordingly, Lloyd's Motion for Summary Judgment
                                                                under the policy's first definition of "mobile equipment"
on the ground that UP is not an insured under the Um-
                                                                which broadly reads, in part: "any of the following type of
brella policy and, thus, has no standing to bring this action
                                                                land vehicles, including any attached machinery or
is denied; and UP's Motion for Partial Summary Judgment
                                                                equipment," such as "bulldozers, farm machinery, fork-
on these grounds is granted.
                                                                                                                   Page 19
                                 612 F. Supp. 2d 776, *; 2009 U.S. Dist. LEXIS 33687, **


lifts and other vehicles designed for use principally off            Second, [**76] Metro and UP maintain that the
public roads." There is, of course, no dispute that the         Hyrail vehicle falls under the policy's fourth definition of
Hyrail vehicle is a land vehicle. Further, as urged by the      "mobile equipment" because it is a vehicle that is "main-
parties, the operative issue is not whether the vehicle can     tained primarily to provide mobility to permanently
or does travel on public roads, but whether it was designed     mounted . . . [p]ower cranes." Significantly, the definition
for use principally off public roads. Doty v. Safeco Ins.       does not require that the vehicle be maintained for the
Co., 400 So.2d 718, 723 (La.App. 1981) (explaining that         "sole" purpose of providing mobility to the power crane.
the phrase [**74] "designed for use principally off pub-        Instead, as provided by the very terms of the policy, the
lic roads" makes clear that the determining issue is not        vehicle must only be maintained (not used) primarily to
whether the vehicle is or can be used on public roads, but      provide mobility to a permanently mounted power crane.
the primary purpose for which the vehicle is designed or        The competent evidence before the Court establishes that
structurally suited). While Lloyd's appears to suggest that     the Hyrail was equipped with a "telescope power crane
the fact the Hyrail vehicle is registered negates this in-      with [a] 20-foot reach that [was] permanently mounted to
terpretation, there is nothing in the policy provision that     the vehicle." (Doc. No. 67, Ex. E (Affidavit of Jeffrey
requires the vehicle not be subject to motor vehicle reg-       Crook).) While the Hyrail had other uses, the evidence
istration to fall within its parameter. In fact, whether the    before the Court establishes that it was maintained pri-
vehicle was registered and licensed to operate on the           marily to provide mobility to the permanently mounted
public roadways is not controlling in deciding that it was      power crane for work done on the railroad tracks.
not designed for use principally off public roads. Republic
                                                                     Not dissuaded, Lloyd's insists that the mobile
Ins. Co. v. Bolton, 564 S.W.2d 440, 442
                                                                equipment exception to the auto exclusion specifically
(Tex.Civ.App.--Dallas 1978, writ ref'd n.r.e.) (recognizing
                                                                provides that "self-propelled vehicles with the following
that "[t]he vehicle's susceptibility to state inspection and
                                                                types of permanently attached equipment are not mobile
licensing, together with its present use as a racing vehicle,
                                                                equipment [**77] but will be considered autos . . .
were simply evidentiary considerations bearing on the
                                                                welding." However, as urged by UP, this argument is
vehicle's design."). Rather, as stated, the purpose for
                                                                flawed. Definition number 6, by its own terms, serves as a
which the vehicle's use was principally "designed" is the
                                                                "catch-all" provision and applies only when the other
operative question. See generally, Malbrough v. Wheat,
                                                                provisions do not. (Doc. No. 89 at 18-20.) In addition, as
428 So.2d 1110, 1113 (La.App. 1st Cir. 1983) (although a
                                                                written, the second phrase of Definition number 6
farm tractor may be [**75] driven on public [*807]
                                                                ("[h]owever..."), can only be construed to modify this
roads, the evidence established that it was not principally
                                                                particular provision or paragraph, as opposed to all the
designed for this purpose).
                                                                preceding classes of mobile equipment.
       12 In its pleadings, Lloyd's makes much of the                Accordingly, having failed to establish the applica-
       terms that lay people use to refer to the Hyrail         tion of the auto exclusion, Lloyd's Motion for Summary
       vehicle; however, this is not relevant when de-          Judgment on this ground must be denied, and both Metro's
       termining whether the vehicle falls within the           and UP's Motions for Partial Summary Judgment on this
       policy's definitions.                                    issue must be granted.
     In the present case, Metro and UP offer evidence, by
                                                                5. Whether Coverage Under Umbrella Policy Limited
way of an affidavit from Jeffrey Crook, which supports
                                                                To Construction
their contentions that the Hyrail is "mobile equipment."
(Doc. No. 67, Ex. E (Affidavit of Jeffrey Crook).) Lloyd's           Lloyd's argues that the Umbrella policy does not re-
objects to Crook's affidavit (Doc. Nos. 72 & 73) on the         spond to the claims at issue because the construction of
basis that Crook lacks personal knowledge, and his affi-        the test track was completed. (Doc. No. 66 at 13-15; see
davit is based on hearsay, conclusory opinions, and             also, Doc. No. 77 at 21-22; Doc. No. 87 at 15.) Lloyd's
speculation. However, having considered Crook's affida-         relies upon the "Risk, Interest, Location and Limits of
vit, the Court finds that Lloyd's objections are without        Liability" provision contained in the "Schedule," the
merit and, thus, they are overruled. Accordingly, the           "Divided Work Endorsement" found in Endorsement No.
competent summary judgment evidence before this Court           19, and the definitions contained in Endorsement No. 1
demonstrates that the truck, modified into a Hyrail vehi-       concerning [**78] the "Project Site" and "Work." UP
cle, was "designed for use principally" on the railroad         responds that the Umbrella policy cannot reasonably be
tracks and, thus, off public roads. The mere fact that the      interpreted to be limited to construction of the test track.
Hyrail vehicle can operate on public roads does not alter       (Doc. No. 69 at 18; see also, Doc. No. 89 at 20-21.)
this conclusion. See Malbrough, 428 So.2d at 1113;
                                                                                                                  Page 20
                                612 F. Supp. 2d 776, *; 2009 U.S. Dist. LEXIS 33687, **


      [*808] The "Risks, Interests, Location and Limits        which is part of the "entire completed construction or the
of Liability" provision found in the "Schedule" provides       various separately identifiable parts required to be fur-
the following:                                                 nished under the contract documents," clearly falls within
                                                               the policy's definition of "work." Thus, because the pro-
           This Policy provides Umbrella Liability             visions of the Umbrella policy are not limited to con-
       coverage in respect of the construction of              struction, the Court concludes that Lloyd's Motion for
       Light Rail System - 7.5 miles with 16 sta-              Summary Judgment on this ground is denied, and UP's
       tions, including (but not limited to)                   Motion for Partial Summary Judgment on this issue is
       Downtown improvement, Transit Admin-                    granted.
       istration Building and Park/Ride Lots, as
       per wording attached hereto which is                    6. Whether Alleged Violations Of The Conditions
       hereby declared to be incorporated in and               Precedent Preclude Coverage
       to form an integral party of this Policy.
                                                                    Metro and Lloyd's filed competing Motions for
                                                               Summary Judgment regarding the issue of whether the
                                                               conditions precedent to coverage under the Umbrella
(Doc. No. 66, Ex. B at Bates UW/Wil 4.)
                                                               policy have been met. (Doc. No. 65 at 22; Doc. No. 66 at
     In addition, the "Divided Risk Endorsement" states        15-16.) UP filed a response to Lloyd's Motion. (Doc. No.
that "[i]t is hereby understood and agreed that this Policy    [**81] 81 at 11-14). The Court begins by addressing
applies only to liability which arises in connection with      Metro's Motion.
Work, at or emanating from the Project Site." (Doc. No.
                                                                    In its Motion, Metro appears to seek a declaration that
66, Ex. A at Bates 41.) Endorsement No. 1 defines
                                                               Lloyd's has waived "any challenge to Metro's averment
"Work" as "[t]he entire completed construction or the
                                                               that it 'has complied with and performed under [*809]
various separately identifiable parts required to be fur-
                                                               the essential terms and elements of . . . the Lloyd's Policy
nished under the contract documents." (Id. at Bates 24.) In
                                                               and any defects in performance by Metro do not prevent
addition, "Project Site" means "[t]hat area [**79] de-
                                                               the parties from accomplishing the purposes of the poli-
scribed in the construction contract documents including
                                                               cies' [reference omitted], by not specifically, and with
the area available for Contractor operations, access routes,
                                                               particularity, denying performance, as is required by the
right-of-ways, and approved additional sites necessary or
                                                               Federal Rules of Civil Procedure 9(c)." (Doc. No. 65 at
incidental thereto." (Id.) "Contractor" includes "[a]ny
                                                               22.) Lloyd's responds that, contrary to Metro's assertions,
individual, partnership, firm or corporation which has
                                                               when Lloyd's filed its Answer, it specifically denied
entered into a Contract for construction with The Metro-
                                                               Metro's performance of the conditions precedent. (Doc.
politan Transit Authority of Harris County, Texas (Metro)
                                                               No. 78 at 12.) The Court agrees. Metro's Motion for Par-
to perform Work at the Project Site unless such entity is
                                                               tial Summary Judgment on the ground that Lloyd's
specifically excluded from the OCIP."
                                                               waived compliance with the conditions precedent by
     Based on these policy provisions, Lloyd's argues that     failing to comply with Rule 9(c) of the Federal Rules of
the Umbrella policy "clearly only provides coverage with       Civil Procedure is denied
respect to construction of the listed items" and "[n]o
                                                                    Turning to the competing Motion, Lloyd's contends
coverage is afforded for operational use of the listed
                                                               that coverage is precluded under the Umbrella policy on
items. (Doc. No. 66 at 14.) Lloyd's interpretation of these
                                                               the grounds of (1) delayed notice, and (2) failure to obtain
policy provisions is too strained. Under the policy, the
                                                               consent to settle or the "no-action" clause. (Doc. No. 66 at
"Project Site" includes the test track, not only because it
                                                               15-17.) [**82] UP filed a response refuting each of
was the "area described in the construction contract
                                                               Lloyd's arguments. The Court addresses each issue in
documents" (Doc. No. 65-2, Ex. A at 2, P5; 7, P17), but
                                                               turn.
also because it was the "area available for Contractor
operations," which included the testing or commissioning
                                                               7. Whether Delayed Notice Precludes Coverage
the LRVs. In addition, as provided in the policy language,
"the construction of the [**80] Light Rail System" in-              Lloyd's contends that the delayed notice by Metro
cluded "the final design, manufacturing, supply, installa-     and UP precludes coverage under the Umbrella policy.
tion, testing, training, spare parts, and operations and       (Doc. No. 66 at 15.) 13 UP counters that Lloyd's has not
maintenance technical support" of the LRVs was a nec-          established late notice and, even if they had, they have
essary and required part of the construction of the Light      failed to show prejudice. (Doc. No. 81 at 11.)
Rail System. (Doc. No. 65-3, Ex.1-A at 12 of 113; see
also, Doc. No. 65-3, Ex.1-A at 14 of 114.) Finally, as                13    Lloyd's complains that it did not receive
broadly defined in the policy, the testing of the LRVs,               timely notice of the accident or the suit and that it
                                                                                                                   Page 21
                                612 F. Supp. 2d 776, *; 2009 U.S. Dist. LEXIS 33687, **


       was given less than 24 hours to consider a settle-      participate in the settlement negotiations or instruct either
       ment offer to Plaintiff McGinnis.                       Metro or UP to refrain from settlement to allow Lloyd's to
                                                               determine whether to participate. Following several tel-
     The Umbrella policy requires Metro n 14 to notify
                                                               ephone discussions with Lloyd's counsel, on February 27,
Lloyd's "as soon as practicable of an Occurrence which
                                                               2007, UP's counsel, sent a letter to Lloyd's counsel in
may result in a claim under this policy." (Doc. No. 66, Ex.
                                                               which he provided the status of the case, [**85] de-
B at Bates UW/Wil 20.) The policy further provides that
                                                               manded a defense, demanded "first-dollar liability cov-
"[i]f a claim is made or suit is brought against any Insured
                                                               erage under the Lloyd's Umbrella Policy for the Incident"
that is reasonably likely to involve this policy [Metro]
                                                               or, in the alternative, "without waiver, Union Pacific
must notify [Lloyd's] in writing as soon as practicable."
                                                               demands that Lloyd's provide indemnity excess to the
(Id.) This provision of the policy was further modified by
                                                               underlying scheduled policies," and demanded Lloyd's
Endorsement 17, which stated "[i]t is understood and
                                                               "immediately effect a settlement of the McGinnis claim."
agreed that notice of Occurrence, claim or Suit shall be
                                                               (Doc. No. 89, Ex. A-1.) On March 13, 2007, Lloyd's
made in accordance with Condition F. Duties In The
                                                               denied coverage under the Umbrella policy. (See Doc. No.
Event [**83] Of An Occurrence, Claim Or Suit via the
                                                               66, Ex. C-2.) On March 22 and 23, 2007, UP emailed
following entity: 'Willis of Texas.'" (Id. at Bates UW/Wil
                                                               counsel for Liberty Mutual and Lloyd's once again re-
40.) There is no dispute that Willis of Texas had notice of
                                                               questing their participation in the settlement and also
the accident and UP's claims shortly after the occurrence
                                                               informed them of UP's intent to accept the settlement offer
in 2004. Thus, pursuant to the terms of the agreement,
                                                               sought by Plaintiff McGinnis unless directed not to by
notice to Willis of Texas satisfied the terms of this con-
                                                               either carrier. (Doc. No. 66, Ex. C-2; Doc. No. 77, Exs. Y
dition.
                                                               & Z.) Without hearing from Lloyd's, on March 23, 2007,
     Notwithstanding this fact, under Texas law, an in-        after both insurers not only declined to participate in the
sured's failure to give timely notice will not defeat cov-     settlement discussions, but also declined coverage, UP
erage absent a showing by the insurer that they have been      settled Plaintiff McGinnis' claims. (Doc. No. 66, Ex. C-2.)
prejudiced. PAJ, Inc. v. Hanover Ins. Co., 243 S.W.3d          On March 27, 2007, a letter from Lloyd's counsel "reit-
630, 636-37 (Tex. 2008); Hernandez v. Gulf Group               erates" their declination of coverage. (Id.) In the letter,
Lloyds, 875 S.W.2d 691, 693 (Tex. 1994); Hanson Prod.          although having previously declined coverage, Lloyd's
Co. v. Americas Ins. Co., 108 F.3d 627, 629-30 (5th Cir.       objected to the increased settlement [**86] amount
1997) (insurer must establish it was prejudiced by late        contemplated by UP to settle Plaintiff McGinnis' claims,
notice). Prejudice will not be presumed from either de-        complained that they did not have adequate information
layed notice or "settlement without consent." PAJ, 243         upon which to evaluate the reasonableness of the new
S.W.3d at 634; Hanson, 108 F.3d at 631; Comsys, 130            settlement amount, objected that UP gave them only 24
S.W.3d at 191-92. Instead, an insurer "must demonstrate a      hours to consider Plaintiff's new settlement demand, and
material change in position to establish prejudice" and        reserved their right to contest the reasonableness of the
"may not disclaim coverage on the basis of prejudice that      settlement amount. (Id.) Notably, however, Lloyd's was
is only theoretical or presumed merely from [*810] the         notified of the suit before trial and had previously been
length of delay." Coastal Refining & Marketing Inc. v.         invited to participate in the settlement discussions.
U.S. Fidelity & Guaranty Co., 218 S.W.3d 279, 288              Lloyd's not only declined, but denied coverage under the
(Tex.App.--Houston [14th Dist.] 2007, pet. denied).            policy before any settlement was reached.
[**84] "Whether an insurer is prejudiced by delayed no-
                                                                    As pointed out by UP, in its Motion for Summary
tice is generally a question of fact," but a court may de-
                                                               Judgment, Lloyd's only specific claims of prejudice are as
termine the issue as a matter of law when the material
                                                               follows:
facts are undisputed. St. Paul Guardian Ins. Co. v. Cen-
trum G.S. Ltd., 383 F.Supp.2d 891, 902 (N.D. Tex. 2003).
                                                                         [it was] prejudiced by the ultimate set-
     Willis of Texas notified Lloyd's of the loss sometime            tlement Union Pacific entered into with
in late September 2006. There is no dispute that, in early            Plaintiff McGinnis because the original
November 2006, UP provided all the information re-                    settlement agreement reached between the
quested by Lloyd's for the stated purpose of evaluating the           two was for considerably less. See Exhibit
coverage applicable to the accident. (See Doc. No. 66, Ex.            "C." For reasons unknown to Underwrit-
C-1 at Bates W17054.) On November 28, 2006, UP                        ers, Union Pacific failed to formalize the
communicated with Lloyd's regarding the direct settle-                original settlement, allowing a significant
ment negotiations involving the claims made by Plaintiff              increase in the demands of Plaintiff
McGinnis. (Doc. No. 66, Ex. C-1 at Bates W17052-54;                   McGinnis, to the extreme prejudice of
Doc. No. 77, Ex. U.) Lloyd's did not affirm or deny cov-              Underwriters.
erage or tender a reservation of rights and also did not
                                                                                                                     Page 22
                                  612 F. Supp. 2d 776, *; 2009 U.S. Dist. LEXIS 33687, **


                                                                        Furthermore, [**89] another consequence of a
 [*811] (Doc. No. 66 at 23.) To the extent that Lloyd's           breach of the duty to defend is the inability to enforce
suggests that its [**87] inability or failure to obtain a         against the insured any conditions in the policy; the in-
smaller settlement, or more favorable settlement, consti-         sured is no longer constrained by "no action" or "no vol-
tutes prejudice sufficient to relieve an insurer of its duty to   untary assumption of liability" clauses. Parker Products,
defend or indemnify its insured, any such assertion would         Inc., 498 S.W.2d at 679. Thus, a consequence of breach is
not suffice to establish prejudice. Centrum G.S. Ltd., 383        that an insurer who wrongfully failed to defend its insured
F.Supp.2d at 902 (recognizing that inability to obtain a          is liable for any damages assessed against the insured, up
more favorable judgment is not a circumstance that will           to the policy limits, subject only to the condition that any
establish prejudice). Based on the evidence presented, the        settlement be reasonable. Western Alliance Ins. Co. v.
Court cannot conclude that Lloyd's was prejudiced as a            Northern Ins. Co. of New York, 176 F.3d 825, 830 (5th
matter of law. See Coastal Refining & Marketing, 218              Cir.1999). The insured must demonstrate only that, in
S.W.3d at 290-92 (delayed notice to insurer of suit until         settling, his conduct conformed to the standard of a pru-
less than a month before trial did not prejudice insurer          dent uninsured. Simon v. Maryland Cas. Co., 353 F.2d
where it learned of suit while defense and negotiations           608, 612 (5th Cir. 1965) (citing United States Auto. Ass'n
were still ongoing, insurer was provided access to litiga-        v. Russom, 241 F.2d 296, 301 (5th Cir. 1957)) (when the
tion file, and insurer was invited to participate in settle-      insurer repudiates coverage, an assured is entitled to ex-
ment discussions). Lloyd's Motion for Summary Judg-               ercise the judgment of a prudent uninsured person in
ment on the ground of late notice is, therefore, denied.          compromising the claim); Willcox v. American Home
                                                                  Assur. Co., 900 F.Supp. 850, 855-56 (S.D. Tex. 1995)
    8. Whether "No Action" Clause Precludes Cov-
                                                                  (recognizing that "[w]hen an insured compromises and
erage
                                                                  settles the [*812] case without the sanction of a judg-
    Lloyd's next contends that the "no action" clause             ment, the [**90] insured may, in a separate suit initiated
precludes coverage under the policy. (Doc. No. 66 at 16.)         against the insurer, recover the amount of damages he
In particular, the Umbrella policy contains the following         paid or promised to pay in settlement of the case upon
clause:                                                           sufficient proof of facts establishing that the settlement
                                                                  was made in good faith, upon reasonable basis, and for a
    There will be no right of action against [**88] us            reasonable amount"); see also, Atofina Petrochemicals,
under this insurance unless:
                                                                  256 S.W.3d at 677 (when an insurer wrongfully denies
                                                                  coverage and its insured enters into an agreed judgment,
           1. You have complied with all the terms
                                                                  the insurer may not contest the reasonableness of the
        of this policy; and
                                                                  agreed judgment). Finally, when an insured settles a
            2. The amount you owe has been de-                    claim, without knowing whether or not it would be cov-
        termined with our consent or by actual trial              ered by the policies, this "leav[es] in place its motive to
        and final judgment.                                       minimize the settlement amount in case it became solely
                                                                  responsible for payment." Id. at 674. Accordingly,
                                                                  Lloyd's Motion for Summary Judgment based on the
(Doc. No. 66, Ex. B at Bates UW/Wil 20.) UP responds              "no-action" clause is denied.
that Lloyd's "reliance on the no-action clause . . . is mis-
placed because they denied coverage." (Doc. No. 81 at             9. Whether Lloyd's Breached Duty to Defend
14.) While it is true that "the insurance company may
                                                                       In its Third-Party Complaint, UP alleges that Lloyd's
ordinarily insist upon compliance with this condition for
                                                                  breached its duty to defend. In its Motion for Summary
its own protection" (Gulf Ins. Co. v. Parker Prods. Inc.,
                                                                  Judgment, Lloyd's maintains that it had no duty to defend
498 S.W.2d 676, 679 (Tex. 1973)), the law is well-settled         because the complaint alleged facts excluded by the pol-
that once an insurer has breached its duty to defend, the         icy. (Doc. No. 66 at 17.) The Umbrella policy, in relevant
insured is free to proceed as he sees fit; he may engage his
                                                                  part, provides:
own counsel and either settle or litigate, at his option.
Great American Indemnity Co. v. Corpus Christi, 192
                                                                            II. Defense
S.W.2d 917, 919 (Tex.Civ.App.-San Antonio 1946, writ
ref'd n.r.e.). Having forfeited its right to conduct the de-                 A. We shall have [**91] the right
fense, the insurer is bound by the judgment or settlement.               and duty to defend any claim or suit
Ridgway v. Gulf Life Insurance Co., 578 F.2d 1026, 1029                  seeking damages covered by the terms and
(judgment), reh'g denied, 583 F.2d 541 (5th Cir. 1978);                  conditions of this policy when:
Ranger Insurance Co. v. Rogers, 530 S.W.2d 162, 166-67
(Tex.Civ.App.-Austin 1975, writ ref'd n.r.e.) (settlement).
                                                                                                                     Page 23
                                 612 F. Supp. 2d 776, *; 2009 U.S. Dist. LEXIS 33687, **


                   1. The applicable limits                      951 S.W.2d at 390 (where breach of contract was estab-
                of Insurance of the under-                       lished, but jury awarded no damages for the breach, the
                lying policies listed in the                     party was not entitled to attorney's [*813] fees under
                Schedule of Underlying                           statute). In this case, it is premature to consider UP's en-
                Insurance and the limits of                      titlement, if any, to attorney's fees under Section 38.001.
                Insurance of any other                           See Solis, 951 S.W.2d at 390. Accordingly, UP's Motion
                Underlying         Insurance                     for Partial [**93] Summary Judgment seeking attorney's
                providing coverage to the                        fees under Section 38.001 is denied without prejudice as
                Insured have been ex-                            premature.
                hausted by payment of
                claims to which this policy                      11. Whether No Coverage Under Policy Precludes Bad
                applies; or                                      Faith Claim
                     2. Damages are sought                            Lloyds argues that since no coverage existed under
                for Bodily Injury, Property                      the policy, any claim that it acted in bad faith fails. (Doc.
                Damage, Personal Injury,                         No. 66 at 17-18.) UP responds that, while the carriers
                or Advertising Injury cov-                       "have correctly recited Texas law on the issue," to the
                ered by this policy but not                      extent coverage exists under the policy, additional dis-
                covered by any underlying                        covery would be necessary and, thus, it would be "prem-
                insurance listed in the                          ature for the Court to consider and rule on the viability of
                Schedule of Underlying                           the extra-contractual claims." (Doc. No. 81 at 15.) Insofar
                Insurance or any other un-                       as coverage exists under the policy, the Court agrees with
                derlying insurance provid-                       UP. Lloyd's Motion for Summary Judgment is denied on
                ing coverage to the Insured.                     this point.

                                                                 VIII. CONCLUSION
                                                                   For all the reasons set forth above, the following is
                                                                 ORDERED by the Court:
(Doc. No. 66, Ex. B at Bates UW/Wil 7.) UP maintains
that it "has demonstrated that the various suits filed
                                                                           A. Liberty Mutual's Motion for Sum-
against it arising out of the Accident fall within the scope
                                                                        mary Judgment (Doc. No. 64) is
of coverage" (Doc. No. 69 at 19), and Lloyd's "must de-
                                                                        GRANTED as to the issue that UP is not
fend [UP] under the Umbrella policy if (i) the RPL Policy
                                                                        an insured under the Wrap-Up policy, but
covers the claims and is exhausted by payment; or (ii) if
                                                                        DENIED as to all other relief sought
the RPL Policy does not cover the claims." The Court
                                                                        within its Motion;
agrees. Since the Complaint's alleged facts fall within the
scope of coverage and were not otherwise excluded by the                     B. Metro's Motion for Partial Sum-
policy, Lloyd's [**92] Motion for Summary Judgment                      mary Judgment (Doc. No. 65) is
on this ground is denied.                                               GRANTED as to the following issues: (1)
                                                                        liability coverage exists for Metro under
    10. Whether UP is Entitled to Attorney's Fees
                                                                        the Wrap-Up policy; (2) [**94] the auto
     UP maintains that it is entitled to attorney's fees under          exclusion does not apply to preclude cov-
Section 38.001 of the Texas Civil Practice and Remedies                 erage for Metro under the Wrap-Up policy;
Code for bringing this action against Lloyd's for breach of             and (3) the Lease Agreement is an "insured
contract. (Doc. No. 69 at 12.) While Lloyd's filed a re-                contract" under the Wrap-Up policy, and
sponse to UP's Motion, it did not address UP's argument                 DENIED as to all other relief sought
that it is entitled to attorney's fees. (See Doc. Nos. 77 &             within its Motion;
87.)
                                                                             C. Lloyd's Motion for Summary
     As previously discussed, in order to recover attor-                Judgment (Doc. No. 66) is DENIED in its
ney's fees pursuant to Section 38.001, a party must be a                entirety;
prevailing party and recover actual damages on its claim.
                                                                             D. UP's Motion for Partial Summary
See Mustang Pipeline Co., 134 S.W.3d at 201 (noting that
                                                                        Judgment under the RPL Policy (Doc. No.
even though the claimant had a valid claim, it "was not
                                                                        66) is DENIED; and
entitled to recover attorney's fees because it was not
awarded damages on its breach of contract claim"); Solis,
                                                                                                 Page 24
                        612 F. Supp. 2d 776, *; 2009 U.S. Dist. LEXIS 33687, **


     E. UP's Motion for Partial Summary
Judgment under the Umbrella Policy (Doc.
No. 69) is GRANTED as to the following
issues: (1) UP is an additional insured
under the Umbrella policy; (2) UP has                 IT IS SO ORDERED.
standing to bring this action; (3) the auto
                                                          SIGNED this 14th day of March, 2009.
exclusion does not apply to preclude cov-
erage under the Umbrella policy; and (4)                  /s/ Keith P. Ellison
the Umbrella policy is not limited merely
to construction, and DENIED as to all                     KEITH P. ELLISON
other relief sought within its Motion.                    UNITED STATES DISTRICT JUDGE
                                                                                                                   Page 1
                                   923 S.W.2d 663, *; 1996 Tex. App. LEXIS 750, **




                 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

                       COURT OF APPEALS OF TEXAS, TWELFTH DISTRICT, TYLER

                                       923 S.W.2d 663; 1996 Tex. App. LEXIS 750


                                              February 23, 1996, delivered
                                                February 23, 1996, filed

SUBSEQUENT HISTORY:                   [**1] Rehearing
                                                                    Cintas Corporation is a national company that [**2]
Denied March 14, 1996. Motion for Rehearing of Appli-
                                                               rents uniforms, towels and mats to businesses on a weekly
cation for Writ of Error Overruled November 15, 1996.
                                                               basis. Murphy owns and [*665] operates an Exxon and
                                                               Chevron service station in Tyler, Texas. From 1988 until
PRIOR HISTORY:       APPEAL FROM THE
                                                               1991, Murphy and Cintas entered into a series of contracts
COUNTY COURT AT LAW NO. 2. SMITH COUNTY,
                                                               to rent uniforms. Initially, Cintas filed suit against Mur-
TEXAS.
                                                               phy 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,
COUNSEL: H.L. MCGEE.
                                                               the invoices and Cintas's affidavit stating that the claim
                                                               against Murphy was just and true, that it was due, and that
RONNIE HORSLEY.
                                                               all just and lawful credit had been allowed. TEX. R. CIV.
                                                               P. 185.
JUDGES: CHARLES R. HOLCOMB (AUTHOR), A.
ROBY HADDEN, TOM B. RAMEY, JR. (NOT PAR-                            Murphy answered by an unsworn denial, but alleged
TICIPATING)                                                    that Cintas "failed to furnish clean, high quality garments
                                                               and failed to replace torn, damaged and worn garments
OPINION BY: CHARLES R. HOLCOMB                                 when requested." Murphy also alleged that Cintas was not
                                                               entitled to recover liquidated damages because the liqui-
OPINION                                                        dated damage provision was an unenforceable penalty.
                                                               After a non-jury hearing, the court rendered judgment in
       [*664] Ken Murphy appeals from a judgment
                                                               favor of Cintas. Neither party requested findings of fact
awarding Cintas Corporation $ 6,167.30 for breach of a
                                                               and conclusions of law.
uniform rental agreement. In the first six points of error,
Murphy challenges the legal sufficiency of the evidence to          In points one, two, three, four, five, six and eight,
support the court's award of liquidated damages. In his        Murphy challenges the legal [**3] sufficiency of the
seventh point, Murphy contends that the court erred when       evidence to support the court's award of liquidated dam-
it awarded liquidated damages because the stipulated           ages. According to Murphy, the record is void of any
damage clause in the contract was an unenforceable pen-        evidence regarding the amount of monetary loss that
alty, as a matter of law. In his last point, Murphy contends   Cintas actually suffered as a result of the breach or the
that the court erred when it refused to set aside the judg-    reasonableness of the liquidated damage provision. He
ment and render a take-nothing judgment in his favor. In       also argues that the record is void of any evidence that the
one cross-point, Cintas contends that the court erred when     amount of liquidated damages was a reasonable forecast
it permitted Murphy to file a trial amendment after the        of just compensation. Therefore, Murphy concludes that
court had taken the case under advisement. We will af-         the court erred when it awarded damages in accordance
firm.                                                          with the liquidated damage provision of the contract ra-
                                                                                                                    Page 2
                                   923 S.W.2d 663, *; 1996 Tex. App. LEXIS 750, **


ther than awarding damages in accordance with common          evidence to prove the amount of Cintas' actual damages.
law contract law. We do not agree.                            Accordingly, points one, two, three, four, five, six and
                                                              [**6] eight are overruled.
     When findings and conclusions are neither requested
nor filed, the trial court is presumed to have made all of         In his seventh point, Murphy contends that the court
the findings necessary to support its judgment. Roberson      erred when it awarded Cintas liquidated damages because
v. Robinson, 768 S.W.2d 280, 281 (Tex. 1989). All ques-       the contractual provision was, as a matter of law, an un-
tions of fact are presumed found in support of the judg-      enforceable penalty. The disputed liquidated damage
ment and the judgment will be upheld on any legal theory      clause stated:
raised by the evidence. Point Lookout West, Inc. v.
Whorton, 742 S.W.2d 277, 278-79 (Tex. 1987). Further,                   In the event of cancellation of this ser-
Murphy's points of error are "no evidence" points. In                vice agreement by the Customer prior to
deciding a "no evidence" point, we must [**4] consider               the termination date, other than for failure
only the evidence and inferences tending to support the              of the Company to perform under its
finding and disregard all evidence and inferences to the             guarantee, the Customer will pay the
contrary. Davis v. City of San Antonio, 752 S.W.2d 518,              greater of 50% of the weekly service
522 (Tex. 1988).                                                     charge per person per week for the unex-
                                                                     pired term, or buy back all of the garments
      Here, we have a dispute between the parties about
                                                                     in inventory at the rates listed above as
whether the court rendered judgment on a suit on sworn
                                                                     replacement value.
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,
                                                              Citing Servisco v. Tramco Inc., 568 S.W.2d 434, 437 (Tex.
merchandise, personal services rendered, labor done or
                                                              App - Texarkana 1978, writ ref'd n.r.e); Mayfield v. Hicks,
labor or materials furnished. Great-ness Prof. Serv. v.
                                                              575 S.W.2d 571, 575 (Tex. App. - Dallas 1978, writ ref'd
First Nat. Bank of Louisville, 704 S.W.2d 916, 917 (Tex.
                                                              n.r.e.) and Bethel v. Butler Drilling Co., 635 S.W.2d 834,
Civ. App. - Houston [14th] Dist. 1986, no writ). Had
                                                              837 (Tex. App. - Houston, 1982, writ ref'd n.r.e), Murphy
Cintas properly filed a suit on a sworn account in ac-
                                                              argues that a contract provision is a penalty and is unen-
cordance with Rule 185, and Murphy had failed to file a
                                                              forceable if it provides for unreasonable payments for a
written denial under oath, Murphy could not have denied
                                                              minor breach. In Servico, the court held that "a sum stip-
Cintas's claim, he could not have disputed that he received
                                                              ulated to be paid under an agreement should be treated as
the services, and he could not have disputed the correct-
                                                              an unenforceable [**7] penalty if the agreement con-
ness of the stated charges. Vance v. Holloway, 689
                                                              tains several matters of different degrees of importance
S.W.2d 403, 404 (Tex. 1985); Airborne Express Corp v.
                                                              and the sum stipulated is payable for the breach of any,
CRB Marketing, Inc., 566 S.W.2d 573, 575 (Tex. 1978).
                                                              even the least." Murphy argues that, under the language of
However, a lawsuit involving a breach of a lease [**5]
                                                              the Cintas-Murphy agreement, Murphy could have been
agreement is not a valid claim on sworn account because a
                                                              liable for the same amount of damages whether he
lease agreement does not involve a purchase and sale, and
                                                              breached the agreement by failing to pay the rental for all
title to personal property has not passed from one party to
                                                              of the uniforms, by failing to pay for one shirt or by vio-
another. Id. Thus, we hold that Cintas's cause of action
                                                              lating any of the other obligations contained in the con-
against Murphy is not a suit on sworn account as a matter
                                                              tract. Murphy also contends that the harm caused by the
of law. Id.
                                                              breach must not be capable of estimation or difficult to
     Having determined that the court rendered judgment       estimate to be an enforceable liquidated damage stipula-
in favor of Cintas under a breach of contract, we will        tion. Because employees of Cintas testified that docu-
determine whether there is any evidence to support the        mentation of the actual damage that Cintas incurred as a
damage award. Murphy argues that, because Cintas did          result of the breach were available at the time of trial,
not offer proof of its actual damages, there was no evi-      Murphy concludes that Cintas admitted that the liquidated
dence in the record to show that the liquidated damage        damage provision was unenforceable.
provision in the contract was reasonable. As an affirma-
                                                                   In Stewart v. Basey, the Supreme Court considered
tive defense to Cintas's claim for liquidated damages,
                                                              the difference between an enforceable liquidated damage
Murphy pled penalty. TEX. R. APP. P. 94; Phillips v.
                                                              provision and an unenforceable penalty. Stewart v.
Phillips, 820 S.W.2d 785, 789 [*666] (Tex. 1991). In
                                                              Basey, 150 Tex. 666, 245 S.W.2d 484 (1952). More re-
doing so, Murphy not Cintas had the burden to prove that
                                                              cently, the courts have restated this two-part Stewart test
the liquidated damage provision was unreasonable and a
                                                              when analyzing [**8] the validity of a contractual
penalty. Gorman v. Life Ins. Co. of North America, 811
                                                              damages provision:
S.W.2d 542, 546 (Tex. 1991). Murphy did not offer any
                                                                                                                    Page 3
                                   923 S.W.2d 663, *; 1996 Tex. App. LEXIS 750, **


    In order to enforce a liquidated damage clause, the        Accordingly, we hold that the liquidated [*667] dam-
court must find:                                               age clause is enforceable. Point seven is overruled.
                                                                    In his last point of error, Murphy contends that the
          (1) that the harm caused by the breach is
                                                               court erred when it refused to set aside the judgment and
       incapable or difficult of estimation; and
                                                               render a take-nothing judgment in his favor. However, he
                                                               failed to cite any authority to support his position. Under
       (2) that the amount of liquidated damages
                                                               Rule 74(f), Murphy's point is not preserved for our review.
       called for is a reasonable forecast of just
                                                               TEX. R. APP. P. 74(f); Tobias v. Univ. of Texas at Ar-
       compensation.
                                                               lington, 824 S.W.2d 201, 206-07 (Tex. App. - Fort Worth
                                                               1991, writ denied).
 Phillips, 820 S.W.2d at 788. For the provision to be an            In one cross-point, Cintas contends that the court
unenforceable penalty, the uncertainty of the damages and      erred when it allowed Murphy to file a trial amendment
the reasonableness of the stipulation must have existed at     after the ease had been heard by the court. According to
the time when the contract was executed. Oetting v.            Cintas, Murphy had failed to plead the defense of penalty
Flake Uniform & Linen Service, 553 S.W.2d 793, 796             to the contract action under Rule 94 until after both parties
(Tex. Civ. App. - Ft. Worth 1977, no writ). Even though        had closed and the court had taken [**10] the case under
Murphy contends that the actual damage incurred by             advisement. TEX. R. CIV. P. 94. However, the only an-
Cintas could have been calculated at the time of trial, such   swer in the transcript is Defendant's Second Amended
testimony was long after the contract between Cintas and       Original Answer. The record before us does not contain
Murphy had been executed. To forecast the actual dam-          any of the answers that precede Murphy's last amended
ages to Cintas as a result of Murphy's termination of the      answer, from which Cintas complains. Accordingly, we
contract sixty months in advance would be fraught with         cannot determine from the record to what extent Murphy
uncertainty. Further, similar contracts for liquidated         amended his prior pleadings. To complain of error on
damages have been approved in Liberty Sign Co. v.              appeal, it is incumbent upon the complaining party to
Newsom 426 S.W.2d 210 (Tex. 1968); Blakeway v. Na-             submit evidence in the record to support his claim. TEX.
tional Credit Corporation, 439 S.W.2d 155 [**9] (Tex.          R. APP. P. 50(d). Cintas's cross-point is overruled.
Civ. App. - Austin 1969, writ ref'd n.r.e.); Blakeway v.
                                                                   CHARLES HOLCOMB,
General Electric Credit Corporation, 429 S.W.2d 925
(Tex. Civ. App. - Austin 1968, writ ref'd n.r.e.); Hyde v.         Justice
Claude Neon Federal Co., 157 S.W.2d 952 (Tex. Civ.
App. - Eastland 1941, writ dism'd); White v. Wilbanks,             Opinion delivered February 23, 1996.
144 S.W.2d 941 (Tex. Civ. App. - Amarillo 1940, no writ).
                                                                                                                    Page 1
                              2008 Tex. App. LEXIS 4736, *; 27 I.E.R. Cas. (BNA) 1872




               NEXSTAR BROADCASTING, INC. D/B/A KBTV NBC 4, Appellant v. JENNIFER
                              GRAY AND KTBS, INC., Appellees

                                                  NO. 09-07-364-CV

                      COURT OF APPEALS OF TEXAS, NINTH DISTRICT, BEAUMONT

                               2008 Tex. App. LEXIS 4736; 27 I.E.R. Cas. (BNA) 1872

                                            March 13, 2008, Submitted
                                          June 26, 2008, Opinion Delivered

PRIOR HISTORY: [*1]                                          on the ground that there was no evidence of damages and
  On Appeal from the 60th District Court, Jefferson          rendered judgment that Nexstar take nothing from KTBS.
County, Texas. Trial Cause No. B-174,467.
                                                                 Nexstar asserts eight issues for appellate review.
                                                             KTBS raises a cross-point attacking the sufficiency of the
DISPOSITION:         REVERSED AND REMANDED.
                                                             evidence to support the [*2] jury's finding of $ 2,000 in
                                                             damages. See TEX. R. CIV. P. 324(c). We reverse the trial
                                                             court's judgment. The cause is remanded for a new trial.
COUNSEL: For APPELLANT: William L. Davis, Esq.,
Jackson Lewis LLP, Dallas.                                       BACKGROUND

For APPELLEES: Scott L. Zimmer, Cook, Yancey, King               Gray was originally hired by Nexstar as a reporter in
& Galloway, Shreveport, LA; Wyatt D. Snider, Snider &        2003 and signed an employment contract. In 2004, Gray
                                                             signed another contract with Nexstar as an on-air per-
Byrd, L.L.P., Beaumont; Jason M. Byrd, Snider & Byrd,
                                                             former for a term of employment from April 11, 2004, to
L.L.P., Beaumont.
                                                             May 31, 2006. The contract contained a provision titled
                                                             "Remedies and Procedure for Remedying Disputes,"
JUDGES: Before McKeithen, C.J., Gaultney and Horton,
JJ.                                                          which stated:

                                                                        In the event Employee elects to breach
OPINION BY: DAVID GAULTNEY
                                                                     this Agreement and leave employment
                                                                     prior to the conclusion of the term, the
OPINION
                                                                     Company may accept as liquidated dam-
                                                                     ages for said breach the amount of $
MEMORANDUM OPINION
                                                                     10,000. In the event the Company deter-
     Nexstar Broadcasting, Inc. d/b/a KBTV NBC 4 ap-                 mines that the liquidated damages amount
peals a judgment rendered in a lawsuit filed against for-            described above is insufficient to cover all
mer employee Jennifer Gray for breach of contract and                of its damages, the Company may seek to
against Gray's subsequent employer, KTBS, Inc., for                  obtain additional compensatory and con-
interference with the contract. A jury awarded Nexstar $ 1           sequential damages by pursuing an action
in nominal damages from Gray on the breach of contract               under paragraph 7(a) herein.
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
                                                                  In February 2005, Gray gave notice that she would be
liquidated damages provision in the contract was an un-
enforceable penalty as a matter of law. The trial court      resigning from her position. Nexstar sent her a letter re-
ruled that Nexstar was not entitled to attorney's fees and   minding her of her continuing obligations under the con-
                                                             tract. The letter informed Gray she would have to pay $
awarded attorney's fees to Gray. The court granted
                                                             10,000 if she left her employment. [*3] Nexstar learned
KTBS's motion for judgment notwithstanding the verdict
                                                                                                                    Page 2
                                2008 Tex. App. LEXIS 4736, *; 27 I.E.R. Cas. (BNA) 1872


that KTBS was interested in hiring Gray and sent KTBS a         ing royalties under deed). The counterclaim must seek
letter stating that Gray was still under contract.              affirmative relief and allege that the defendant has a cause
                                                                of action, independent of the plaintiff's claim, on which
    Gray stopped appearing as an on-air performer for
                                                                the defendant could recover benefits, compensation, or
Nexstar in March 2005. Within two weeks of Gray's de-
                                                                relief. Millard, 800 S.W.2d at 841; HECI Exploration Co.
parture, she began working for KTBS.
                                                                v. Clajon Gas Co., 843 S.W.2d 622, 638-39 (Tex.
   THE DECLARATORY JUDGMENT AND AT-                             App.--Austin 1992, writ denied). A counterclaim that
TORNEY'S FEES                                                   presents no new controversy may not be asserted simply
                                                                to recover attorney's fees. Hitchcock Props. Inc. v. Lev-
     Nexstar's lawsuit against Gray sought "liquidated          ering, 776 S.W.2d 236, 239 (Tex. App.--Houston [1st
damages from Gray and/or all actual and consequential           Dist.] 1989, writ denied).
damages proximately caused by her breach of contract."
Gray filed a counterclaim seeking a declaratory judgment             Gray sought a declaration that the remedies provision
that the liquidated damages provision in the contract was       in the contract was an unenforceable penalty and void as a
an unenforceable penalty as a matter of law.                    matter of law. This requested declaration is essentially a
                                                                restatement of the "penalty" affirmative defense asserted
     The trial court found that the liquidated damages          in Gray's answer. See Phillips v. Phillips, 820 S.W.2d 785,
provision in the employment contract was an unenforce-          789 (Tex. 1991) (noting that "penalty" is an affirmative
able penalty. The jury awarded Nexstar $ 1.00 in nominal
                                                                [*6] defense to an award of damages under a liquidated
damages from Gray for the breach of contract. Nexstar
                                                                damages provision). She sought no greater relief in her
and Gray stipulated to the amount of reasonable attorney's
                                                                counterclaim than she asserted in her affirmative defense;
fees, but not to entitlement to attorney's fees. The trial
                                                                Gray denied Nexstar's entitlement to liquidated damages.
court awarded Gray attorney's fees.                             See Millard, 800 S.W.2d at 842. Gray and Nexstar have no
     In issue one, Nexstar argues the trial court erred in      ongoing relationship. See HECI Exploration Co., 843
granting the declaratory judgment, because Gray had             S.W.2d at 639. Gray's declaratory judgment counterclaim
simply re-asserted an affirmative defense as a request for      presented no new controversy. Under the circumstances,
declaratory judgment. In issue six, Nexstar contends            the award of attorney's fees to Gray under the Declaratory
[*4] the trial court erred in awarding Gray attorney's fees     Judgments Act was unauthorized. See Hitchcock Props.,
because Gray asserted the declaratory judgment counter-         776 S.W.2d at 239. We sustain issues one and six. 1
claim merely to recover attorney's fees that were other-
wise not recoverable.                                                  1 In issue seven, Nexstar also argues the trial
                                                                       court abused its discretion in awarding attorney's
     The purpose of the Declaratory Judgments Act is to                fees. We need not address this issue because of our
"settle and to afford relief from uncertainty and insecurity           resolution of issues one and six.
with respect to rights, status, and other legal relations[.]"
TEX. CIV. PRAC. & REM. CODE ANN. § 37.002(b)                        LIQUIDATED DAMAGES
(Vernon 1997). A declaratory judgment is appropriate
                                                                     In issue two, Nexstar argues the trial court erred in
only if there is a justiciable controversy and the declara-
                                                                failing to award liquidated damages because Nexstar
tion sought will resolve the controversy. Bonham State
                                                                prevailed on the breach of contract claim, and the contract
Bank v. Beadle, 907 S.W.2d 465, 467 (Tex. 1995). The Act
                                                                provision was enforceable as a matter of law. Nexstar
is not available to settle disputes already pending before      argues that liquidated damages are appropriate because
the court. BHP Petroleum Co. v. Millard, 800 S.W.2d 838,        damages were difficult or incapable of estimation at the
841 (Tex. 1990).
                                                                time the contract was signed, and $ 10,000 was a rea-
     A trial court may allow a counterclaim seeking a de-       sonable [*7] forecast of just compensation.
claratory judgment if it is more than a mere denial of the
                                                                     "Whether a contractual provision is an enforceable
plaintiff's cause of action and has greater ramifications       liquidated damages provision or an unenforceable penalty
than the original lawsuit. See id. at 842. Generally, a         is a question of law[.]" Phillips, 820 S.W.2d at 788. A
counterclaim will have greater ramifications than the
                                                                liquidated damages provision may be enforceable if the
original claim if it would have the effect of settling future
                                                                harm caused by the breach is difficult to estimate and the
disputes between the parties. See, e.g., id. (allowing de-
                                                                amount of liquidated damages is a reasonable forecast of
claratory judgment counterclaim that defined [*5] the
                                                                just compensation. Id. Evidence that the harm caused is
parties' obligations under an ongoing contract for the          difficult to estimate, and that the amount of liquidated
foreseeable future); Winslow v. Acker, 781 S.W.2d 322,          damages is a reasonable forecast, must be viewed as of the
328 (Tex. App.--San Antonio 1989, writ denied) (holding
                                                                time the parties executed the contract. Baker v. Int'l Rec-
trial court did not err in allowing declaratory judgment
counterclaim that would settle all future disputes regard-
                                                                                                                    Page 3
                               2008 Tex. App. LEXIS 4736, *; 27 I.E.R. Cas. (BNA) 1872


ord Syndicate, Inc., 812 S.W.2d 53, 55 (Tex. App.--Dallas     established as a matter of law, an appellate court must
1991, no writ).                                               render judgment for that proposition. Id.
     Generally, a contractual provision that does not ex-          In a factual sufficiency review, the appellate court
clude further liability for actual damages is not a reason-   considers and weighs all of the evidence and will set aside
able forecast of just compensation and is an unenforceable    a verdict only if the evidence is so weak or if the finding is
penalty. Robert G. Beneke & Co., v. Cole, 550 S.W.2d          so against the great weight and preponderance of the
321, 322 (Tex. Civ. App.--Dallas 1977, no writ). The          evidence that it is clearly wrong [*10] and unjust. Id.
provision must make clear that the amount of liquidated
                                                                   Nexstar points out the jury instructions on damages
damages will be in lieu of other damages. Birdwell v.
                                                              for interference with the contract and breach of the con-
Ferrell, 746 S.W.2d 338, 340 (Tex. App.--Austin 1988, no
                                                              tract were the same: "out of pocket" damages. The jury
writ).
                                                              found $ 2,000 in "out of pocket" damages resulted from
     The provision in this case provided for $ 10,000 as      the interference with contract, but $ 1 in damages resulted
liquidated damages, but also stated [*8] that "[i]n the       from the breach of contract. Nexstar argued in a
event the Company determines that the liquidated dam-         post-judgment pleading that it was entitled to contract
ages amount described above is insufficient to cover all of   damages, at the least, in "the same $ 2,000 awarded
its damages, the Company may seek to obtain additional        against Defendant KTBS." In its claim against Gray,
compensatory and consequential damages by pursuing an         Nexstar argues on appeal "it is clear that the jury im-
action under paragraph 7(a) herein." This provision does      properly failed to consider the undisputed evidence re-
not limit Nexstar's recovery to liquidated damages or         garding Nexstar being 'out of pocket' $ 2,000 for the
make clear that liquidated damages will be recovered in       speech pathologist/talent coach because it found Nexstar
lieu of actual damages; under the provision, Nexstar could    was 'out of pocket' this amount in its answer to the dam-
claim the "liquidated" damages and then claim any addi-       ages question against KTBS." 2
tional damages by taking the dispute to an arbitrator under
paragraph 7(a). The trial court did not err in failing to             2 We address the arguments made and issues
award $ 10,000 as "liquidated" damages. Issue two is                  raised despite Nexstar's failure to object to the
overruled.                                                            asserted conflict before the jury was discharged.
                                                                      See generally C. & R. Transport, Inc. v. Campbell,
    ACTUAL DAMAGES
                                                                      406 S.W.2d 191, 195-96 (Tex. 1966); Little Rock
     In issue three, Nexstar asserts the evidence conclu-             Furniture Mfg. Co. v. Dunn, 148 Tex. 197, 222
sively established that Nexstar suffered damages in excess            S.W.2d 985 (1949). But see Columbia Med. Ctr. of
of the $ 1 awarded by the jury. Nexstar argues it provided            Las Colinas v. Bush, 122 S.W.3d 835, 861 (Tex.
undisputed evidence that it incurred $ 14,615.49 in actual            App.--Fort Worth 2003, pet. denied); [*11]
damages; we understand Nexstar to argue in issue three                Coastal Chem, Inc. v. Brown, 35 S.W.3d 90, 99
that it proved $ 14,615.49 in damages as a matter of law.             (Tex. App.--Houston [14th Dist.] 2000, pet. de-
In the alternative, Nexstar argues in issue four that the             nied).
jury's finding of $ 1 in actual damages is against the
                                                                  Nexstar also contends it paid $ 7,000 to promote a
overwhelming weight of the evidence.
                                                              new morning show format that featured Gray as a mete-
    In [*9] issue eight, Nexstar argues the trial court       orologist. The news director testified regarding this ex-
erred in disregarding the jury's finding on damages           pense as follows:
against KTBS for tortious interference with the contract.
A judgment notwithstanding the verdict is proper when no                [Plaintiff's Counsel]: And how much
evidence supports the jury's finding. Mancorp, Inc. v.                was that total cost?
Culpepper, 802 S.W.2d 226, 227 (Tex. 1990). Nexstar
                                                                           [News Director]: I need to look. I'm
contends the evidence supported a finding of at least $
                                                                      not positive off the top of my head.
2,000 in damages, the amount found by the jury. KTBS
argues by cross-point that the $ 2,000 finding is unsup-                  [Q]: Well, just give me your best es-
ported by the evidence.                                               timate.
     A party attacking the legal sufficiency of evidence                  [A]: I believe it ran about $ 7,000.
concerning an adverse finding on an issue on which it has
                                                                          [Q]: Okay.
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
                                                                                                                 Page 4
                               2008 Tex. App. LEXIS 4736, *; 27 I.E.R. Cas. (BNA) 1872


Nexstar did not show that it promoted the morning show        and $ 607.81 for a plane ticket. Nexstar also paid $ 810 to
format only because of Gray. At the time of trial, Nexstar    a freelance reporter who covered some of Gray's reporting
still aired the morning show with the same format.            duties. KTBS argues Nexstar would have been required to
                                                              replace Gray at the end of her contract in any event and
    Nexstar also argues that it is entitled to the $ 146.31
                                                              would have incurred the costs even without the alleged
in makeup expenses it paid to Gray. The employment
                                                              interference.
contract states that Gray would be reimbursed for makeup
expenses for up to $ 50 per month. Nexstar presented two          THE JURY'S FINDINGS
checks spent in makeup reimbursements: $ 73.61 paid in
                                                                   The findings by the jury, that [*14] Nexstar suffered
November 2004; and $ 73.70 paid on April 20, 2004.
                                                              $ 1 in out of pocket damages as a result of Gray's breach
KBTV's news director testified that Gray used the makeup
                                                              and $ 2,000 in out of pocket damages as a result of
while she worked for Nexstar. Nexstar would have paid
                                                              KTBS's tortious interference, address the same material
these expenses even had Gray fully performed under the
                                                              fact. The measure of damages under the interference with
contract.
                                                              contract claim is the same as that under the breach of
     Nexstar asserts that it reimbursed Gray $ [*12]          contract claim in this case. See Am. Nat'l Petroleum Co. &
3,110.07 for her meteorology school tuition. Gray             Oil Invs., Ltd. v. Transcon. Gas Pipe Line Corp., 798
acknowledged that Nexstar paid for her to attend mete-        S.W.2d 274, 278 (Tex. 1990).
orology school. KBTV's news director testified that
                                                                   The trial judge found no evidence to support the $
Nexstar did not normally pay for meteorology school but
                                                              2,000 damage finding and signed a judgment notwith-
agreed to pay Gray's tuition because she had "great po-
                                                              standing the verdict. There is legally sufficient evidence
tential." The trial court admitted into evidence the checks
                                                              in this record of some damages, however. Though this
issued by Nexstar for Gray's tuition: $ 1,431.50 paid on
                                                              record may not support an award of all of the costs of
January 16, 2004; $ 1,194.07 paid on June 1, 2004; and $
                                                              finding a replacement, the jury could reasonably conclude
484.50 paid on July 28, 2004. The last two tuition checks,
                                                              some of the costs incurred in covering Gray's job duties,
for $ 1,194.07 and $ 484.50, were paid during the term of
                                                              hiring a freelance reporter, and finding a replacement on
employment under the March 2004 contract. However,
                                                              short notice could have been avoided if KTBS had not
Nexstar was not required to reimburse Gray for her me-
                                                              interfered with the contract. See Guevara v. Ferrer, 247
teorology school tuition expenses under the March 2004
                                                              S.W.3d 662, 670 (Tex. 2007) ("[W]hen there is evidence
contract.
                                                              to support some damages it is not appropriate to render
     Nexstar argues that it paid $ 2,000 to a speech          judgment."). But the jury made conflicting jury findings
pathologist, or talent coach, who provided Gray with          on conflicting evidence concerning the same [*15] ma-
voice training. The talent coach trained all of the on-air    terial fact. The jury also found the same evidence did not
performers. KBTV's news director would set a day plan-        support more than $ 1 in damages for the breach of con-
ner for the coach and would allocate how much time each       tract. On this record, a coherent judgment cannot be ren-
individual would spend with the coach. The time an in-        dered. A new trial is required. 3
dividual would spend with the coach varied according to
how long the individual worked with the station and how              3 In issue five, Nexstar argues the trial court
much potential they had. KBTV's general manager [*13]                erred in denying its request for attorney's fees
testified that when Gray first started working with the              because it prevailed on its breach of contract claim
station, the coach spent more time with Gray to improve              against Gray. Because we reverse and remand the
her voice. However, Nexstar did not present evidence                 cause for a new trial, we do not reach this issue.
showing how much time Gray spent with the coach, nor
                                                                  CONCLUSION
did it segregate Gray's time with the coach from the time
the other on-air performers trained with the coach. The           The trial court's judgment is reversed. The cause is
record does not show whether the training occurred when       remanded for a new trial.
Gray was first hired under the original contract, or during
                                                                  REVERSED AND REMANDED.
the term of the second contract.
                                                                  DAVID GAULTNEY
     Finally, Nexstar also contends it incurred costs in
hiring Gray's replacement and paid for an on-air per-             Justice
former to fill in for Gray. While Nexstar sought candi-
dates to replace Gray, Gray's meteorology duties were             Submitted on March 13, 2008
covered by the station's chief and weekend meteorolo-             Opinion Delivered June 26, 2008
gists. Nexstar paid Gray's meteorology replacement $
191.30 in traveling expenses, $ 750 in moving expenses,
                                                                                                               Page 1
                                   971 S.W.2d 439, *; 1998 Tex. LEXIS 104, **;
                                              41 Tex. Sup. J. 1001




               PATTI PATTERSON, M.D., INTERIM COMMISSIONER OF HEALTH, IN HER
               OFFICIAL CAPACITY, WILLIAM REYN ARCHER, RECENTLY APPOINTED
                 COMMISSIONER OF HEALTH, IN HIS OFFICIAL CAPACITY, AND THE
                    TEXAS DEPARTMENT OF HEALTH, APPELLANTS v. PLANNED
                PARENTHOOD OF HOUSTON AND SOUTHEAST TEXAS, INC., APPELLEE

                                                    No. 97-0889

                                         SUPREME COURT OF TEXAS

                            971 S.W.2d 439; 1998 Tex. LEXIS 104; 41 Tex. Sup. J. 1001

                                             February 4, 1998, Argued
                                             June 23, 1998, Delivered

PRIOR HISTORY:     [**1] ON DIRECT APPEAL
                                                                  [*439] On direct appeal, the Texas Commissioner
FROM THE 250TH JUDICIAL DISTRICT COURT OF
                                                           of Health asks us to reverse the judgment of [*440] the
TRAVIS COUNTY, TEXAS.
                                                           trial court declaring rider 14 to the 1997-1999 Department
                                                           of Health family planning appropriation to be unconsti-
DISPOSITION:          Vacated trial court's judgment and
                                                           tutional. The rider forbids the use of state funds to dis-
dismissed this case for want of jurisdiction.
                                                           pense prescription drugs to minors without parental con-
                                                           sent. Planned Parenthood challenged rider 14 on the
                                                           grounds that it conflicts with federal law and violates the
COUNSEL: FOR APPELLANTS: Castro, Mr. Daniel
                                                           unity-in-subject clause of the Texas Constitution. Because
R., Watt & Associates, Austin, TX. Wilburn, Ms. Debra
                                                           we determine that the challenge to rider 14 is not ripe, we
L., Office of Attorney General of Texas, Dan Morales,
                                                           vacate the trial court's judgment and dismiss this case for
A.G., Austin, TX. Watts, MR. Edward P., Watt & Asso-
                                                           want of jurisdiction.
ciates, Austin, TX.
                                                                 The State of Texas voluntarily participates in [**2]
FOR APPELLEE: Dickie, Ms. Martha S., Minton Burton         four federal programs that provide funds for family plan-
Foster & Collins, Austin, TX. Duggins, Mr. David C.,       ning services: (1) Title X of the Public Health Service Act,
Burton, Mr. Charles R., Clark Thomas & Winters, Austin,    42 U.S.C. § 300, which provides project grants to public
TX.                                                        and private agencies for family planning services; (2)
                                                           Temporary Assistance to Needy Families, 42 U.S.C. §
McCown, Judge, The Honorable F, Austin, TX.                701 (TANF, also known as the Welfare Reform Act),
                                                           which provides grants to the states to assist needy fami-
JUDGES: JUSTICE HANKINSON delivered the opin-              lies; (3) Title XIX of the Social Security Act, 42 U.S.C. §
ion of the Court, in which CHIEF JUSTICE PHILLIPS,         1396 (Medicaid), which provides medical care to the
JUSTICE HECHT, JUSTICE ENOCH, JUSTICE                      needy through a cooperative federal-state program; and
SPECTOR, JUSTICE OWEN, and JUSTICE BAKER                   (4) Title XX of the Social Security Act, 42 U.S.C. § 1397,
joined. JUSTICE GONZALEZ filed a concurring opin-          which provides block grants to the states for social ser-
ion, in which JUSTICE ABBOTT joined. JUSTICE               vices, including family planning. The funds from these
GONZALEZ, joined by JUSTICE ABBOTT, concurring             four programs compose the state's family planning ap-
in the judgment.                                           propriation, identified in the General Appropriations Act
                                                           as Department of Health Strategy D.1.2. See General
OPINION BY: DEBORAH G. HANKINSON                           Appropriations Act, 75th Leg., R.S., ch. 1452, 1997 Tex.
                                                           Gen. Laws 5535, 5663. The federal government is the sole
OPINION                                                    source of funds for all the programs except Medicaid. As a
                                                           voluntary participant in the Medicaid program, the state
                                                                                                                     Page 2
                                      971 S.W.2d 439, *; 1998 Tex. LEXIS 104, **;
                                                 41 Tex. Sup. J. 1001

agrees to match every nine dollars of federal funds with       regulations. Because the Title X Family Planning Pro-
one dollar of state [**3] funds. See 42 U.S.C. §               gram operates under total budgeting principles, if this
1396b(a)(5). In 1997 the legislature appropriated ap-          Rider is fully implemented, the Texas Department of
proximately $ 93 million for family planning services for      Health would be ineligible to receive Title X funding."
each year of the coming biennium, with approximately $         The concept of "total budgeting principles" means that if a
5.4 million per year representing the state's required         family planning program receives any money through
matching funds for Medicaid. In 1997 the legislature also      Title X, Title X regulations apply to all of the funds in that
attached rider 14 to the family planning appropriation,        program, "including but not limited to grant funds,
declaring that "no state funds may be used to dispense         grant-related income or matching funds." 42 C.F.R. 59.2
prescription drugs to minors without parental consent."        (1997).
General Appropriations Act, 75th Leg., R.S., ch. 1452,
                                                                    In light of this express suggestion that Texas might
1997 Tex. Gen. Laws 5535, 5675.
                                                               lose its federal family planning funds, Planned
     As part of its family planning services, plaintiff        Parenthood filed this action against the Department and
Planned Parenthood of Houston and Southeast Texas,             its commissioner seeking a declaration that rider 14 is
Inc., provides prescription medication, including contra-      unconstitutional. It alleged that the rider violates the Su-
ceptives and drugs for treating sexually transmitted dis-      premacy Clause, Article [**6] 6, Clause 2, of the United
eases, to minors without requiring parental consent.           States Constitution by imposing a parental consent re-
Planned Parenthood contracts with the state to receive         quirement in conflict with federal law, and violates the
funds for these services under Title X, Title XX, and          unity-in-subject clause, article III, section 35, of the Texas
TANF. Planned Parenthood is also an enrolled Medicaid          Constitution by amending or repealing certain provisions
provider, and is reimbursed on a fee-for-service basis by      of the general law in an appropriations act.
the Department of Health (through an insurance program)
                                                                     At trial before the court, the parties stipulated to a
for the family planning services it provides to Medi-
                                                               number of facts, including that "effective September 1,
caid-eligible individuals. The federal regulations [**4]
                                                               1997, Planned Parenthood will no longer be eligible to
governing these programs have been interpreted to pro-
                                                               receive Medicaid funds for providing prescription medi-
scribe the imposition of a parental notification or consent
                                                               cation to minors without consent." Planned Parenthood
requirement. See New York v. Heckler, 719 F.2d 1191,
                                                               called as its sole witness Carol Pavlica, the director of the
1196 (2d Cir. 1983) (invalidating federal regulation re-
                                                               family planning program for the Department of Health.
quiring parental notification of prescription contracep-
                                                               She explained that although the Department had not yet
tives as unauthorized by Title X); Planned Parenthood
                                                               made any final or official decisions, it was considering
Ass'n v. Schweiker, 226 U.S. App. D.C. 139, 700 F.2d 710,
                                                               two plans in its efforts to implement rider 14. Under the
722 (D.C. Cir. 1983) (explaining that federal regulations
                                                               first plan (identified by the parties as "Plan A"), the state
forbid state from denying Title X services to minors who
                                                               would simply require all minors receiving prescription
lack parental consent); T H v. Jones, 425 F. Supp.
                                                               drugs from family planning programs to have parental
873, 878 (D. Utah 1975), aff'd in part, 425 U.S. 986, 96 S.
                                                               consent. She acknowledged that in her opinion this plan
Ct. 2195, 48 L. Ed. 2d 811 (1976) (invalidating state pa-
                                                               would jeopardize all federal family planning funds.
rental consent requirement for family planning services as
conflicting with federal welfare and Medicaid require-              To avoid potentially jeopardizing federal family
ments).                                                        planning [**7] funds, the Department was considering a
                                                               second plan ("Plan B"). Under Plan B, the state would
     Concerned about what it perceived to be a conflict
                                                               continue to pay for prescriptions to minors without pa-
between the federal program rules' forbidding a parental
                                                               rental consent, but would pay for those prescriptions with
consent requirement and rider 14's explicit parental con-
                                                               federal funds other than Medicaid funds (Medicaid being
sent requirement, Planned Parenthood asked defendant
                                                               the only program with a matching state component), in-
Texas Department of Health about the Commissioner of
                                                               cluding prescriptions for Medicaid-eligible minors. Thus
Health's opinion on the effect of rider 14 on family plan-
                                                               under this plan, in Pavlica's opinion, the state could
ning funds. The Department of Health and its commis-
                                                               comply with the legislature's dictate that no state funds be
sioner are charged with administering [**5] and dis-
                                                               used to dispense prescription drugs to minors lacking
tributing funds the legislature appropriates for family
                                                               parental consent, without violating the federal rules that
planning services. The Commissioner in turn requested an
                                                               receipt of family planning services cannot be conditioned
opinion from the United States Department of Health and
                                                               on parental consent, or jeopardizing other federal family
Human Services (DHHS). A regional health administrator
                                                               planning funds. She made clear that under Plan B, neither
for DHHS replied by letter that, in his view, rider 14 "is,
                                                               Planned Parenthood nor its minor clients (including those
on its face, inconsistent with the applicable Title X family
                                                               eligible for Medicaid) would suffer any change in re-
[*441] planning legislative authority and implementing
                                                               quirements, services, or funding; in other words, the state
                                                                                                                    Page 3
                                       971 S.W.2d 439, *; 1998 Tex. LEXIS 104, **;
                                                  41 Tex. Sup. J. 1001

does and will continue to pay for prescriptions for minors       with federal law, and that even the Department's proposed
even if they lack parental consent, but from federal funds       plan to use federal funds without a state matching com-
without a state matching fund component. She also testi-         ponent did not resolve that conflict. Based on the letter
fied she believed the state would not be jeopardizing its        from DHHS, the court concluded that "this threatened
federal funds by implementing [**8] Plan B because the           cut-off of federal funds -- which directly threatens
state would not in fact be imposing a parental consent           Planned Parenthood -- is sufficient to give Planned
requirement.                                                     Parenthood standing to force compliance with the law."
                                                                 The court also premised standing on its finding that the
     The trial court declared rider 14 unconstitutional on
                                                                 administrative costs of implementing Plan B would be
the bases that (1) it conflicts with the federal laws gov-
                                                                 paid for with funds that would otherwise be available to
erning the four federal programs in the family planning
                                                                 Planned Parenthood to assist needy individuals.
appropriation, and (2) it violates article III, section 35, of
the Texas Constitution by attempting to repeal or amend               While the trial court framed this issue as one of
certain provisions of Chapter 32 of the Texas Human              standing, we view it more precisely as one of ripeness.
Resources Code. The court rendered judgment enjoining            Ripeness, like standing, is a threshold issue that impli-
the Commissioner from implementing rider 14. It also             cates subject matter jurisdiction, Mayhew v. Town of
issued detailed findings of fact and conclusions of law.         Sunnyvale, 905 S.W.2d 234, 244 (Tex. 1998), and like
                                                                 standing, emphasizes the need for a concrete injury [**11]
     Under federal law, the trial court concluded that the
                                                                 for a justiciable claim to be presented. See DAVIS &
rules governing the federal family planning programs in
                                                                 PIERCE, II ADMINISTRATIVE LAW TREATISE, §
which the state participates forbid imposition of parental
                                                                 15.12, at 361 (3d ed. 1994) ("In many cases the two
consent requirements, and preempt any state law to the
                                                                 problems of standing and ripeness are merged; a party
contrary that would affect programs drawing on those
                                                                 may lack standing because what has happened to him is
federal funds. Although the trial court termed it "an ad-
                                                                 not far enough developed, but the lack of development
mirable effort" to comply with both federal law and rider
                                                                 may be the essence of unripeness."). But if standing fo-
14, the court concluded that the Department's proposed
                                                                 cuses on the question of who may bring an action, see
plan to track prescriptions and payments (Plan B) and use
                                                                 Barshop v. Medina County Underground Water Conser-
federal funds without a state matching component to
                                                                 vation Dist., 925 S.W.2d 618, 626-627 (Tex. 1996), ripe-
[*442] pay for prescriptions without parental consent
                                                                 ness examines when that action may be brought. At the
would [**9] not avoid the conflict with federal law:
                                                                 time a lawsuit is filed, ripeness asks whether the facts
"While a state can restrict the use of state money appro-
                                                                 have developed sufficiently so that an injury has occurred
priated solely for state purposes, a state cannot restrict the
                                                                 or is likely to occur, rather than being contingent or re-
use of state money appropriated to match federal money.
                                                                 mote. See Nichol, Ripeness and the Constitution, 54 U.
Under federal law, matching money must come without
                                                                 CHI. L. REV. 153, 169 (1987); 13A WRIGHT ET AL.,
restrictions or it is not matching money."
                                                                 FEDERAL PRACTICE AND PROCEDURE, § 3532.1,
     Under Texas law, the trial court rejected Planned           at 130 (2d ed. 1984). Ripeness thus focuses on whether
Parenthood's assertion that the rider amended or repealed        the case involves "uncertain or contingent future events
Chapter 32 of the Family Code (permitting consent by a           that may not occur as anticipated, or indeed may not occur
nonparent to treatment of a minor under certain circum-          at all." WRIGHT, supra, § 3532, at 112. By maintaining
stances), but ruled that it did amend or repeal certain          this focus, the ripeness doctrine serves to avoid premature
provisions of Chapter 32 of the Human Resources Code             [**12] adjudication. While the standing doctrine has
(governing the state's medical assistance program for            been much criticized, ripeness, especially in its pragmatic
needy individuals). It determined that section 32.024(a) of      focus, has found the approval of commentators. See, e.g.,
the Human Resources Code requires the Department of              Mansfield, Standing and Ripeness Revisited: The Su-
Health to provide medical services to the needy in ac-           preme Court's "Hypothetical" Barriers, 68 N.D. L. REV.
cordance with federal law, and section 32.031(b) author-         1, 19-20 (1992); WRIGHT, supra, § 3532, at 112 ("As
izes the Department to spend state funds to do so. Thus the      compared to standing, ripeness decisions have developed
trial court concluded that the rider unconstitutionally          a generally satisfactory method for resolving the problems
amended general law by bringing the state out of com-            of prematurity.").
pliance with the federal rules governing family planning
                                                                      The constitutional roots of justiciability doctrines
funds: "Texas has chosen in its own general law to spend
                                                                 such as ripeness, as well as standing and mootness, lie in
its funds [**10] consistent with federal law, and a rider
                                                                 the prohibition on advisory opinions, which in turn stems
cannot amend or repeal that general law." The trial court
                                                                 from the separation of powers doctrine. See TEX. CONST.
also concluded that Planned Parenthood had standing to
                                                                 art. II, § 1 (separation of powers), art. IV, §§ 1, 22 (at-
bring its claims because it receives part of the funds that
                                                                 torney general is part of the executive department, and is
the state is placing at risk by enforcing a rider in conflict
                                                                                                                    Page 4
                                       971 S.W.2d 439, *; 1998 Tex. LEXIS 104, **;
                                                  41 Tex. Sup. J. 1001

empowered to issue advisory opinions to the governor            supra, § 3532.3, at 147 ("adjudication may be postponed
[*443] and other officials), art. V, § 8 (district court        until a better factual record is available, 'even though the
jurisdiction); Texas Ass'n of Bus. v. Texas Air Control Bd.,    challenged statute is sure to work the injury alleged.'")
852 S.W.2d 440, 444 (Tex. 1993) (explaining that "we            (quoting Babbitt v. United Farm Workers Nat'l Union,
have construed our separation of powers article to prohibit     442 U.S. 289, 300, 60 L. Ed. 2d 895, 99 S. Ct. 2301
courts from issuing advisory opinions because such is the       (1979)). Moreover, avoiding premature litigation prevents
function of the executive rather than the judicial [**13]       courts from "entangling themselves in abstract disagree-
department"); Morrow v. Corbin, 122 Tex. 553, 62 S.W.2d         ments over administrative policies" while at the same time
641, 646 (Tex. 1933) (explaining that under the constitu-       serving to "protect the agencies from judicial interference
tion, appellate court jurisdiction does not extend to issuing   until an administrative decision has been formalized and
advisory opinions); see also Farmers Tex. County Mut.           its effects felt in a concrete way by the challenging par-
Ins. Co. v. Griffin, 955 S.W.2d 81, 84 (Tex. 1997) (re-         ties." City of El Paso v. Madero Dev. & Constr. Co., 803
viewing justiciability principles in light of 1985 constitu-    S.W.2d 396, 398-99 (Tex. App. -- El Paso 1991, writ
tional amendment to district court jurisdiction).               denied) (citing Abbott Lab. v. Gardner, 387 U.S. 136, 18
                                                                L. Ed. 2d 681, 87 S. Ct. 1507 (1967)); see also DAVIS &
     The courts of this state are not empowered to give
                                                                PIERCE, supra, § 15.12, at 360 (explaining that ripeness
advisory opinions. Wessely Energy Corp. v. Jennings,
                                                                law "limits the ability [**16] of courts to intrude exces-
736 S.W.2d 624, 628 (Tex. 1987); United Servs. Life Ins.
                                                                sively on the policymaking domains of the politically
Co. v. Delaney, 396 S.W.2d 855, 859 (Tex. 1965); Alamo
                                                                accountable [branches of government]"); Nichol, supra,
Express v. Union City Transfer, 158 Tex. 234, 309 S.W.2d
                                                                at 178 (similarly noting that ripeness doctrine "allows the
815, 827 (Tex. 1958). This prohibition extends to cases
                                                                courts to postpone interfering when necessary so that
that are not yet ripe. See Camarena v. Texas Employment
                                                                other branches of government . . . may perform their
Comm'n, 754 S.W.2d 149, 151 (Tex. 1988); Public Util.
                                                                functions unimpeded").
Comm'n v. Houston Lighting & Power Co., 748 S.W.2d
439, 442 (Tex. 1987); City of Garland v. Louton, 691                 We examine the ripeness of Planned Parenthood's
S.W.2d 603, 605 (Tex. 1985); California Prod., Inc. v.          claims in light of these principles. Planned Parenthood
Puretex Lemon Juice, 160 Tex. 586, 334 S.W.2d 780, 783          argues that any implementation of rider 14 will result in it
(Tex. 1960). A case is not ripe when its resolution depends     losing federal funds, at the very least those provided
on contingent or hypothetical facts, or upon events that        through Title X. Thus Planned Parenthood urges that it is
have [**14] not yet come to pass. See Camarena, 754             in immediate danger [*444] of sustaining some direct
S.W.2d at 151 (holding trial court could not grant relief       injury because of the Department's planned implementa-
based on "a hypothetical situation which might or might         tion of rider 14. Planned Parenthood further argues that it
not arise at a later date. District courts, under our Con-      is unclear whether the Department can legitimately sep-
stitution, do not give advice or decide cases upon specu-       arate federal and state funds, and that even if the De-
lative, hypothetical or contingent situations").                partment can lawfully implement such a plan, Planned
                                                                Parenthood is harmed by the administrative costs of im-
     The concerns addressed by the ripeness doctrine
                                                                plementation.
encompass more than a question of constitutional prohi-
bition. The doctrine has a pragmatic, prudential aspect              The record does not support Planned Parenthood's
that is directed toward "[conserving] judicial time and         assertions. Pavlica, the sole witness, explained that the
resources for real and current controversies, rather than       Department had not finalized its plans, but was leaning to
abstract, hypothetical, or remote disputes." Mayhew, 964        Plan B, and had only just begun investigating [**17]
S.W.2d 922, 928; see also Nichol, supra, at 174 ("ripeness      what automation demands Plan B might require. She
analysis carries the banner of prudence rather than pow-        emphasized that Planned Parenthood and its clients would
er"). Refraining from issuing advisory opinions and             experience no change in actual services provided or paid
waiting for cases' timely factual development is also es-       for under Plan B, but that only the funding source for
sential to the proper development of the state's jurispru-      some of the prescriptions would change. She testified that
dence. See Entman, Flawed Activism: The Tennessee               the Department would not in fact require parental consent
Supreme Court's Advisory Opinions on Joint Tort Liabil-         before paying for prescriptions to minors under Plan B:
ity and Summary Judgment, 24 MEM. ST. U.L. REV. 193,            "We would not change the parental consent requirements
199 (1994); Frankfurter, A Note on Advisory Opinions, 37        so minors would continue to be served." The letter from
HARV. L. REV. 1002, [**15] 1002-03 (1924). "Liti-               DHHS does not specifically address Plan B, but refers to
gation based upon hypothetical possibility rather than          rider 14 "on its face," states that Texas may be ineligible
concrete fact is apt to be poor litigation. The demand for      to receive Title X funds "if [rider 14] is fully imple-
specificity, therefore, stems from a judicial desire for        mented," and clearly assumes that parental consent will be
better lawmaking." Nichol, supra, at 177; WRIGHT,               required before any drugs are prescribed. (Emphasis
                                                                                                                       Page 5
                                       971 S.W.2d 439, *; 1998 Tex. LEXIS 104, **;
                                                  41 Tex. Sup. J. 1001

added.) Nothing in the record demonstrates that the fed-         standing to challenge rider 14, even assuming the case is
eral government has actually considered Plan B, much             ripe. I would dismiss the case because Planned
less suggested revoking or withdrawing funding based on          Parenthood lacks standing either in its own right or on
it. Likewise, no evidence supports the trial court's con-        behalf of the minors of the State [**20] of Texas.
clusion that the administrative costs of implementing Plan
                                                                       [*445] In Texas, "[a] two-part test governs whether
B would come from family planning program funds that
                                                                 a plaintiff has standing to challenge a statute." Barshop v.
would otherwise have gone to Planned Parenthood, or
                                                                 Medina Underground Water Conservation Dist., 925
even the actual amount [**18] of what those adminis-
                                                                 S.W.2d 618, 626 (Tex. 1996). First, the "plaintiff must . . .
trative costs would be. Pavlica testified that although she
                                                                 suffer some actual or threatened restriction under that
was "not exactly sure" what the administrative costs might
                                                                 statute." Texas Workers' Compensation Comm'n v. Gar-
be, based on her experience, she "would guess . . . [that] it
                                                                 cia, 893 S.W.2d 504, 518 (Tex. 1995). "Second, the
would be several hundreds of thousands of dollars" to
                                                                 plaintiff must contend that the statute unconstitutionally
segregate the funds. She did not suggest or even speculate
                                                                 restricts the plaintiff's rights, not somebody else's." Id.
about where the administrative funds would come from.
This testimony is not specific enough to support the con-              Planned Parenthood maintains that rider 14 "uncon-
clusion that harm to Planned Parenthood is imminent.             stitutionally restricts its own rights" in two ways. First, if
                                                                 the United States Department of Health and Human Ser-
     This is precisely the kind of case in which resolution
                                                                 vices (DHHS) determines that Texas Department of
of the claim presented depends on the occurrence of con-
                                                                 Health's implementation of rider 14 will result in a loss of
tingent future events that may not occur as anticipated or
                                                                 federal family planning funds, then Planned Parenthood
may not occur at all. We simply do not know what the
                                                                 "will not be able to subsidize all the costs of providing
federal government will do if the state carries out its plan
                                                                 expensive prescription drugs to minor patients who can-
to segregate the funds, and the record does not even
                                                                 not obtain parental consent." Second, even if the DHHS is
demonstrate what exactly the state will do. Without
                                                                 satisfied that "Plan B" does not violate federal regulations,
knowing what the federal government will do, Planned
                                                                 Planned Parenthood claims it is harmed by the adminis-
Parenthood cannot show a conflict between federal and
                                                                 trative costs expended to implement Plan B. However,
state demands or that the state's proposed action will cause
                                                                 Planned [**21] Parenthood fails to identify the source of
it any injury. While Planned Parenthood does not have to
                                                                 its "right" or "entitlement" to Texas tax revenues or to the
wait until its funds are actually revoked or cut off, its
                                                                 most efficient and cost-effective administration of those
potential injury must be more certain; the threat [**19]
                                                                 tax revenues.
must be established by something more definite than the
DHHS letter presented in this case, which does not ad-                In Texas Association of Business v. Texas Air Control
dress whatever final action the Department of Health may         Board, 852 S.W.2d 440 (Tex. 1993), we held that "the
take to meet its statutory obligations to the legislature and    standing requirement stems from two limitations on sub-
Congress. Because its alleged injury remains contingent,         ject matter jurisdiction: the separation of powers doctrine
Planned Parenthood's claim is not yet ripe for review.           and, in Texas, the open courts provision." Id. at 443
                                                                 (emphasis added). The open courts provision provides:
     The essence of the ripeness doctrine is to avoid
premature adjudication of just such a situation; to hold              All courts shall be open, and every person for an in-
otherwise would be the essence of an advisory opinion,           jury done him, in his lands, goods, person or reputation,
advising what the law would be on a hypothetical set of          shall have remedy by due course of law.
facts. Neither this Court nor the trial court has the power
to do so. Accordingly, we vacate the trial court's judgment      TEX. CONST. art. I, § 13. We held that this provision
and dismiss this case for want of jurisdiction.                  "contemplates access to the courts only for those litigants
                                                                 suffering an injury." 852 S.W.2d at 444 (emphasis added).
    Deborah G. Hankinson
                                                                 This provision, which authorizes the courts to remedy
    Justice                                                      injuries done in one's "lands, goods, person or reputation,"
                                                                 implicitly defines the bounds of potentially justiciable
    OPINION DELIVERED: June 23, 1998
                                                                 issues. Cf. Baptist Mem'l Hosp. Sys. v. Arredondo, 922
                                                                 S.W.2d 120, 121 (Tex. 1996) (recognizing that under the
CONCUR BY: RAUL A. GONZALEZ
                                                                 open courts provision, the legislature may limit a cause of
                                                                 action [**22]      unless it unreasonably restricts "a
CONCUR
                                                                 well-recognized common law cause of action"). For a
     I concur with the Court that the challenge to rider 14      plaintiff to have standing, it must demonstrate that it at
is not ripe. I write separately to address the threshold issue   least arguably has some legal or liberty interest grounded
the Court leaves open -- whether Planned Parenthood has          in the constitution, a statute, or the common law. See
                                                                                                                    Page 6
                                       971 S.W.2d 439, *; 1998 Tex. LEXIS 104, **;
                                                  41 Tex. Sup. J. 1001

Spring Branch I.S.D. v. Stamos, 695 S.W.2d 556, 561                  (a) This chapter shall be liberally construed and ap-
(Tex. 1985) ("A property or liberty interest must find its      plied in relation to applicable federal laws and regulations
origin in some aspect of state law.").                          so that adequate and high quality health care may be made
                                                                available to all children and adults who need the care and
     Planned Parenthood, therefore, must have some ar-
                                                                are not financially able to pay for it.
guable basis for asserting that rider 14 abrogates some
legal or liberty interest of its own. Planned Parenthood has          (b) If a provision of this chapter conflicts with a
not alleged that rider 14 abridges any common law right         provision of the Social Security Act or any other federal
arising under property, tort, or contract law. It has not       act [**25] and renders the state program out of con-
identified any fundamental right to state subsidization, see    formity with federal law to the extent that federal
Board of Regents v. Roth, 408 U.S. 564, 577, 33 L. Ed. 2d       matching money is not available to the state, the con-
548, 92 S. Ct. 2701 (1972) ("To have a property interest in     flicting provision of state law shall be inoperative to the
a benefit, a person clearly must have more than an abstract     extent of the conflict but shall not affect the remainder of
need or desire for it. He must have more than a unilateral      this chapter.
expectation of it. He must, indeed, have a legitimate claim
                                                                    TEX. HUM. RES. CODE § 32.002. This section pro-
of entitlement to it."), or to the most efficient and least
                                                                vides indigent children and adults with a statutory interest
wasteful administration of the state's health care re-
                                                                in maintaining the flow of federal health care funds, but it
sources. Cf. Flast v. Cohen, [**23] 392 U.S. 83, 102,
                                                                does not give Planned Parenthood, a conduit for these
20 L. Ed. 2d 947, 88 S. Ct. 1942 (1968) ("[To establish
                                                                taxpayer-supported services, a similar statutory interest.
Article III standing] it will not be sufficient to allege an
                                                                The statute's purposes are directed to the beneficiaries of
incidental expenditure of tax funds in the administration
                                                                the state and federal funds, not to fund Planned
of an essentially regulatory statute."). Generally, a state's
                                                                Parenthood's budget.
choice of whether to fund a particular program or the
efficiency of its administration is not actionable. Fur-             What the Legislature gives the Legislature can take
thermore, Planned Parenthood does not identify any im-          away. The adults and children deprived of further enti-
plicit right or entitlement owing it under the Texas Con-       tlements may have a remedy if the process by which the
stitution or the Texas Human Resources Code abridged by         Legislature terminates them does not accord with due
rider 14, even if federal funds are cut off.                    process. See, e.g., Goldberg v. Kelly, 397 U.S. 254,
                                                                263-64, 25 L. Ed. 2d 287, 90 S. Ct. 1011 (1970) (holding
     The unity-in-subject clause of the Texas Constitution
                                                                that procedural due process requires that evidentiary
does not, by itself, provide Planned Parenthood any legal
                                                                hearing be held before public assistance payments to
or liberty interest. See TEX. CONST. art. III, § 35. This
                                                                welfare recipients are terminated); Goldsmith v. United
Court has previously invalidated riders as void under
                                                                States Bd. [**26] of Tax Appeals, 270 U.S. 117, 123,
Section 35 of Article III of the Texas Constitution, but only
                                                                70 L. Ed. 494, 46 S. Ct. 215 (1926) (holding that Board's
where the plaintiff asserted an otherwise protected inter-
                                                                refusal to admit petitioner to the practice of law without a
est. [*446] In LeCroy v. Hanlon, 713 S.W.2d 335, 338
                                                                prior hearing or statement of reasons for denial violated
(Tex. 1986), for example, this Court held that sections of
                                                                due process). Planned Parenthood has no standing in its
an omnibus fee bill increasing filing fees violated the
                                                                own right to challenge rider 14's alleged conflict with the
"caption requirement" of Article III, Section 35. However,
                                                                provisions of the Texas Human Resources Code.
the plaintiff's standing to raise this claim was [**24] not
in doubt because he claimed that the filing fees burdened            In its Original and First Amended Original Petition,
his personal, constitutional right to open courts. See id. at   Planned Parenthood argued that it has standing to repre-
337. In Moore v. Sheppard, 144 Tex. 537, 192 S.W.2d             sent the interests of the minors of the State of Texas.
559, 562 (Tex. 1946), this Court held that an amendment         Under Texas law, however, only the parents or guardians
to an appropriation bill directing that fees paid to clerks     of a minor may represent their legal interests. See TEX.
for either official or unofficial documents be deposited        FAM. CODE § 151.003(a)(7). Planned Parenthood is not
with the State Treasury violated the unity-in-subject           the surrogate parent of Texas's minor children. Its status
clause. There, the plaintiffs' standing was also not in         as an advocacy organization for certain rights of minors
question, because they had an arguable property interest        (e.g., access to contraceptives without parental consent)
in the compensation they received "for [services] that they     does not confer it standing. See, e.g., Texas Dep't of
[had] no obligation, under the law, to perform." 192            Mental Health and Mental Retardation v. Petty, 778
S.W.2d at 560.                                                  S.W.2d 156, 163-66 (Tex. App. -- Austin 1989, writ
                                                                dism'd w.o.j.) (holding that Advocacy, Inc., a non-profit
    Planned Parenthood asserts that rider 14 conflicts
                                                                advocacy organization for the rights of the mentally dis-
with the purposes of Section 32 of the Human Resources
                                                                abled, lacked standing to sue on behalf [**27] of the
Code. That section provides, in pertinent part, that:
                                                                rights of the mentally disabled).
                                                                                                                     Page 7
                                      971 S.W.2d 439, *; 1998 Tex. LEXIS 104, **;
                                                 41 Tex. Sup. J. 1001

     The question of Planned Parenthood's standing to          affirmed the ancient and well-established right of parents
represent the minors of the state of Texas obscures the        to guide and direct the decisions of their minor children.
larger issue underlying this case -- parental rights. The      "The natural right which exists between parents and their
purpose of rider 14 was to withhold state funds from a         children is one of constitutional dimensions." Wiley v.
program that, as currently implemented, interferes with        Spratlan, 543 S.W.2d 349, 352 (Tex. 1976). "The child is
parental supervision over the health care and sexual be-       not the mere creature of the state; those who nurture
havior of minor children. Indeed, Planned Parenthood's         [**29] him and direct his destiny have the right, coupled
policy of providing minors prescription drugs without          with the high duty, to recognize and prepare him for ad-
parental consent, for which it seeks this state's subsidies,   ditional obligations." Pierce v. Society of Sisters, 268 U.S.
is inconsistent with Texas law. Section 151.003(a)(6) of       510, 535, 69 L. Ed. 1070, 45 S. Ct. 571 (1925). Only a
the Texas Family Code provides, in pertinent part:             generation ago, this Court recognized the fundamental
                                                               importance of parental rights in reaffirming the doctrine
      [*447] (a) A parent of a child has the following
                                                               of parental immunity:
rights and duties:
                                                                    We trust that it is not out of date for the state and its
    ...
                                                               courts to be concerned with the welfare of the family as
     (6) the right to consent to the child's marriage, en-     the most vital unit in our society. We recognize that peace,
listment in the armed forces of the United States, medical     tranquility and discipline in the home are endowed and
and dental care, and psychiatric, psychological and sur-       inspired by higher authority than statutory enactments and
gical treatment . . . .                                        court decisions. Harmonious family relationships depend
                                                               on filial and parental love and respect which can neither
TEX. FAM. CODE § 151.003(a)(6) (emphasis added).               be created nor preserved by legislatures or courts. The
                                                               most we can do is to prevent the judicial system from
     The importance of parental involvement in minors'         being used to disrupt the wide sphere of reasonable dis-
decisions to avail themselves of contraceptive or abortion
                                                               cretion which is necessary in order for parents to properly
services is aptly illustrated in the amicus brief of several
                                                               exercise their responsibility to provide nurture, care, and
families supporting rider 14 who unsuccessfully at-
                                                               discipline for their children.
tempted [**28] to intervene at the trial level. The
daughter of one of the individuals filing the amicus brief      Felderhoff v. Felderhoff, 473 S.W.2d 928, 933 (Tex.
was impregnated on two separate occasions by her
                                                               1971). These principles cannot be reiterated often enough,
mother's boyfriend while she was living with her mother.
                                                               [**30] especially in the context of a minor's health and
Both times, the live-in boyfriend took the daughter -- once
                                                               sex-related decisions. To grant Planned Parenthood
when she was twelve and once when she was thirteen -- to
                                                               standing to represent the state's minors would usurp this
an abortion clinic in order to conceal his criminal deeds. A   vital parental role.
parental consent requirement would have prevented the
live-in boyfriend from being able to continue his abuse.           Accordingly, I would hold not only that the case is
The irony of Planned Parenthood's argument that it rep-        not ripe, but also that Planned Parenthood has failed to
resents the state's minors is that when some of those mi-      otherwise establish standing to challenge rider 14.
nors sought to intervene to speak for themselves --
                                                                   Raul A. Gonzalez
through their lawful representatives -- Planned
Parenthood opposed their intervention.                             Justice
     Unlike the federal authorities the Court cites early in       Opinion Delivered: June 23, 1998
its opinion, other courts, including our own, have strongly
                                                                                                                    Page 1
                                   23 S.W.3d 42, *; 1999 Tex. App. LEXIS 8949, **




               James W. Paulsen; Independent Bankers Association of Texas; Texas Bankers Asso-
               ciation; and Texas Savings & Community Bankers Association, Appellants v. Texas
                                  Equal Access to Justice Foundation, Appellee

                                                  NO. 03-98-00709-CV

                         COURT OF APPEALS OF TEXAS, THIRD DISTRICT, AUSTIN

                                       23 S.W.3d 42; 1999 Tex. App. LEXIS 8949


                                                December 2, 1999, Filed

SUBSEQUENT HISTORY:                 [**1] Motion for          Before this Court, appellants have abandoned the request
Rehearing of Petition for Review Denied April 26, 2001.       for injunctive relief and now seek only a declaration that
Petition for Review Dismissed for Want of Jurisdiction        (1) IOLTA ("interest on lawyers trust account") accounts
January 18, 2001. Rehearing Overruled March 23, 2000.         generally and in this particular case are "general" not
Released for Publication March 23, 2000.As Corrected          "special" accounts; (2) the relationship between an attor-
December 13, 1999.                                            ney-depositor and the financial institution that administers
                                                              an IOLTA account is that of creditor and banker, respec-
PRIOR HISTORY:       FROM THE DISTRICT                        tively; (3) the financial institution holds legal title to all
COURT OF TRAVIS COUNTY, 353RD JUDICIAL                        sums deposited in the IOLTA account at issue in this case;
DISTRICT.  NO.   98-06951,   HONORABLE                        (4) the financial [**2] institution incurs no legal liability
MARGARET A. COOPER, JUDGE PRESIDING.                          to third parties, including the attorney's clients, solely
                                                              because it participates in the IOLTA program; and (5)
DISPOSITION:          Judgment Vacated and Cause Dis-         Paulsen is not subject to professional discipline for failure
missed.                                                       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
COUNSEL: FOR APPELLANT: Mr. James Walter                      cause for lack of a justiciable controversy.
Paulsen, Houston, TX. Mr. Mark Schwartz, Mr. Howard
Nirken, Jenkens & Gilchrist, Austin, TX.                      FACTUAL AND PROCEDURAL BACKGROUND
                                                                   The Texas IOLTA program, like similar programs
FOR APPELLEE: Mr. Darrell E. Jordan, Hughes & Luce,
                                                              instituted in almost every other state, was established to
L.L.P., Dallas, TX.
                                                              raise money to provide legal assistance to low-income
                                                              Texans. The "Rules Governing the Operation of the Texas
JUDGES: Before Justices Jones, Yeakel and Patterson.
                                                              Equal Access to Justice Program" oblige attorneys to
                                                              participate, subject to suspension of their law licenses. See
OPINION BY: J. WOODFIN JONES
                                                              Tex. R. Equal Access to Justice Prog. 24 (State Bar Rules
                                                              art. 11). When an attorney holds client funds, the money
OPINION
                                                              should ordinarily be deposited into a trust account to earn
      [*43] Appellants James W. Paulsen (Paulsen),            interest for the client. But where the amount held is
Independent Bankers Association of Texas, Texas Bank-         nominal, such that it could not be expected to earn enough
ers Association, and Texas Savings and Community              interest to offset the cost of maintaining a separate trust
Bankers Association (collectively, Bankers) sued the          account, the funds are required to be deposited into [**3]
Texas Equal Access to Justice Foundation (the Founda-         an IOLTA account. See Tex. R. Equal Access to Justice
tion), appellee, seeking declaratory and injunctive relief.   Prog. 4, 6. The IOLTA account pools all such deposits
The trial court denied all requested relief. The Texas        from the attorney; collectively, the sums generate interest
Supreme Court then declined to hear a direct appeal.          where no individual deposit could. The interest is then
                                                                                                                          Page 2
                                      23 S.W.3d 42, *; 1999 Tex. App. LEXIS 8949, **


paid to the Foundation, which distributes the interest            While the banks are contractually obligated to pay IOLTA
received from all IOLTA accounts in Texas to                      interest to the Foundation, they also fear liability from
low-income legal services. See Tex. R. Equal Access to            threatened lawsuits should they continue to participate in
Justice Prog. 4, 10.                                              the IOLTA program.
     A constitutional takings challenge to Texas's IOLTA               Appellee, the Foundation, does not disagree with
program was brought in Phillips v. Washington Legal               appellants as to the constitutionality of the IOLTA pro-
Foundation, which resulted in a 1998 United States Su-            gram. In fact, the Foundation has vigorously defended the
preme Court decision holding that interest               [*44]    IOLTA program as a defendant in the ongoing Phillips
earned on an IOLTA account is the private property of the         [**6] litigation. It apparently disagrees with appellants
clients of the attorney who established the account. 524          only as to how far this Court should go in deciding the
U.S. 156, 172, 118 S. Ct. 1925, 141 L. Ed. 2d 174 (1998).         ultimate constitutional issues involved. This lack of ad-
That case is now on remand to the United States District          versarial debate between the parties was noted in an
Court for the Western District of Texas for further pro-          amicus brief tendered by David Furlow, an attorney who
ceedings to determine whether those funds have been               disputes the constitutionality of the IOLTA program.
"taken" by the state without just compensation. While
                                                                       DISCUSSION
Phillips did not decide the ultimate issue of whether
compliance with the IOLTA program effectuates a gov-                   The Uniform Declaratory Judgments Act gives courts
ernmental taking of client property, it is fair to say that the   the power to "declare rights, status, and other legal rela-
constitutionality of the program is uncertain [**4] in the        tions whether or not further relief is or could be claimed."
wake of the Supreme Court's decision. It is that uncer-           Tex. Civ. Prac. & Rem. Code Ann. § 37.003 (West
tainty that appellants hope to resolve in this action.            1997). The determination of jurisdiction over a declara-
                                                                  tory judgment action is a question of law and so is subject
     The Phillips decision left many questions unan-
                                                                  to de novo review. See Texas Dep't of Pub. Safety v.
swered, in part because of the procedural framework in
                                                                  Moore, 985 S.W.2d 149, 153 (Tex. App.--Austin 1998, no
which the case was brought. That case was an appeal from
                                                                  pet.).
the trial court's grant of summary judgment and so arrived
before the Supreme Court without the benefit of discov-                An action for declaratory relief is subject to the same
ery. Since the record was essentially devoid of details, the      jurisdictional requirements [*45] as any other action
Phillips decision made no reference to banking law or the         brought in our courts. "Subject matter jurisdiction re-
particulars of an IOLTA contract between an attorney and          quires that the party bringing the suit have standing, that
bank. The Phillips decision therefore makes no reference          there be a live controversy between the parties, and that
to the distinction recognized in Texas banking law be-            the case be justiciable." State Bar of Tex. v. Gomez, 891
tween "general" and "special" accounts; this distinction,         S.W.2d 243, 245 (Tex. 1994) [**7] (plurality opinion)
appellants assert, would have led to a different ruling.          (citing Texas Ass'n of Business v. Texas Air Control Bd.,
Appellants urge us to clarify what they characterize as the       852 S.W.2d 440, 443-46 (Tex. 1992)). The parties before
Supreme Court's misstatement of Texas law and to hold             us cannot satisfy these threshold jurisdictional require-
that both the principal and the interest earned on "general"      ments. Because the trial court lacked subject matter ju-
accounts--and IOLTA accounts are apparently all "gen-             risdiction over this case, we will vacate that court's
eral"--are the property of the bank and not the client.           judgment and dismiss the cause.
Since the interest earned is bank property, appellants
argue, there is no unconstitutional taking involved when               Appellant Paulsen
[**5] the bank pays that interest to the Foundation.                   Paulsen seeks declaratory judgment because, by re-
                                                                  fusing to deposit a $ 1,000 client retainer in his IOLTA
     All parties to this suit agree on the constitutionality of
                                                                  account, he claims he faces the imminent suspension of
IOLTA. Appellant Paulsen is an attorney who has re-
ceived a $ 1,000 retainer from a client and claims uncer-         his law license. It is not at all clear from the record that the
tainty as to his rights and obligations with respect to this      suspension of Paulsen's license is inevitable or imminent.
                                                                  In a post-submission brief, however, Paulsen attached a
money. The Equal Access to Justice Rules require him to
                                                                  letter he received from the Foundation informing him that
deposit the $ 1,000 in an IOLTA account or risk suspen-
                                                                  disciplinary action will be initiated if he does not comply
sion of his license to practice law, yet he claims the Phil-
                                                                  with IOLTA rules. Assuming without deciding that we
lips decision exposes him to liability to his client for
breach of fiduciary duties if he does deposit the funds.          can consider this letter, and further assuming that the
Bankers are the principal trade organizations for Texas           letter confers standing on Paulsen, we nonetheless con-
                                                                  clude that his suit must be dismissed for want of jurisdic-
financial institutions. They claim that the contracts signed
                                                                  tion, for he has not demonstrated any justiciable contro-
by their members and attorneys establishing IOLTA ac-
                                                                  versy with his putative opponent in this case.
counts are brought into question by the Phillips decision.
                                                                                                                      Page 3
                                     23 S.W.3d 42, *; 1999 Tex. App. LEXIS 8949, **


     The crux of the claimed dispute between [**8]               Judgments Act specifically provides that "a contract may
Paulsen and the Foundation lies in the interpretation of the     be construed either before or after there has been a
Supreme Court's Phillips decision. Paulsen argues that if        breach." Tex. Civ. Prac. & Rem. Code Ann. § 37.004(b)
we accept as a correct statement of Texas law the Phillips       (West 1997); see also In re City of Dallas, 977 S.W.2d
holding that interest earned in IOLTA accounts is client         798, 804 (Tex. App.--Fort Worth 1998, no pet.); Hasty
property, 1 then the decision places him in an ethical           Inc. v. Inwood Buckhorn Joint Venture, 908 S.W.2d 494,
quandary. If he continues to participate in the IOLTA            499 (Tex. App.--Dallas 1995, writ denied). Section 37.004
program, Paulsen believes he breaches his ethical duty to        does not, however, extend an open-ended invitation to
his client when he contracts with his bank to turn IOLTA         parties seeking interpretation of their contracts. There
interest over to the Foundation. On the other hand, if he        must be some showing that litigation is imminent between
does not give the interest to the Foundation, he breaches        the parties unless the contractual uncertainties are judi-
professional ethics rules and stands to lose his law license.    cially resolved. See Reuter v. Cordes-Hendreks Coiffures,
The Foundation disagrees with Paulsen only as to whether         Inc., 422 S.W.2d 193, 196 (Tex. Civ. App.--Houston [14th
Phillips creates ethical uncertainty. It believes that Phil-     Dist.] 1967, no writ).
lips answered only the question of whether a client could
ever have a property right in interest that would not exist             2      In an IOLTA contract, the Foundation is
without the IOLTA program; the Foundation believes                      declared to be a third-party beneficiary to the
Phillips did not establish conclusively that IOLTA inter-               contract between the financial institution and the
est is always client property. That question will be de-                attorney who establishes the account.
cided by the federal district court on remand. This dispute,
                                                                       [**11] Bankers have not demonstrated any immi-
then, centers on how broadly Phillips can be read.
                                                                 nent contractual dispute with the Foundation. As primary
                                                                 proof of their grounds for uncertainty, Bankers cite a letter
        1      Of course, Paulsen does not really want us
                                                                 from Michael Mazzone 3 to appellant banking groups
        to accept this as true at all. He frames the issue in
                                                                 warning that the banks could face liability for the tort of
        these terms to attempt to create a justiciable con-
                                                                 conversion for any interest paid by them to the Foundation
        troversy between himself and the Foundation. The
                                                                 after the Phillips decision. In the letter, Mazzone omi-
        real goal of the litigation is apparently to have this
                                                                 nously warned that he has "personal knowledge that there
        Court decide that the U.S. Supreme Court was
                                                                 are lawyers who are planning a class action lawsuit
        wrong in so holding, and that consequently
                                                                 against a number of banks."
        IOLTA is constitutional under Texas law. We
        discuss infra why the present case is an inappro-
                                                                        3       Mazzone is a named plaintiff in the Phillips
        priate one for deciding that issue.
                                                                        litigation.
      [**9] What is troubling about this appeal is that the
                                                                      Mazzone's letter is insufficient to support an action
parties all believe that an attorney can ethically participate
                                                                 for declaratory judgment. It amounts to a threat from a
in the Texas IOLTA program. Paulsen merely claims that
                                                                 stranger to this action who refers to unnamed sources who
someone else might construe Phillips differently, and that
                                                                 may be contemplating a lawsuit at some point in the fu-
such an alternate interpretation would put him in an eth-
                                                                 ture. Bankers' feared liability to theoretical litigants is
ical bind. With no true opponent in the Foundation, what
                                                                 simply too remote to support a claim for declaratory re-
Paulsen seeks, in essence, is an advisory opinion inter-
                                                                 lief. Further, it does not appear that the litigation the
preting a decision from the Supreme Court to resolve his
                                                                 Bankers fear would even involve [**12] the Foundation.
doubts about the IOLTA program. But, of course, the
                                                                 Mazzone's letter warned banks that they could be liable
separation of powers doctrine prevents us from complying
                                                                 for the tort of conversion if they continue to pay IOLTA
with this request. Neither the legislature nor the constitu-
                                                                 interest to the Foundation. In that event, any liability for
tion has vested us with the authority to render an advisory
                                                                 conversion would be to the clients of the depositing at-
opinion. See Tex. Const. art. II, § 1; Olson v. Commission
                                                                 torneys and not to the Foundation.
for Lawyer Discipline, 901 S.W.2d 520, 522 (Tex.
App.--El Paso 1995, no writ). We therefore hold that                  Bankers, as evidenced by their briefs, strongly be-
Paulsen has presented [*46] no justiciable controversy           lieve that IOLTA is constitutional and apparently intend
between himself and the Foundation.                              to honor their contracts establishing IOLTA accounts
                                                                 unless and until a court declares the IOLTA program
    Appellant Bankers
                                                                 unconstitutional. Even assuming that the Foundation
     Bankers claim to have standing in this declaratory          would have standing to protect its right as third-party
relief action because they are faced with uncertainty and        beneficiary to the interest earned on IOLTA accounts,
insecurity in their performance of current contracts with        there is no justiciable controversy where, as here, there is
the Foundation. 2 The Uniform Declaratory [**10]                 an absence of any real threat or intention to breach a
                                                                                                                      Page 4
                                     23 S.W.3d 42, *; 1999 Tex. App. LEXIS 8949, **


contract. See id. (citing Spradley v. Whitehall, 314 S.W.2d          We are not unsympathetic to appellants' arguments.
615, 619 (Tex. Civ. App.--Fort Worth 1958, no writ)).           The Phillips decision does appear to have at least over-
The trial court, therefore, lacked jurisdiction to grant the    looked, if not misstated, a large body of Texas banking
relief sought by Bankers.                                       law that distinguishes between "general" and "special"
                                                                accounts. See, e.g., Texas Commerce Bank v. Townsend,
    True Controversy
                                                                786 S.W.2d 53 (Tex. App.--Austin 1990, writ denied). In a
     The only issue on which the parties to this case seem      general account, Texas law is clear that the financial in-
to disagree is how broadly Phillips should be read. Ap-         stitution holds title to the funds deposited. See id. at 54.
pellants paint a doomsday picture that throws all banking       Paulsen's contract with his bank establishing an IOLTA
practices [**13] into uncertainty unless we hold that the       account expressly states that it is a general account. Since
Supreme Court misstated Texas law, grant declaratory            the Phillips court stated that "interest follows principal,"
relief reiterating the distinction between "general" and        Phillips, 524 U.S. at 165-66, the natural conclusion would
"special" accounts, and explicitly hold that IOLTA is           be that the interest earned in an IOLTA account belongs to
constitutional. Appellants assert in the alternative that if,   the banks as well. This appears to be in direct conflict with
despite their arguments to the contrary, we believe Phil-       the actual Phillips holding that interest earned in an
lips is correct, we should hold IOLTA expressly uncon-          IOLTA account is the property of the attorney's client. See
stitutional. The Foundation thinks the Phillips holding is      Phillips, 524 U.S. at 172.
[*47] more narrow than appellants read it; they have no
                                                                     Whatever our impressions of the constitutional ar-
qualms with a declaration from this Court that IOLTA is
                                                                guments in support of IOLTA, however, this particular
constitutional, but they urge us to refrain from deciding
                                                                case provides a singularly inappropriate context for de-
IOLTA is unconstitutional on the strength of the Phillips
                                                                ciding [**16] those issues. Both appellants and the
decision. They otherwise have no dispute with appellants'
                                                                Foundation are committed to upholding the constitution-
position and encourage us to grant the declaratory relief
                                                                ality of the IOLTA program. In its brief the Foundation
sought.
                                                                candidly admits that it does not contest the central legal
     We must not decide a case that amounts to no more          premises of appellants' argument, and emphasizes that the
than a disagreement on how broadly the Phillips decision        Foundation is making the same pro-IOLTA arguments in
can be read. "A mere difference of opinion, not involving       the ongoing Phillips litigation in the federal district court.
the assertion of adverse interests, is not sufficient to
                                                                     In their arguments, the parties attempt to demonstrate
support an action for declaratory judgment." Reuter, 422
                                                                that they are not in unanimous agreement on how far this
S.W.2d at 196 (quoting 26 C.J.S. Declaratory Judgments,
                                                                Court might go if we were to agree with the Supreme
§ 29 (1956)). In spite of the injuries [**14] and uncer-
                                                                Court, but neither side ever seriously argues that IOLTA
tainties appellants claim they will suffer, it seems they
                                                                could be anything but constitutional. The hair-splitting
have no real dispute with the Foundation. This case has
                                                                difference between the parties' positions hardly presents
been marked throughout by a near-total lack of true con-
                                                                the sort of robust debate a court should expect and de-
troversy between the parties. The trial below was very
                                                                mand when a major constitutional ruling is at issue. At
brief. Paulsen was the only witness who testified, and
                                                                core, both appellants and the Foundation [*48] are in
cross-examination by the Foundation's lawyer was per-
                                                                total agreement that IOLTA should be declared constitu-
functory, consisting of only three questions to confirm
                                                                tional. It would be inappropriate for us to decide an issue
that the Phillips court did not determine the ultimate
                                                                of such gravity where there has been no genuine debate. In
constitutionality of the IOLTA program. On appeal, the
                                                                fact, the Supreme Court has expressly held that where
Foundation has not even raised the strongest reasons in
                                                                both litigants agree on the constitutionality of a statute
support of the trial court's judgment--those jurisdictional
                                                                being challenged and desire the same [**17] result, there
issues we have detailed above; indeed, appellee's brief is a
                                                                is no case or controversy before the court. See Moore v.
mere seven pages long. They are seven well-written and
                                                                Charlotte-Mecklenburg Bd. of Educ., 402 U.S. 47, 48, 28
thoughtful pages, to be sure, but the brevity underscores
                                                                L. Ed. 2d 590, 91 S. Ct. 1292 (1971).
the lack of true controversy in this case.
                                                                     Truly, the appropriate forum for deciding the issues at
     Whatever dispute appellants claim to have with the
                                                                the heart of this appeal is in the federal district court,
Foundation is clearly secondary to their desire to have this
                                                                where the Phillips litigation is now pending on remand
Court effectively overrule the U.S. Supreme Court, de-
                                                                and the court is faced squarely with the constitutionality
claring that the Court misinterpreted Texas law in its
                                                                of IOLTA. If the facts of this case were altered only
Phillips ruling. Appellants' briefs focus almost exclu-
                                                                slightly, we would be required to defer to that court's
sively on the constitutionality of IOLTA, paying only
                                                                proceeding, for there is a wide body of law that would
minor attention to the claimed [**15] dispute with the
                                                                prevent us from deciding this declaratory judgment action
Foundation.
                                                                if another action were pending between the same parties
                                                                                                                      Page 5
                                     23 S.W.3d 42, *; 1999 Tex. App. LEXIS 8949, **


which would adjudicate the issues involved in the present               state bars of Texas, Mississippi, and Louisiana in
action. See Texas Liquor Control Bd. v. Canyon Creek                    support of IOLTA. The Foundation is a party to
Land Corp., 456 S.W.2d 891, 895 (Tex. 1970); Tucker v.                  the ongoing Phillips litigation, but Bankers are
Graham, 878 S.W.2d 681, 683 (Tex. App.--Eastland                        not.
1994, no writ); Southern Traffic Bureau v. Thompson, 232
                                                                     CONCLUSION
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        We hold that appellants have not presented this Court
to those involved in the Phillips litigation, that doctrine      or the trial court with [**19] a justiciable controversy.
[**18] cannot squarely dispose of this case. 4 The par-          Paulsen seeks an advisory opinion from this Court inter-
ties before us could, however, have intervened in the            preting a United States Supreme Court opinion. Bankers
Phillips suit and presented their constitutional arguments       face no imminent litigation over their IOLTA contracts,
in a more direct fashion to the district court. That case has    and their claimed uncertainty as to their rights and obli-
been hotly contested and is certain to involve a much            gations is insufficient to present the court with a justicia-
fuller and more balanced debate than has developed in the        ble action. For these reasons, the trial court lacked subject
present cause. For that reason, the ongoing Phillips liti-       matter jurisdiction over the action presented; we therefore
gation would be a more appropriate forum for settling the        vacate that court's judgment and dismiss the cause.
question of whether the IOLTA program creates an un-
                                                                     J. Woodfin Jones, Justice
constitutional taking of client property.
                                                                     Before Justices Jones, Yeakel and Patterson
        4     Paulsen is not a party to the Phillips case,
        but he was involved in the case to the extent that           Judgment Vacated and Cause Dismissed
        he drafted the amicus curiae briefs tendered to the          Filed: December 2, 1999
        Fifth Circuit Court of Appeals on behalf of the
                                                                                                               Page 1




                MARTHA JEAN PHILLIPS, PETITIONER v. HARRY S. PHILLIPS, ET AL.,
                                       RESPONDENTS

                                                   No. D-0107

                                         SUPREME COURT OF TEXAS

                             820 S.W.2d 785; 1991 Tex. LEXIS 154; 35 Tex. Sup. J. 220


                                          December 11, 1991, Delivered

PRIOR HISTORY:      [**1] ON APPLICATION                   RSP Kelley, Mr. Patrick ATT 011203600 214/561-1600
FOR WRIT OF ERROR TO THE COURT OF APPEALS
FOR THE TWELFTH DISTRICT OF TEXAS                          Ireland, Carroll & Kelley, P.C.

                                                           6101 S. Broadway
COUNSEL: PET Wilk, Mr. Michael S. ATT 021478000
713/223-5181                                               Suite 500

Hirsch & Westheimer, P. C.                                 Tyler, TX 75703

2500 RepublicBank Center                                   RSP Carroll, Mr. Otis ATT 003895700 903/561-1600

700 Louisiana                                              Ireland, Carroll & Kelley, P.C.

Houston, TX 77002                                          6101 S. Broadway

PET Stock, Ms. Anna L. ATT 019254000 713/223-5181          Suite 500

Hirsch & Westheimer, P.C.                                  Tyler, TX 75703

2550 RepublicBank Center                                   JUDGES: HECHT, Gonzalez, Mauzy, Doggett

700 Louisiana                                              OPINION BY: NATHAN L. HECHT

Houston, TX 77002                                          OPINION
                                                                [*786] OPINION
PET Gross, Mr. Jay N. ATT 008532980 713/223-5181
                                                                We granted the applications for writ of error in this
Hirsch & Westheimer                                        case to decide whether a contractual provision that re-
                                                           quires payment of a multiple of actual damages for breach
25th Floor NCNB Center                                     of trust is an unenforceable penalty, and if so, whether the
                                                           defense of penalty was waived because it was not pleaded.
700 Louisiana                                              The trial court and court of appeals refused [**2] to
                                                           enforce the provision. 792 S.W.2d 269. We affirm the
Houston, TX 77002-2728                                     judgment of the court of appeals.
                                                                                                                     Page 2
                                       820 S.W.2d 785, *; 1991 Tex. LEXIS 154, **;
                                                   35 Tex. Sup. J. 220

     During 32 years of marriage, Harry and Martha                      amount of distributions aired to be paid the part-
Phillips accumulated over $ 18 million in community                     ners and by failing to make all the distributions
property, primarily through the oil and gas business Harry              aired by the agreement, but that Martha ratified
managed. When they divorced, rather than break up their                 Harry's actions in making distributions other than
oil and gas holdings, they created Phillips & Phillips, Ltd.,           as called for by the agreement.
a limited partnership, and transferred the bulk of their
                                                                      During the trial the parties stipulated that a reasona-
assets to it. Each had an equal interest in the partnership.
                                                                 ble fee for legal services necessary for Martha's prosecu-
Harry, the only general partner, agreed to work for the
                                                                 tion of the case was $ 235,302.14. The jury was aware of
partnership full-time without salary and to offer Martha
                                                                 this stipulation, and the trial court surmised that the jury
the option to participate in any business opportunities he
                                                                 included this amount in its $ 300,000 finding. Accord-
pursued outside the partnership. Martha, the only limited
                                                                 ingly, the [**5] trial court rendered judgment for Martha
partner, agreed that she would have no right to participate
                                                                 for a total of $ 300,000, $ 235,302.14 against the part-
in Harry's business decisions for the partnership and that
                                                                 nership and $ 64,697.86 against Harry, and refused to
she would leave each of her four children by Harry at least
                                                                 award Martha any additional amount for attorney fees.
one-sixth of her estate.
                                                                 The trial court also ordered the partnership dissolved.
     The partnership agreement required Harry to pay
                                                                      Martha appealed; Harry did not. The court of appeals
himself and Martha each a minimum [*787] of $
                                                                 held that the trial court erred in refusing to award Martha
21,000 per month for 24 months, and then minimum
                                                                 the $ 235,302.14 stipulated attorney fees in addition to the
monthly distributions adjusted for inflation and for oil and
                                                                 $ 300,000 damages found by the jury, but that the trial
gas prices. It also required Harry to furnish Martha certain
                                                                 court did not err in refusing to award Martha decuple
financial [**3] information about the partnership and to
                                                                 damages under the partnership agreement. Consequently,
cooperate with her in auditing its affairs. The agreement
                                                                 the appeals court reversed the judgment of the trial court
contained the following provision: "If the general partner
                                                                 in part and rendered judgment against Harry for a total of
breaches his trust hereunder, he shall pay to the limited
                                                                 $ 535,302.14, plus interest. 2
partner as liquidated damages ten times the amount she
loses as a result of such breaches of trust. Errors of
                                                                        2     Harry contends that the court of appeals
judgment shall not be considered breaches of trusts."
                                                                        should Dot have disturbed the trial court's damage
    The value of the partnership increased under Harry's                award. As a rule, however, the judgment in a case
management, but Harry did not fully comply with the                     tried by a jury must conform to the verdict. See
terms of the written agreement. In particular, after the first          TEX. R. CIV. P. 301. The trial court properly did
20 months Harry distributed much less than the required                 not ask the jury to include in its determination of
minimum amounts, never actually calculating what pay-                   Martha's actual damages a reasonable fee for legal
ments the agreement required. He also failed to provide                 services necessary to her prosecution of the case.
timely annual statements of operations and refused to                   See Hammonds v. Hammonds, 158 Tex. 516, 313
cooperate fully with Martha's attempts to audit the part-               S.W.2d 603, 605 (Tex. 1958). We must assume
nership.                                                                that the jury followed the trial court's instructions
                                                                        and answered the question put to them. See
     Martha eventually sued Harry for dissolution of the
                                                                        Turner, Collie & Braden v. Brookhollow, Inc., 642
partnership and damages based upon Harry's breach of
                                                                        S.W.2d 160, 167 (Tex. 1982). Given that assump-
contractual and fiduciary duties. The case was tried to a
                                                                        tion, we must conclude that the jury's answer of $
jury, who found that Harry breached the partnership
                                                                        300,000 to the trial court's question did not include
agreement by favoring himself in paying his personal
                                                                        attorney fees.
expenses and encumbering partnership assets, thus en-
dangering partnership distributions. The jury also [**4]                     Harry argues that, logically, the jury must
found that Harry breached both the partnership agreement                have arrived at their $ 300,000 finding by adding $
and his fiduciary duty to Martha by failing to keep current             37,585 accounting fees which Martha testified she
and complete partnership books, failing to prepare re-                  incurred to the stipulated $ 250,000 in attorney
quired annual statements, and interfering with Martha's                 fees. However plausible Harry's explanation of the
efforts to examine partnership books and records. 1 The                 jury's reasoning process may be, it cannot substi-
jury assessed Martha's actual damages at $ 300,000. None                tute for the jury's finding. bat the jury found, not
of the jury's findings are challenged by the parties on                 why the jury found it, is the relevant inquiry ab-
appeal.                                                                 sent jury misconduct. First Nat'l Bank v. Zim-
                                                                        merman, 442 S.W.2d 674, 678 (Tex. 1969).
        1 The jury also found that Harry breached the
        partnership agreement by failing to calculate the
                                                                                                                    Page 3
                                       820 S.W.2d 785, *; 1991 Tex. LEXIS 154, **;
                                                   35 Tex. Sup. J. 220

            Under Rule 301, the trial court could properly      More recently, in Rio Grande Valley Sugar Growers, Inc.
       have rendered judgment awarding Martha less              v. Campesi, 592 S.W.2d 340, 342 n.2 (Tex. 1979), we
       than the $ 300,000 found by the jury as actual           restated the two-part Stewart test for determining whether
       damages only if the finding had no support in the        to enforce a contractual damages provision as follows: "In
       evidence. See Burt v. Lochausen, 151 Tex. 289,           order to enforce a liquidated damage clause, the court
       249 S.W.2d 194, 199 (Tex. 1952). See also 4 R.           must find: (1) that the harm caused by the breach is in-
       McDONALD, TEXAS CIVIL PRACTICE IN                        capable or difficult of estimation, and (2) that the amount
       DISTRICT AND COUNTY COURTS & 17.32                       of liquidated damages called for is a reasonable forecast
       nn. 7-8 (rev. 1984). Harry does not argue here that      of just compensation." Cf. TEX. BUS. & COM. CODE §
       there is no evidence to support the jury's finding.      2.718(a). 3
       Thus, we conclude that the court of appeals was
       correct in rendering judgment against Harry for                 3 "Damages for breach by either party may be
       the actual damages found by the jury plus stipu-                liquidated in the agreement but only at an amount
       lated attorney fees.                                            which is reasonable in the light of the anticipated
                                                                       or actual harm caused by the breach, the difficul-
           Harry also complains of the court of appeals'
                                                                       ties of proof of loss, and the inconvenience or
       judgment that he, rather than the partnership, pay
                                                                       non-feasibility of otherwise obtaining an adequate
       Martha's attorney fees. This point, however, was
                                                                       remedy. A term fixing unreasonably large liqui-
       not raised in Harry's motion for rehearing in the
                                                                       dated damages is void as a penalty."
       court of appeals and is therefore not preserved.
       See TEX. R. APP. P. 131(e); Oil Field Haulers                 [**8]
       Ass'n v. Railroad Commission, 381 S.W.2d 183,
                                                                     Whether a contractual provision is an enforceable
       189 (Tex. 1964).
                                                                liquidated damages provision or an unenforceable penalty
      [**6] [*788] Martha contends that she is entitled         is a question of law for the court to decide. Farrar v.
to recover liquidated damages equal to ten times the actual     Beeman, 63 Tex. 175, 181 (1885); see Lefevere v. Sears,
damages found by the jury, as provided by the limited           629 S.W.2d 768, 771 (Tex. Civ. App.-El Paso 1981, no
partnership agreement. Harry contends that the contrac-         writ); Muller v. Light, 538 S.W.2d 487, 488 (Tex. Civ.
tual provision is not an enforceable agreement for liqui-       App.-Austin 1976, writ ref'd n.r.e.); Schepps v. American
dated damages but an unenforceable penalty. Martha              Dist. Telegraph Co., 286 S.W.2d 684, 690 (Tex. Civ.
argues that even if Harry is correct, he has waived any         App.-Dallas 1955, no writ); Zucht v. Stewart Title Guar.
defense of penalty by failing to plead it as an affirmative     Co., 207 S.W.2d 414, 418 (Tex. Civ. App.-San Antonio
defense.                                                        1947, writ dism'd); Bourland v. Huffhines, 244 S.W. 847,
                                                                849 (Tex. Civ. App.-Amarillo 1922, writ dism'd). Some-
    We first considered the difference between an en-
                                                                times, however, factual issues must be resolved before the
forceable liquidated damages provision and an unen-
                                                                legal question can be decided. For example, to show that a
forceable penalty in Stewart v. Basey, 150 Tex. 666, 245
                                                                liquidated damages provision is unreasonable because the
S.W.2d 484, 485-486 (Tex. 1952). There we explained:
                                                                actual damages incurred were much less than the amount
     Volumes have been written on the question of when a        contracted for, a defendant may be required to prove what
stipulated damage provision of a contract should be en-         the actual damages were. See Johnson Eng'rs, Inc. v.
forced as liquidated damages and when enforcement               Tri-Water Supply Corp., 582 S.W.2d 555, 557 (Tex. Civ.
should be denied because it is a penalty provision. . . . All   App.-Texarkana 1979, no writ); Oetting v. Flake Uniform
agree that to be enforceable as liquidated damages the          & Linen Serv., Inc., 553 S.W.2d 793, 796-797 (Tex. Civ.
damages must be uncertain and the stipulation must be           App.-Fort Worth 1977, no [**9] writ); Smith v. Lane,
reasonable.                                                     236 S.W.2d 214, 215 (Tex. Civ. App.-San Antonio 1950,
                                                                [*789] no writ); Southern Plow Co. v. Dunlap Hardware
    ...                                                         Co., 236 S.W. 765, 766-767 (Tex. Civ. App.-Dallas 1922,
     The right of competent parties to make their own           no writ); Walsh v. Methodist Episcopal Church, 212 S.W.
bargains is not unlimited. The universal rule for measur-       950, 952 (Tex. Comm'n App. 1919, judgm't adopted).
ing damages for the breach of a contract is just compen-
                                                                     The enforceability of the contractual provision in this
sation for the loss or damage actually [**7] sustained.
                                                                case involves no fact issues. A contractual provision like
By the operation of that rule a party generally should be       the one here by which one party agrees to pay the other
awarded neither less nor more than his actual damages. A        some multiple of actual damages for breach of the
party has no right to have a court enforce a stipulation
                                                                agreement does not meet either part of the legal test for an
which violates the principle underlying that rule.
                                                                enforceable liquidated damages provision. It cannot meet
                                                                the first prong of the test because the harm caused by the
                                                                                                                       Page 4
                                       820 S.W.2d 785, *; 1991 Tex. LEXIS 154, **;
                                                   35 Tex. Sup. J. 220

breach of the contract is not incapable or difficult of es-     defendant may rely upon the defenses though his only
timation. The provision assumes actual damages can and          pleading is a general denial." Raney v. White, 267 S.W.2d
will be determined, indeed must be determined, before the       199, 200 (Tex. Civ. App.-San Antonio 1954, writ ref'd).
prescribed multiplier can be applied. The provision cannot      Pleading an agreement illegal on its face in effect antici-
meet the second prong of the test because, instead of           pates the defense. The other principle is that the courts
attempting to forecast actual damages, it calls for them to     will not enforce a plainly illegal contract even if the par-
be determined and then multiplied. Cf. Robert G. Beneke         ties do not object. Lawson, 34 S.W. at 921. Enforcement
& Co. v. Cole, 550 S.W.2d 321 (Tex. Civ. App.-Dallas            of an illegal agreement violates public policy. Id.
1977, no writ) (contract provision which fixes [**10]
                                                                     For the same reasons, we hold that the defense of
liquidated damages without excluding additional liability
                                                                penalty is not waived by the failure to plead it if it is ap-
for actual damages is not a reasonable forecast of just
                                                                parent on the face of the petition and established as a
compensation and therefore a penalty). A contractual
                                                                matter of law. Enforcement of a penalty, like enforcement
provision like the one in this case is thus, on its face, an
                                                                of an illegal contract, violates [*790] public policy.
unenforceable penalty.
                                                                RESTATEMENT (SECOND) OF CONTRACT § 356;
     Harry, however, did not plead penalty as an affirma-       see State v. Alpha Oil & Gas, Inc., 747 S.W.2d 378 (Tex.
tive defense to an award of damages under the liquidated        1988). It should not be done, even if the parties do not
damages provision in the partnership agreement. Alt-            object. In this case Martha pleaded that she was "entitled
hough penalty is not among the affirmative defenses             to damages . . . in the amount of ten (10) times all losses
enumerated in Rule 94, TEX. R. CIV. P., the listing in that     suffered". Inasmuch as Martha's own pleading establishes
rule is not exclusive. Penalty is, in the language of the       that the contractual provision she relies upon is an unen-
rule, a "matter constituting an avoidance or affirmative        forceable penalty under our decisions [**13] in Stewart
defense." Johnson, 582 S.W.2d at 557; Oetting, 553              and Campesi as a matter of law, Harry was not required to
S.W.2d at 795-796; Robinson v. Granite Equip. Leasing           plead penalty as an affirmative defense.
Corp., 553 S.W.2d 633, 637 (Tex. Civ. App.-Houston [1st
                                                                     Contrary to the dissent's very exaggerated alarms, we
Dist.] 1977, writ ref'd n.r.e.); Walter E. Heller & Co. v. B.
                                                                do not hold that the affirmative defense of penalty need
C. & M., Inc., 543 S.W.2d 696, 697 (Tex. Civ.
                                                                never be pleaded. Whenever the defense is not clearly
App.-Houston [1st Dist.] 1976, writ ref'd n.r.e.); LoBue v.
                                                                established on the face of the pleadings, as it is here, it
United Serv. Planning Ass'n, 467 S.W.2d 574, 576 (Tex.
                                                                must be pleaded. We do not "resurrect[] trial by ambush",
Civ. App.-Fort Worth 1971, writ dism'd); Young v. J. F.
                                                                post, at     , or "retreat from . . . encouraging full disclo-
Zimmerman & Sons, Inc., 434 S.W.2d 926, 927 (Tex. Civ.
                                                                sure during discovery", post, at        . We apply a narrow
App.-Waco 1968, writ dism'd); Smith v. Waite, 424
                                                                but necessary exception, long and well established, to the
S.W.2d [**11] 691, 693 (Tex. Civ. App.-Waco 1968,
                                                                general requirement that affirmative defenses be pleaded.
writ ref'd n.r.e.); Smith, 236 S.W.2d at 215; Southern
                                                                We do not hold that penalty "can be asserted as a defense
Plow, 236 S.W. at 766-767; Walsh, 212 S.W. at 952. As a
                                                                for the first time on appeal", post, at      , in violation of
general rule, an affirmative defense must be pleaded or it
                                                                Rule 52(a), TEX. R. APP. P. The record in this case re-
is waived. TEX. R. CIV. P. 94.
                                                                flects that the issue of penalty was raised in the trial court,
     One exception to this rule is the defense of illegality,   and that the trial court refused to enforce the penalty
a defense specifically listed in Rule 94. "If the illegal       provision of the partnership agreement.
nature of the document to be relied upon or sought to be
                                                                    *****
enforced is apparent from the plaintiffs pleadings, it is not
necessary that illegality be specially pleaded by the de-            Accordingly, we conclude that Martha is not entitled
fendant in order to rely upon it as a defense." Lewkowicz       to recover ten times her actual damages. Finding no error
v. El Paso Apparel Corp., 625 S.W.2d 301, 303 (Tex.             in the judgment of the court of appeals, we affirm it.
1981); accord Niles v. Harris County Fresh Water Supply
Dist., 339 S.W.2d 562, 563 (Tex. Civ. App.-Waco 1960,               NATHAN L. HECHT
writ ref'd); Reid v. Associated Employers Lloyds, 164               Justice
S.W.2d 584, 585-586 (Tex. Civ. App.-Fort Worth 1942,
writ ref'd); Montgomery Ward & Co. v. Lusk, 52 S.W.2d               Dissenting [**14] Opinion by Justice Gonzalez,
1110 (Tex. Civ. App.-Waco 1932, writ ref'd); Texas &                joined by Justices Mauzy and Doggett
P. Coal Co. v. Lawson, 89 Tex. 400, 34 S.W. 919, 921
(Tex. 1896). Two principles support this exception to the           OPINION DELIVERED: December 11, 1991
general rule that affirmative defenses are waived if not
pleaded. One is that "when a plaintiff in his pleadings         DISSENT BY: RAUL A. GONZALEZ
anticipates [**12] defensive matters and pleads them, a
                                                                DISSENT
                                                                                                                        Page 5
                                       820 S.W.2d 785, *; 1991 Tex. LEXIS 154, **;
                                                   35 Tex. Sup. J. 220

    DISSENTING OPINION                                                        16.2 Yes. If the general partner breaches his
                                                                         trust hereunder, he shall pay to the limited partner
     Despite the clear language of TEX. R. CIV. P. 94 and
                                                                         as liquidated damages ten times the amount she
the collective wisdom of every court of appeals of this
                                                                         loses as a result of such breach. Errors of judgment
state that has considered the issue, the majority holds that
                                                                         shall not be considered breaches of trusts".
a defendant need not affirmatively plead the defense of
"penalty" in a contract action. This holding resurrects trial          [**16] Eight years later, Mrs. Phillips sued Mr.
by ambush and rejects the notion that parties are entitled       Phillips, alleging that he violated the agreement. [*791]
to know what theories of law they will face at trial. I          Mr. Phillips entered a general denial and asserted the
would hold that by failing to plead it, Mr. Phillips waived      affirmative defenses of limitations, laches, and equitable
his right to assert that the contract he entered into with his   estoppel. In a unanimous verdict, the jury found that Mr.
wife is unenforceable. Furthermore, since Mr. Phillips           Phillips breached the agreement by interfering with Mrs.
waived the penalty defense by failing to affirmatively           Phillips right to examine the books and records of the
plead it, I would not reach the question of whether the          partnership, and by willfully underpaying Mrs. Phillips
contractual provision in question is, on its face, an unen-      and overpaying himself.
forceable penalty. I thus would reverse the judgment of
                                                                     AFFIRMATIVE DEFENSE
the court of appeals and remand this cause to the trial
court for entry of a judgment that enforces the provision.            Rule 94 enumerates specific affirmative defenses
                                                                 which are waived if not pleaded, such as accord and sat-
     Mr. and Mrs. Phillips were married for 32 years prior
                                                                 isfaction, arbitration and award, fraud, illegality, statute of
to getting a divorce. With the assistance of counsel, they
                                                                 frauds, statute of limitations, "and any other matter con-
entered [**15] into a pre-divorce agreement, whereby
                                                                 stituting an avoidance or affirmative defense." TEX. R.
they transferred about $ 18 million of their assets into a
                                                                 CIV. P. 94. An affirmative defense does not tend to rebut
partnership which Mr. Phillips would manage. Mr. Phil-
                                                                 factual propositions asserted by a plaintiff, but seeks to
lips in effect said to his soon-to-be ex-wife: "Trust me."
                                                                 establish an independent reason why the plaintiff should
As a disincentive to cheating or short changing Mrs.
                                                                 not recover. Gorman v. Life Ins. Co. of North America,
Phillips, Mr. Phillips pledged that he would pay her 10
                                                                 811 S.W.2d 542, 546 (Tex. 1991). Asserting the defense of
times the amount of the losses if he violated the contract. 1
                                                                 penalty does not deny the facts pleaded by the plaintiff;
The agreement also recited that Mr. Phillips owed Mrs.
                                                                 instead, it is an independent reason why the contract
Phillips a fiduciary duty, a higher standard of care than
                                                                 should not be enforced as written. [**17] In other
normally exists between parties to a contract. 2
                                                                 words, if the defendant asserts facts that defeat in whole or
                                                                 in part the plaintiff's claim, such assertion amounts to an
        1   At trial, Mr. Phillips testified as follows:
                                                                 affirmative defense that must be pleaded or it is waived.
            Q There's another interesting provision in [the      "Penalty" is a classic affirmative defense; in my view, it
        partnership agreement] that says if Mrs. Phillips        clearly falls within the purview of Rule 94.
        can show that you have breached your fiduciary
                                                                      The majority implies that as long as the issue does not
        duty to her that you will be obliged to pay her 10
                                                                 depend upon evidence or findings, no purpose is served
        times any amount that she proves. Are you fa-
                                                                 by requiring that it be specifically pleaded. But there is a
        miliar with that?
                                                                 valid purpose to serve, namely, the need for notice and
            A Yes sir.                                           fair play, so as to avoid trials by ambush.
            Q How in the world did that get in there?                 The court refers to Lewkowicz v. El Paso Apparel
                                                                 Corp., 625 S.W.2d 301, 303 (Tex. 1981), for its holding
             A I wanted her to let me-wanted to prove to
                                                                 that pleading is not necessary if the affirmative defense
        her that I would not do anything wrong.
                                                                 appears on the face of the plaintiff's pleadings. That case
            Q So-                                                is distinguishable because it involved the defense of ille-
                                                                 gality of contract. The defense of illegality is a special
            A So I put it in myself.                             situation and a poor choice from which to draw a rule of
            Q Was it your idea?                                  general applicability. The rule that a court will not enforce
                                                                 an illegal contract is for the public's benefit rather than
            A Yes, sir.                                          contending parties. Lewis v. Davis, 145 Tex. 468, 199
        2   The partnership agreement provides:                  S.W.2d 146, 151 (Tex. 1947). A strong policy reason
             16.1 Fiduciary Capacity. "The general part-         supports [**18] the illegality exception. That is, courts
        ner shall act in a fiduciary capacity with respect to    should not have to validate contracts that are illegal on
        the limited partner."                                    their face merely because a defendant has failed to plead
                                                                 illegality.
                                                                                                                        Page 6
                                       820 S.W.2d 785, *; 1991 Tex. LEXIS 154, **;
                                                   35 Tex. Sup. J. 220

     Here, the court seems to be saying that pleading and       legal theories upon which a party intends to rely at trial.
proof are not necessary, because the issue of whether the       This trend not only encourages litigants to be well pre-
liquidated damages provision is a penalty is a question of      pared for trial, but also enables disputes to be resolved on
law. In some contracts it may be possible to determine          their true merits and not on "mere technicalities." It makes
from their four corners that they impose a penalty. The         no sense to me to subject parties to a severe sanction for
classic example is the lease that assesses the same liqui-      failing to disclose witnesses or to supplement discovery
dated damages for every breach, regardless of how trivial.      responses, but not require them to plead the legal theory
Stewart v. Basey, 150 Tex. 666, 245 S.W.2d 484, 486 (Tex.       upon which they intend to rely to defeat their opponent's
1952). But, in most cases, proof will be necessary.             claim. The majority has created an exception to Rule 94
Commercial Union Ins. Co. v. La Villa I.S.D., 779 S.W.2d        that has a visceral appeal, but collapses on its own logic.
102, 106-107 (Tex. App. -- Corpus Christi 1989, no writ);       The court says that the contractual provision in issue is a
See D. WENDORF, ET AL., TEXAS RULES OF EVI-                     penalty as a matter of law, and thus need not be pleaded
DENCE MANUAL, I-38 (3rd ed. 1991).                              (and can be asserted as a defense for the first time on
                                                                appeal). But a defendant likewise may defeat a contract
     A good example of the need for proof is Presnal v.
                                                                claim under a statute of limitations [**21] defense. And
Energy Corp., 788 S.W.2d 123, 127 (Tex. App. -- Houston
                                                                while the defendant may be entitled to a judgment as a
[1st Dist. 1990], writ denied). In that case, a mineral lease
                                                                matter of law, we nevertheless require affirmative plead-
provided that the lessee was required to drill a second well
                                                                ing of the statute of limitations defense. The court ulti-
or pay $ 75,000, which the defendant contended was a
                                                                mately rationalizes its de facto modification of Rule 94 by
penalty. There is no way a court could possibly [**19]
                                                                relying on the RESTATEMENT (SECOND) OF CON-
know if this provision is a reasonable forecast of damages
                                                                TRACTS § 356 to assert that public policy demands the
and therefore not a penalty, unless pleadings and proof
                                                                result. The court expands the public policy exception to
develop the issue. It would be patently unfair not to re-
                                                                Rule 94's pleading requirement beyond the exception for
quire defendant to notify the plaintiff that the possible
                                                                illegal contracts to include contracts that allegedly impose
existence of penalty would be an issue and this is contrary
                                                                a penalty. This is a faulty rationale. First, this is not a case
to well establish case law.
                                                                where pure contract principles apply. Mr. Phillips agreed
     Every intermediate appellate court considering this        to a higher standard of care (namely, a fiduciary's stand-
issue has held that penalty is an affirmative defense under     ard) than he normally would have owed Mrs. Phillips in a
Rule 94 which is waived if not pleaded. Bethel v. Butler        standard contractual relationship. Courts impose damages
Drilling Co., 635 S.W.2d 834, 838-839 (Tex. App. --             on parties who violate a fiduciary duty in order to punish
Houston [14th Dist.] 1982, writ ref'd n.r.e.); Robinson v.      the party's breach of trust. I agree with the Restatement §
Granite Equip. Leasing Corp., 553 S.W.2d 633, 637 (Tex.         356's directive that the "central objective behind the sys-
Civ. App. -- Houston [1st Dist.] 1977, [*792] writ ref'd        tem of contract remedies is compensatory, not punitive."
n.r.e.); Walter E. Heller & Co. v. B.C. & M., Inc., 543         RESTATEMENT (SECOND) OF CONTRACTS § 356
S.W.2d 696, 697 (Tex. Civ. App. -- Houston [1st Dist.]          comment a (1979). But Mr. Phillips entered into this
1976, writ ref'd n.r.e.); LoBue v. United Serv. Planning        agreement with his eyes open, accepting a higher than
Ass'n, 467 S.W.2d 574, 576 (Tex. Civ. App. -- Fort Worth        normal [**22] standard of care and devising and
1971, writ dism'd); Young v. J. F. Zimmerman & Sons,            adopting a measure of damages for his breach of that
Inc., 434 S.W.2d 926, 927 (Tex. Civ. App. -- Waco 1968,         standard. I do not see how the it advances the best interest
writ dism'd); Smith v. Waite, 424 S.W.2d 691, 693 (Tex.         of the public to bail him out of his bargain. I would hold
Civ. App. -- Waco 1968, writ ref'd n.r.e.).                     that penalty is an affirmative defense that must be pleaded
                                                                and that Mr. Phillips waived this defense by failing to
     There is no compelling reason for this [**20] court
                                                                plead it. For the above reasons, I dissent.
now to reject by implication the well-grounded pleading
practice and disagree with the cases cited above that hold           Raul A. Gonzalez
that as a rule penalty is an affirmative defense which must
                                                                     Justice
be pleaded or it is waived. In my view, this is a retreat
from this court's recent trend towards encouraging full              OPINION DELIVERED: December 11, 1991
disclosure during discovery of all witnesses, facts and
                                                                     Justices Mauzy and Doggett join this opinion
                                       Restatement of the Law, Second, Contracts
                                     Copyright (c) 1981, The American Law Institute

                                                       Case Citations

                                                   Rules and Principles

                                     Chapter 9 - The Scope of Contractual Obligations

                                Topic 2 - Considerations of Fairness and the Public Interest

                                               Restat 2d of Contracts, § 208

§ 208 Unconscionable Contract or Term

 If a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the
contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the ap-
plication of any unconscionable term as to avoid any unconscionable result.

COMMENTS & ILLUSTRATIONS: Comment:
     a. Scope. Like the obligation of good faith and fair dealing (§ 205), the policy against unconscionable contracts or
terms applies to a wide variety of types of conduct. 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 bargains or terms unenforceable on grounds of public policy. Policing
against unconscionable contracts or terms has sometimes been accomplished "by adverse construction of language, by
manipulation of the rules of offer and acceptance or by determinations that the clause is contrary to public policy or to the
dominant purpose of the contract." Uniform Commercial Code § 2-302 Comment 1. Particularly in the case of stand-
ardized agreements, the rule of this Section permits the court to pass directly on the unconscionability of the contract or
clause rather than to avoid unconscionable results by interpretation. Compare § 211.
     b. Historic standards. Traditionally, a bargain was said to be unconscionable in an action at law if it was "such as
no man in his senses and not under delusion would make on the one hand, and as no honest and fair man would accept on
the other;" damages were then limited to those to which the aggrieved party was "equitably" entitled. Hume v. United
States, 132 U.S. 406 (1889), quoting Earl of Chesterfield v. Janssen, 2 Ves. Sen. 125, 155, 28 Eng. Rep. 82, 100 (Ch.
1750). Even though a contract was fully enforceable in an action for damages, equitable remedies such as specific per-
formance were refused where "the sum total of its provisions drives too hard a bargain for a court of conscience to assist."
Campbell Soup Co. v. Wentz, 172 F.2d 80, 84 (3d Cir. 1948). Modern procedural reforms have blurred the distinction
between remedies at law and in equity. For contracts for the sale of goods, Uniform Commercial Code § 2-302 states the
rule of this Section without distinction between law and equity. Comment 1 to that section adds, "The principle is one of
the prevention of oppression and unfair surprise (Cf. Campbell Soup Co. v. Wentz, . . .) and not of disturbance of allo-
cation of risks because of superior bargaining power."
     c. Overall imbalance. Inadequacy of consideration does not of itself invalidate a bargain, but gross disparity in the
values exchanged may be an important factor in a determination that a contract is unconscionable and may be sufficient
ground, without more, for denying specific performance. See §§ 79, 364. Such a disparity may also corroborate indi-
cations of defects in the bargaining process, or may affect the remedy to be granted when there is a violation of a more
specific rule. Theoretically it is possible for a contract to be oppressive taken as a whole, even though there is no
weakness in the bargaining process and no single term which is in itself unconscionable. Ordinarily, however, an un-
conscionable contract involves other factors as well as overall imbalance.
    Illustrations:
     1. A, an individual, contracts in June to sell at a fixed price per ton to B, a large soup manufacturer, the carrots to be
grown on A's farm. The contract, written on B's standard printed form, is obviously drawn to protect B's interests and not
A's; it contains numerous provisions to protect B against various contingencies and none giving analogous protection to
A. Each of the clauses can be read restrictively so that it is not unconscionable, but several can be read literally to give
unrestricted discretion to B. In January, when the market price has risen above the contract price, A repudiates the
contract, and B seeks specific performance. In the absence of justification by evidence of commercial setting, purpose,
or effect, the court may determine that the contract as a whole was unconscionable when made, and may then deny spe-
cific performance.
     2. A, a homeowner, executes a standard printed form used by B, a merchant, agreeing to pay $ 1,700 for specified
home improvements. A also executes a credit application asking for payment in 60 monthly installments but specifying
no rate. Four days later A is informed that the credit application has been approved and is given a payment schedule
calling for finance and insurance charges amounting to $ 800 in addition to the $ 1,700. Before B does any of the work,
A repudiates the agreement, and B sues A for $ 800 damages, claiming that a commission of $ 800 was paid to B's
salesman in reliance on the agreement. The court may determine that the agreement was unconscionable when made,
and may then dismiss the claim.
      d. Weakness in the bargaining process. A bargain is not unconscionable merely because the parties to it are un-
equal in bargaining position, nor even because the inequality results in an allocation of risks to the weaker party. But
gross inequality of bargaining power, together with terms unreasonably favorable to the stronger party, may confirm
indications that the transaction involved elements of deception or compulsion, or may show that the weaker party had no
meaningful choice, no real alternative, or did not in fact assent or appear to assent to the unfair terms. Factors which may
contribute to a finding of unconscionability in the bargaining process include the following: belief by the stronger party
that there is no reasonable probability that the weaker party will fully perform the contract; knowledge of the stronger
party that the weaker party will be unable to receive substantial benefits from the contract; knowledge of the stronger party
that the weaker party is unable reasonably to protect his interests by reason of physical or mental infirmities, ignorance,
illiteracy or inability to understand the language of the agreement, or similar factors. See Uniform Consumer Credit
Code § 6.111.
    Illustration:
      3. A, literate only in Spanish, is visited in his home by a salesman of refrigerator-freezers for B. They negotiate in
Spanish; A tells the salesman he cannot afford to buy the appliance because his job will end in one week, and the salesman
tells A that A will be paid numerous $ 25 commissions on sales to his friends. A signs a complex installment contract
printed in English. The contract provides for a cash price of $ 900 plus a finance charge of $ 250. A defaults after
paying $ 32, and B sues for the balance plus late charges and a 20% attorney's fee authorized by the contract. The ap-
pliance cost B $ 350. The court may determine that the contract was unconscionable when made, and may then limit B's
recovery to a reasonable sum.
     e. Unconscionable terms. Particular terms may be unconscionable whether or not the contract as a whole is un-
conscionable. Some types of terms are not enforced, regardless of context; examples are provisions for unreasonably
large liquidated damages, or limitations on a debtor's right to redeem collateral. See Uniform Commercial Code §§
2-718, 9-501(3). Other terms may be unconscionable in some contexts but not in others. Overall imbalance and
weaknesses in the bargaining process are then important.
    Illustrations:
    4. A, a packer, sells and ships 300 cases of canned catsup to B, a wholesale grocer. The contract provides, "All
claims other than swells must be made within ten days from receipt of goods." Six months later a government inspector,
upon microscopic examination of samples, finds excessive mold in the cans and obtains a court order for destruction of the
270 remaining cases in B's warehouse. In the absence of justifying evidence, the court may determine that the quoted
clause is unconscionable as applied to latent defects and does not bar a claim for damages for breach of warranty by B
against A.
    5. A, a retail furniture store, sells furniture on installment credit to B, retaining a security interest. As A knows, B is
a woman of limited education, separated from her husband, maintaining herself and seven children by means of $ 218 per
month public assistance. After 13 purchases over a period of five years for a total of $ 1,200, B owes A $ 164. B then
buys a stereo set for $ 514. Each contract contains a paragraph of some 800 words in extremely fine print, in the middle
of which are the words "all payments . . . shall be credited pro rata on all outstanding . . . accounts." The effect of this
language is to keep a balance due on each item until all are paid for. On B's default, A sues for possession of all the items
sold. It may be determined that either the quoted clause or the contract as a whole was unconscionable when made.
     6. A, a corporation with its principal office in State X, contracts with B, a resident of State X, to make improvements
on B's home in State X. The contract is made on A's standard printed form, which contains a clause by which the parties
submit to the jurisdiction of a court in State Y, 200 miles away. No reason for the clause appears except to make litiga-
tion inconvenient and expensive for B. The clause is unconscionable.
     f. Law and fact. A determination that a contract or term is unconscionable is made by the court in the light of all the
material facts. Under Uniform Commercial Code § 2-302, the determination is made "as a matter of law," but the parties
are to be afforded an opportunity to present evidence as to commercial setting, purpose and effect to aid the court in its
determination. Incidental findings of fact are made by the court rather than by a jury, but are accorded the usual weight
given to such findings of fact in appellate review. An appellate court will also consider whether proper standards were
applied.
    Illustration:
     7. A, a finance company, lends money to B, a manufacturing company, on the security of an assignment by B of its
accounts receivable. The agreement provides for loans of 75% of the value of assigned accounts acceptable to A, and
forbids B to dispose of or hypothecate any assets without A's written consent. The agreed interest rate of 18% would be
usurious but for a statute precluding a corporation from raising the defense of usury. Substantial advances are made, and
the balance owed is $ 14,000 when B becomes bankrupt, three months after the first advance. A determination that the
agreement is unconscionable on its face, without regard to context, is error. The agreement is unconscionable only if it is
not a reasonable commercial device in the light of all the circumstances when it was made.
     g. Remedies. Perhaps the simplest application of the policy against unconscionable agreements is the denial of
specific performance where the contract as a whole was unconscionable when made. If such a contract is entirely
executory, denial of money damages may also be appropriate. But the policy is not penal: unless the parties can be
restored to their pre-contract positions, the offending party will ordinarily be awarded at least the reasonable value of
performance rendered by him. Where a term rather than the entire contract is unconscionable, the appropriate remedy is
ordinarily todeny effect to the unconscionable term. In such cases as that of an exculpatory term, the effect may be to
enlarge the liability of the offending party.

REPORTERS NOTES: This Section is new; it follows Uniform Commercial Code § 2-302. See Davenport,
Unconscionability and the Uniform Commercial Code, 22 U. Miami L. Rev. 121 (1967); Ellinghaus, In Defense of
Unconscionability, 78 Yale L.J. 757 (1969); Leff, Unconscionability and the Code -- The Emperor's New Clause, 115 U.
Pa. L. Rev. 485 (1967); Shulkin, Unconscionability -- The Code, the Court and the Consumer, 9 B.C. Ind. & Com. L. Rev.
367 (1968); Spanogle, Analyzing Unconscionability Problems, 117 U. Pa. L. Rev. 931 (1969); Murray,
Unconscionability: Unconscionability, 31 U. Pitt. L. Rev. 1 (1969); Braucher, The Unconscionable Contract or Term, 31
U. Pitt. L. Rev. 337 (1970); Leff, Unconscionability and the Crowd -- Consumers and the Common Law Tradition, 31 U.
Pitt. L. Rev. 349 (1970); Spiedel, Unconscionability, Assent and Consumer Protection, 31 U. Pitt. L. Rev. 359 (1970);
Comments, 58 Dick. L. Rev. 161 (1954), 18 U. Chi. L. Rev. 146 (1950); 45 Va. L. Rev. 583 (1959); Annot., 18 A.L.R.3d
1305 (1968).
     Comment a. Uniform Commercial Code § 2-302 is literally inapplicable to contracts not involving the sale of goods,
but it has proven very influential in non-sales cases. It has many times been used either by analogy or because it was felt
to embody a generally accepted social attitude of fairness going beyond its statutory application to sales of goods. See
Seabrook v. Commuter Housing Co., 72 Misc.2d 6, 338 N.Y.S.2d 67 (Civ. Ct. 1972) (apartment lease); Kugler v. Romain,
58 N.J. 522, 279 A.2d 640 (1971) (consumer fraud proceeding by Attorney General); C & J Fertilizer, Inc. v. Allied Mut.
Ins. Co., 227 N.W.2d 169, 179-81 (Iowa 1975) (construction of burglary insurance policy); Contract Buyers League v. F
& F Investment, 300 F. Supp. 210 (N.D. Ill. 1969) (class action with regard to sales of residential property -- no
unconscionability found); see other examples listed in Albert Merrill School v. Godoy, 78 Misc.2d 647, 357 N.Y.S.2d 378
(Civ. Ct. 1974). In many of the cases cited contracts of adhesion were involved. It is to be emphasized that a contract of
adhesion is not unconscionable per se, and that all unconscionable contracts are not contracts of adhesion. Nonetheless,
the more standardized the agreement and the less a party may bargain meaningfully, the more susceptible the contract or a
term will be to a claim of unconscionability. See Comment c to § 211; Note, Unconscionability and Standardized Con-
tracts, 5 N.Y.U. Rev. L. & Soc. Change 65 (1975); 3 Corbin, Contracts § 559B (Supp. 1980). On adhesion contracts, see
3 id. §§ 559A-I (Supp. 1980).
    Comment c. Illustration 1 is based on Campbell Soup Co. v. Wentz, 172 F.2d 80 (3d Cir. 1948). Cf. Shell Oil Co. v.
Marinello, 63 N.J. 402, 307 A.2d 598 (1973), cert. denied, 415 U.S. 920 (1974) (termination provision in service station
franchise while facially neutral, in fact was one-sided in favor of oil company, and consequently was "void as against the
public policy of this statute"). Illustration 2 is based on American Home Improvement, Inc. v. MacIver, 105 N.H. 435,
201 A.2d 886 (1964); cf. Central Budget Corp. v. Sanchez, 53 Misc.2d 620, 279 N.Y.S.2d 391 (1967).
      Comment d. For examples of factors weighing in favor of a finding of unconscionability, see Albert Merrill School
v. Godoy, 78 Misc.2d 647, 357 N.Y.S.2d 378 (Civ. Ct. 1974) (disproportionate levels of education, language difficulty and
deceptive practices); Seabrook v. Commuter Housing Co., 72 Misc.2d 6, 338 N.Y.S.2d 67 (Civ. Ct. 1972) (long and
complex lease printed in small type and containing many highly technical terms; landlord but not tenant represented by
counsel; housing a scarce commodity); Kugler v. Romain, 58 N.J. 522, 279 A.2d 640 (1971) (goods were of extremely
little use to buyers; price was two and one-half times a "reasonable market price"; sellers made many misrepresentations
and deceptions; buyers were poor, uneducated and inexperienced); Wheeler v. St. Joseph Hosp., 63 Cal. App.3d 345, 133
Cal. Rptr. 775 (1976) (stress of hospital admitting room, superior bargaining position of hospital, failure to call patient's
attention to arbitration clause) (it is not clear whether the court was relying on the unconscionability concept or on one
limited to contracts of adhesion); Weidman v. Tomaselli, 81 Misc.2d 328, 365 N.Y.S.2d 681 (Cty. Ct.), aff'd, 84 Misc.2d
782, 386 N.Y.S.2d 276 (App. Term 1975) (overwhelming need for housing, no bargaining as to terms; landlord's dominant
position; tenant forced to waive valuable statutory and constitutional rights; attorney's fees due from tenant whenever
landlord commenced proceedings after tenant's default, even if suit was unsuccessful). For examples of cases rejecting
unconscionability claims, see Graziano v. Tortora Agency, 78 Misc.2d 1094, 359 N.Y.S.2d 489 (Civ. Ct. 1974) (tenant was
in real estate business and its principal was a sophisticated businessman; its counsel advised tenant not to sign lease;
tenant had successfully litigated a claim based on a lease before); Curtis Elev. Co. v. Hampshire House, Inc., 142 N.J.
Super. 537, 362 A.2d 73 (1976) (bargaining between experienced businessmen familiar with problems of industry --
provision excused performance in event of a strike and industry had history of labor troubles); Frame v. Merrill Lynch,
Pierce, Fenner & Smith, Inc., 20 Cal. App.3d 668, 97 Cal. Rptr. 811 (1971) (while bargaining strength was unequal, no
unfair imposition would result from arbitration clause's enforcement) (adhesion contract -- "unconscionable" not used in
opinion); Wille v. Southwestern Bell Tel. Co., 219 Kan. 755, 519 P.2d 903 (1976) (disparity of bargaining power alone is
not enough); Royal Indem. Co. v. Westinghouse Elec. Corp., 385 F. Supp. 520 (S.D.N.Y. 1974) (very large industrial
contract between large and knowledgeable companies; equal bargaining power, long negotiations); Wheeler v. St. Joseph
Hosp., supra, (dissenting opinion) (while hospital admitting room is not an ideal locale for bargaining, arbitration clause
did not contain very complicated language and patient, who was entering only for tests, had plenty of time to read and sign
the document). See also Madden v. Kaiser Fdtn. Hosps., 17 Cal.3d 699, 131 Cal. Rptr. 882, 552 P.2d 1178 (1976);
Ciofalo v. Vic Tanny Gyms, Inc., 10 N.Y.2d 294, 220 N.Y.S.2d 962, 177 N.E.2d 925 (1961). Illustration 3 is based on
Frostifresh Corp. v. Reynoso, 52 Misc.2d 26, 274 N.Y.S.2d 757 (Cty. Ct. 1966), rev'd as to damages, 54 Misc.2d 119, 281
N.Y.S.2d 964 (App. Term 1967); cf. State by Lefkowitz v. ITM, Inc., 52 Misc.2d 39, 275 N.Y.S.2d 303 (Sup. Ct. 1966)
(referral sales, excessive price); Jones v. Star Credit Corp., 52 Misc.2d 189, 298 N.Y.S.2d 264 (Sup. Ct. 1969) (poor,
uneducated buyers, excessive price); Toker v. Perl, 103 N.J. Super. 500, 247 A.2d 701 (1968) aff'd, 108 N.J. Super. 129,
260 A.2d 244 (1970) (deceptive practice, excessive price). But cf. Hernandez v. S.I.C. Fin. Co., 79 N.M. 673, 448 P.2d
474 (1968) (debtor understood English).
     Comment e. Illustration 4 is based on Kansas City Wholesale Grocery Co. v. Weber Packing Corp., 93 Utah 414, 73
P.2d 1272 (1937); cf. Hardy v. General Motors Acceptance Corp., 38 Ga. App. 463, 144 S.E. 327 (1928); Wilson
Trading Corp. v. David Ferguson, Ltd., 23 N.Y.2d 398, 297 N.Y.S.2d 108, 244 N.E.2d 685 (1968); Q. Vandenberg & Sons
v. Siter, 204 Pa. Super. Ct. 392, 204 A.2d 494 (1964). But cf. Whitaker v. Cannon Mills Co., 132 Conn. 434, 45 A.2d 120
(1945). Illustration 5 is based on Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (D.C. Cir. 1965); see also
Weidman v. Tomaselli, 81 Misc.2d 328, 365 N.Y.S.2d 681 (Cty. Ct.), aff'd, 84 Misc.2d 782, 386 N.Y.S.2d 276 (App. Term
1975); cf. Uniform Consumer Credit Code § 2.409. Illustration 6 is based on Paragon Homes, Inc. v. Carter, 56 Misc.2d
463, 288 N.Y.S.2d 817 (Sup. Ct.), aff'd mem., 30 A.D.2d 1052, 295 N.Y.S.2d 606 (1968); cf. Uniform Consumer Credit
Code § 1.201(9). But cf. National Equip. Rental, Ltd. v. Szukhent, 375 U.S. 311 (1964); The Monrosa v. Carbon Black
Export, Inc., 359 U.S. 180 (1959) (validity of choice-of-forum clause not decided); Indussa Corp. v. S.S. Ranborg, 377
F.2d 200 (2d Cir. 1967) (choice-of-forum clause invalid under Carriage of Goods by Sea Act); Clinic Masters, Inc. v.
District Court, 556 P.2d 473 (Colo. 1976) (signatory was an educated professional; other party's ties were all with state of
forum chosen).
    Comment f. Illustration 7 is based on In re Elkins-Dell Mfg. Co., 253 F. Supp. 864 (E.D. Pa. 1966); compare Royal
Indem. Co. v. Westinghouse Elec. Corp., 385 F. Supp. 520 (S.D.N.Y. 1974).

CROSS REFERENCES: ALR Annotations:
     Doctrine of unconscionability as applied to insurance contracts. 86 A.L.R.3d 862.
Construction and application of agreement by medical or social work student to work in particular position or at particular
location in exchange for financial aid in meeting costs of education. 83 A.L.R.3d 1273.
Validity and construction of "No Damage" clause with respect to delay in building or construction contract. 74 A.L.R.3d
187.
Construction and effect of tenure provisions of contract or statute governing employment of college or university faculty
member. 66 A.L.R.3d 1018.
Validity and construction of provision (Escalator Clause) in land contract or mortgage that rate of interest payable shall
increase if legal rate is raised. 60 A.L.R.3d 473.
Employer's termination of professional athlete's services as constituting breach of employment contract. 57 A.L.R.3d
257.
Construction of contract for installation of vending machine on another's premises. 53 A.L.R.3d 471.
"Unconscionability" as ground for refusing enforcement of contract for sale of goods or agreement collateral thereto. 18
A.L.R.3d 1305.
Construction and effect of agreement relating to salary of partners. 66 A.L.R.2d 1023.
"Escalator" price adjustment clauses. 63 A.L.R.2d 1337.
Validity, construction and effect of contract, option, or provision for repurchase by vendor. 44 A.L.R.2d 342.
Validity and effect of promise not to make a will. 32 A.L.R.2d 370.
    Digest System Key Numbers:
    Contracts 1

Legal Topics:

For related research and practice materials, see the following legal topics:
Contracts LawDefensesUnconscionabilityGeneral Overview
                                         Restatement of the Law, Second, Contracts
                                       Copyright (c) 1981, The American Law Institute

                                                         Case Citations

                                                      Rules and Principles

                                                     Chapter 16 - Remedies

                                         Topic 2 - Enforcement by Award of Damages

                                                 Restat 2d of Contracts, § 356

§ 356 Liquidated Damages and Penalties

 (1) Damages for breach by either party may be liquidated in the agreement but only at an amount that is rea-
sonable 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.

COMMENTS & ILLUSTRATIONS: 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
amount as damages may be unenforceable as unconscionable. See § 208. As to the liquidation of damages and modi-
fication 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 Il-
lustration 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, consid-
erable 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:
    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 un-
enforceable 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 mem-
bers, 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 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 un-
enforceable under this Section. In determining whether a contract is one for alternative performances, the relative value
of the alternatives may be decisive.
    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 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 unrea-
sonably 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:
     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.

REPORTERS NOTES: 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, 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.

CROSS REFERENCES: ALR Annotations:
    Damages for wrongful termination of automobile dealership contracts. 54 A.L.R.3d 324.
Right and measure of recovery for breach of obligation to drill exploratory oil or gas wells. 4 A.L.R.3d 284.
Measure of damages, to advertiser, for radio or television station's breach or wrongful termination of contract. 90
A.L.R.2d 1199.
Liability of building or construction contractor for liquidated damages for breach of time limit provision where he
abandons work after time fixed for its completion. 42 A.L.R.2d 1134.
Measure and items of compensation of contractor under cost-plus contract which is terminated, without breach, before
completion. 28 A.L.R.2d 867.
Provision in land contract for forfeiture of payments as one for liquidated damages or penalty. 6 A.L.R.2d 1401.
    Digest System Key Numbers:
    Damages 74-86

Legal Topics:

For related research and practice materials, see the following legal topics:
Contracts LawRemediesForeseeable DamagesGeneral OverviewContracts LawRemediesLiquidated Damage
                                                                                                                Page 1




               CARROLL G. ROBINSON, BRUCE R. HOTZE, AND JEFFREY N. DAILY, PE-
              TITIONERS, v. ANNISE D. PARKER, MAYOR; CITY OF HOUSTON; HOUSTON
                              CITY COUNCIL, ET AL., RESPONDENTS

                                                     NO. 08-0658

                                          SUPREME COURT OF TEXAS

                            353 S.W.3d 753; 2011 Tex. LEXIS 637; 54 Tex. Sup. J. 1640

                                           November 18, 2009, Argued
                                        August 26, 2011, Opinion Delivered

SUBSEQUENT HISTORY:             Released for Publica-       For Kubosh, Ms. Francis M., Amicus Curiae: Mr. David
tion October 28, 2011.                                      A. Furlow, Thompson & Knight, L.L.P., Houston TX;
Rehearing denied by Robinson v. Parker, 2011 Tex.           Mr. Levi James Benton, Benton Massey PLLC, Houston
LEXIS 809 (Tex., Oct. 21, 2011)                             TX.

PRIOR HISTORY: [**1]                                        JUDGES: JUSTICE GREEN delivered the opinion of the
  ON PETITION FOR REVIEW FROM THE COURT                     Court. JUSTICE GUZMAN did not [**2] participate in
OF APPEALS FOR THE FOURTEENTH DISTRICT OF                   the decision.
TEXAS.
White v. Robinson, 260 S.W.3d 463, 2008 Tex. App.           OPINION BY: Paul W. Green
LEXIS 2391 (Tex. App. Houston 14th Dist., 2008)
                                                            OPINION
                                                                  [*754] In this case, we are asked to decide (1)
COUNSEL: For Robinson, Ms. Carroll G., Petitioner:
                                                            whether citizens who signed a petition proposing a local
Mr. William A. 'Andy' Taylor, Ms. Amanda Eileen Staine
                                                            ballot initiative have standing to assert their declaratory
Peterson, Andy Taylor & Associates, P.C., Houston TX.
                                                            judgment claims that the voter-approved initiative is valid
                                                            and must be enforced; and (2) the validity of the vot-
For White, Mr. Bill, Respondent: Mr. Scott J. Atlas, Bill
                                                            er-approved initiative. Because the citizens' claims are not
White for Texas, Houston TX; Ms. Melanie Plowman
                                                            ripe, however, we cannot reach those issues.
Sarwal, Weil Gothshal & Manges LLP, Austin TX;
Honorable Patrick W. Mizel, Ms. Stacey Neumann Vu,
                                                            I
Vinson & Elkins LLP, Houston TX; Mr. Stephen Douglas
Pritchett Jr., Beck Redden & Secrest, L.L.P., Houston TX;        Petitioners Carroll G. Robinson, Bruce R. Hotze, and
Mr. Arturo G. Michel, City Attorney, City of Houston        Jeffrey N. Daily are citizens of Houston who participated
Legal Dept., Houston TX; Mr. Patrick Zummo, Law Of-         to varying degrees in efforts to place a proposition re-
fices of Patrick Zummo, Houston TX; Mr. John                garding city revenues and spending on the ballot for pub-
Berchmans Daily, Weil Gotshal & Manges LLP, Houston         lic referendum. Hotze and Daily organized the petition
TX; Mr. David M. Gunn, Beck Redden & Secrest, L.L.P.,       drive and helped draft the final language of the proposal.
Houston TX.                                                 All three Petitioners signed the petition, donated time and
                                                            money to campaigns promoting the passage of the prop-
For Continental Airlines, Inc., Amicus Curiae: Mr. Jon-     osition, and voted in favor of it.
athan Day, Andrews Kurth LLP, Houston TX; Mr. War-
                                                                 On November 2, 2004, Houston voters passed the
ren W. Harris, Bracewell & Giuliani, LLP, Houston TX.
                                                            proposition, called Proposition 2, as well as Proposition 1,
                                                            which the Houston City Council had placed on the ballot
                                                            by its own act in response to Prop. 2.1 Prop. 1 garnered
                                                                                                                         Page 2
                                       353 S.W.3d 753, *; 2011 Tex. LEXIS 637, **;
                                                  54 Tex. Sup. J. 1640

more votes, with 280,596 favorable votes, or 64% of the                          minimum annual increases of 10%
total, as opposed to 242,697 [**3] favorable votes for                           in the senior and disabled home-
Prop. 2, or 56% of the total. However, the City of Houston                       stead property tax exemptions
determined that, because Prop. 1 and Prop. 2 conflict,                           through the 2008 tax year.
Prop. 2 was ineffective and unenforceable. The City based
that determination both on what Petitioners refer to as
Prop. 1's "poison pill provision," 2 and on the conflict-
ing-ordinance provision in the Houston City Charter. See                 2   Prop. 1 provides:
Hous., Tex., Code Ordinances, City Charter art. IX, § 19
(2006) ("[A]t any election for the adoption of amend-                               If another proposition for a
ments if the provisions of two or more proposed amend-                           Charter amendment relating to
ments approved at said election are inconsistent the                             limitations on increases in City
amendment receiving the highest number of votes shall                            revenues is approved at the same
prevail."). The mayor therefore [*755] did not certify                           election at which this proposition is
the results of the passage of Prop. 2 to the secretary of                        also approved, and if this proposi-
state, and the city council did not enter an order in the city                   tion receives [**5] the higher
records declaring that Prop. 2 had been adopted. See TEX.                        number of favorable votes, then
LOC. GOV'T CODE §§ 9.005(b) (requiring city council to                           this proposition shall prevail and
pass an ordinance declaring the adoption of an initiative                        the other shall not become effec-
that receives a majority of the vote), 9.007 (requiring                          tive.
mayor to certify results of an election that passes a charter
amendment to the secretary of state).
                                                                       Petitioners sought relief from the court of appeals,
        1   Prop. 2 was described on the ballot as:
                                                                 which granted their petition for writ of mandamus, hold-
                                                                 ing that the City had failed to perform the ministerial
                    The City Charter of the City of
                                                                 duties of certifying the results to the secretary of state and
                Houston [**4] shall be amended
                                                                 entering an order declaring the charter amendments to
                to require voter approval before the
                                                                 have been adopted. In re Robinson, 175 S.W.3d 824,
                City may increase total revenues
                                                                 826-32 (Tex. App.--Houston [1st Dist.] 2005, orig. pro-
                from all sources by more than the
                                                                 ceeding). On the same day that they petitioned for man-
                combined rates of inflation and
                                                                 damus relief, Petitioners filed the underlying suit seeking
                population, without requiring any
                                                                 a declaratory judgment that Prop. 2 is effective and must
                limit of any specific revenue
                                                                 be enforced. While that case was pending, the city council
                source, including water and sewer
                                                                 passed an ordinance recognizing that both Prop. 1 and
                revenues, property taxes, sales
                                                                 Prop. 2 had passed but also declaring that Prop. 1 had
                taxes, fees paid by utilities and
                                                                 received the higher number of votes. As a result, both
                developers, user fees, or any other
                                                                 propositions became part of the Houston City Charter. See
                sources of revenues.
                                                                 Hous., Tex., Code Ordinances, City Charter art. III, § 1;
                                                                 art. VI-a, § 7; art. IX, § 20 (2006). The trial court ulti-
                                                                 mately granted summary judgment in favor of Petitioners.
        Prop. 1 was described on the ballot as:
                                                                 The court of appeals, however, ruled that Petitioners
                   The Charter of the City of
                                                                 lacked standing to assert [**6] their claims, relying on
               Houston shall be amended to re-
                                                                 our holding in Brown v. Todd, 53 S.W.3d 297, 305 (Tex.
               quire voter approval before prop-
                                                                 2001). 260 S.W.3d 463, 470-72 (Tex. App.--Houston [14th
               erty tax revenues may be increased
                                                                 Dist.] 2008, pet. filed). The court remanded the case to the
               in any future fiscal year above a
                                                                 trial court to allow Petitioners to amend their pleadings
               limit measured by the lesser of
                                                                 and establish standing. Id. at 466.
               4.5% or the cumulative combined
               rates of inflation and population                      Robinson, Hotze, and Daily petition for review on
               growth. Water and sewer rates                     two grounds.3 First, they assert that the court of appeals
               would not increase more than the                  erred when it determined that Petitioners lack standing.
               cumulative combined rates of in-                  Second, they ask us to consider the merits of their claim
               flation and population growth                     that Prop. 2 should be enforced.
               without prior voter approval. The
               Charter Amendment also requires
                                                                                                                     Page 3
                                       353 S.W.3d 753, *; 2011 Tex. LEXIS 637, **;
                                                  54 Tex. Sup. J. 1640

        3 The current Houston mayor has been substi-             transmittal letter to this Court, Petitioners stated that
        tuted for her predecessor. See TEX. R. APP. P.           "proper calculations by an independent outside auditor
        7.2(a) (automatic substitution when public officer       would show that the City is not in compliance [with] the
        is party in official capacity).                          spending controls" set forth in Prop. 2. But a case is not
                                                                 ripe when the determination of whether a plaintiff has a
II                                                               concrete injury can be made only "on contingent or hy-
                                                                 pothetical facts, or upon events that have not yet come to
     Ripeness "is a threshold issue that implicates subject
                                                                 pass." Gibson, 22 S.W.3d at 852. From such inconclusive
matter jurisdiction . . . [and] emphasizes the need for a
                                                                 documentation and mere allegations and speculation, we
concrete injury for a justiciable claim to be presented."
                                                                 cannot ascertain with necessary certainty that the City has
Patterson v. Planned Parenthood of Hous. & Se. Tex., 971
                                                                 failed to comply with Prop. 2's spending caps or that it is
S.W.2d 439, 442 (Tex. 1998). In evaluating ripeness, we
                                                                 likely to exceed the spending caps in the near future. See
consider "whether, at the time a lawsuit is filed, the facts
                                                                 Perry, 66 S.W.3d at 249 (stating that a case based on
are sufficiently developed 'so that an injury has occurred
                                                                 "uncertain or contingent future events" is not ripe for
or is likely to occur, rather than being contingent or re-
                                                                 judicial determination); Patterson, 971 S.W.2d at 444
mote.'" Waco Indep. Sch. Dist. v. Gibson, 22 S.W.3d 849,
                                                                 (explaining that a potential injury cannot be ripe unless it
851-52 (Tex. 2000) [**7] (emphasis in original) (quoting
                                                                 is established with certain and definite documentation).
Patterson, 971 S.W.2d at 442). Although a claim is not
required to be ripe at the time of filing, if a party cannot          Because [**9] there is no showing that Petitioners
demonstrate a reasonable likelihood that the claim will          have suffered a concrete injury, we hold that Robinson,
soon ripen, the case must be dismissed. See Perry v. Del         Hotze, and Daily have failed to present a sufficiently ripe,
Rio, 66 S.W.3d 239, 251 (Tex. 2001).                             justiciable claim. We express no opinion on whether, even
                                                                 if the case were ripe, Robinson, Hotze, and Daily would
     The record is silent as to whether the City has, in fact,
                                                                 have standing to assert their declaratory judgment claims,
failed to comply with the Prop. 2 spending caps. As the
                                                                 as "[t]he essence of the ripeness doctrine is to avoid
parties acknowledged at oral argument, the record in this
                                                                 premature adjudication . . . [and] to hold otherwise would
case indicates that then-mayor Bill White, in response to
                                                                 be the essence of an advisory opinion, advising what the
Prop. 2's inclusion in the City Charter, stated his intention
                                                                 law would be on a hypothetical set of facts." Patterson,
to comply with the caps Prop. 2 imposed. In an attempt to
                                                                 971 S.W.2d at 444.
show noncompliance, Petitioners presented several
documents with their post-submission brief. Petitioners
                                                                 III
point to a May 2009 letter from then-controller [*756]
Annise Parker, who is now mayor of Houston, stating that              Because Petitioners' claims are not ripe for adjudica-
the controller's office is "no longer responsible for ana-       tion, the trial court did not have jurisdiction to hear this
lyzing the budget for compliance with Proposition 2."            dispute. See Gibson, 22 S.W.3d at 852. Accordingly, we
However, nothing in that letter or elsewhere in the record       vacate the judgments of the court of appeals and trial court
indicates that the City has actually failed or will soon fail    and dismiss the case for want of jurisdiction.
to comply with Prop. 2's spending caps. Petitioners also
                                                                       Paul W. Green
point to a series of letters they sent to the City's [**8]
accounting firm. In the letters, they demanded documen-                Justice
tation of the City's compliance with Prop. 2, as well as
correction of alleged errors in the City's calculation of its          OPINION DELIVERED: August 26, 2011
compliance with Prop. 2's allowable spending caps. In a
                                                                                                                      Page 1




                 ROWAN COMPANIES, INC., Plaintiff-Appellant, v. Huey P. GRIFFIN, Defend-
                                           ant-Appellee

                                                     No. 88-3291

                     UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

                             876 F.2d 26; 1989 U.S. App. LEXIS 9696; 1989 AMC 2371


                                                    June 22, 1989

SUBSEQUENT HISTORY:                   [**1]   Rehearing     to the accident, but nonetheless provided Griffin with
Denied July 31, 1989.                                       maintenance, cure, and advance payments until January of
                                                            1988. At that time Rowan received a medical [**2]
PRIOR HISTORY:             Appeal from the United States    report from Griffin's physician indicating that Griffin had
District Court for the Eastern District of Louisiana.       made full recovery. Rowan invoked the Declaratory
                                                            Judgment Act and sought a judicial declaration of its
                                                            obligation with reference to further maintenance and cure,
COUNSEL: Lawrence E. Abbott, Elton F. Duncan, III,          in light of the medical report indicating maximum re-
Attorneys for Appellant.                                    covery. 1 The district court granted Griffin's motion to
                                                            dismiss the declaratory judgment suit, assigning no rea-
Michael X., Houma, Louisiana, David J. Shea, Attorneys      sons. Rowan's motion for reconsideration was summarily
for Appellee.                                               rejected. Again, no reasons were assigned for the court's
                                                            refusal to resolve the declaratory judgment action. This
                                                        *
JUDGES: Politz and Jolly, Circuit Judges, and Hunter,       appeal followed.
District Judge.
                                                                     1      Rowan's complaint alleged diversity, 28
       *   District Judge for the Western District of                U.S.C. § 1332, and maritime, 28 U.S.C. § 1333,
       Louisiana, sitting by designation.                            jurisdiction.
                                                                   Analysis
OPINION BY: POLITZ
                                                                The Declaratory Judgment Act, 28 U.S.C. § 2201,
OPINION                                                     provides in pertinent part:
     [*27] POLITZ, Circuit Judge
                                                                         In a case of actual controversy within
     Rowan Companies, Inc. appeals the dismissal of its              its jurisdiction . . . any court of the United
suit for a declaratory judgment. Concluding that Rowan's             States, upon the filing of an appropriate
suit against one of its employees, Huey P. Griffin, pre-             pleading, may declare the rights and other
sents an actual controversy that is justiciable under the            [**3] legal relations of any interested
Declaratory Judgment Act, 28 U.S.C. § 2201, we reverse               party seeking such declaration, whether or
and remand.                                                          not further relief is or could be sought. Any
                                                                     such declaration shall have the force and
    Background
                                                                     effect of a final judgment or decree and
     For purposes of this appeal the following facts are             shall be reviewable as such.
taken as true. On June 10, 1987 Griffin sustained a back
injury while working on a drilling rig owned and operated
by Rowan. Rowan preserved its liability position relative
                                                                                                                     Page 2
                                     876 F.2d 26, *; 1989 U.S. App. LEXIS 9696, **;
                                                     1989 AMC 2371

In addressing the Act's restriction to cases of actual con-    the parties in the conventional suit are reversed; the in-
troversy the Supreme Court has stated:                         quiry is the same in either case." Id. Guided by these
           The Constitution limits the exercise of             teachings, this court has applied the following rule when
       the judicial power to "cases" and "contro-              determining whether a request for declaratory judgment
       versies." . . . The Declaratory Judgment                relief presents an actual controversy:
       Act of 1934, in its limitation to "cases of
       actual controversy," manifestly has regard                         A controversy, to be justiciable, must
       to the constitutional provision and is op-                     be such that it can presently be litigated
       erative only in respect to controversies                       and decided and not hypothetical, conjec-
       which are such in the constitutional sense.                    tural, conditional or based upon the possi-
       The word "actual" is one of emphasis ra-                       bility of a factual situation that may never
       ther than of definition . . .                                  develop.
            A "controversy" in this sense must be
       one that is appropriate for judicial deter-
       mination. A justiciable controversy is thus
       distinguished from a difference or dispute
                                                               Brown & Root, Inc. v. Big Rock Corp., 383 F.2d 662, 665
       of a hypothetical or abstract character;
                                                               (5th Cir. 1967).
       from one that is academic or moot. The
       controversy must be definite and concrete,                   Mindful of these principles, we address the instant
       touching the legal relations of parties                 appeal. The dispute presented by Rowan's complaint is
       having adverse legal interests. It must be a            whether Rowan's legal obligation to provide Griffin with
       real and substantial controversy admitting              maintenance and cure has been extinguished because
       of specific relief through [**4] a decree               Griffin has reached maximum cure. This is not a hypo-
       of a conclusive character, as distinguished             thetical, conjectural, or conditional question, or one based
       from an opinion advising [*28] what                     upon the possibility of a factual situation that may never
       the law would be upon a hypothetical state              develop. Rather, the controversy is real, definite, and
       of facts. Where there is such a concrete                concrete, and therefore justiciable, for all of the acts
       case admitting of an immediate and defin-               necessary [**6] for resolution of the merits of the claim
       itive determination of the legal rights of              -- Griffin's injury and the course of his subsequent medi-
       the parties in an adversary proceeding                  cal recovery -- occurred prior to the filing of Rowan's
       upon the facts alleged, the judicial function           complaint.
       may be appropriately exercised although
                                                                    Griffin contends that there is no justiciable contro-
       the adjudication of the rights of the liti-
                                                               versy because he had not made a formal or informal de-
       gants may not require the award of process
                                                               mand for continued maintenance and cure payments prior
       or the payment of damages.
                                                               to Rowan's request for a declaratory judgment. We disa-
                                                               gree. Such a demand is not a requisite for use of this ju-
                                                               dicial problem-solver. The purpose of the Declaratory
                                                               Judgment Act is "'to afford one threatened with liability
                                                               an early adjudication without waiting until his adversary
Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 239-41, 57
                                                               should see fit to begin an action after the damage has
S. Ct. 461, 463-64, 81 L. Ed. 617 (1937) (citations omit-
                                                               accrued.'" Government Employees Ins. Co. v. LeBleu, 272
ted); see also 10A C. Wright, A. Miller & M. Kane,
                                                               F. Supp. 421, 427 (E.D.La. 1967) (quoting 3 Barron &
Federal Practice and Procedure § 2757 (1983).
                                                               Holtzoff, Federal Practice and Procedure (Wright Edition)
     While recognizing the difficulty of fashioning a pre-     § 1262). The declaratory judgment vehicle also is in-
cise test for identifying a justiciable controversy, the       tended to provide a means of settling an actual contro-
Court has clearly instructed that "the question in each case   versy before it ripens into a violation of the civil or
is whether the facts alleged, under all the circumstances,     criminal law, or a breach of a contractual duty.
show that there is a substantial controversy, between          Scott-Burr Stores Corp. v. Wilcox, 194 F.2d 989, 990 (5th
parties having adverse legal interests, of sufficient im-      Cir. 1952).
mediacy and reality to warrant the issuance of a declara-
                                                                    Our conclusion that Rowan's complaint presents a
tory judgment." Maryland Casualty Co. v. Pacific Coal &
                                                               [**7] justiciable controversy does not mean that the
Oil Co., 312 U.S. 270, 273, 61 S. Ct. 510, 512, 85 L. Ed.
                                                               district court is obliged to entertain the action. It is well
826 (1941). [**5] Moreover, "it is immaterial that fre-
                                                               established that a district court "is not required to provide
quently, in the declaratory judgment suit, the positions of
                                                               declaratory judgment relief, and it is a matter for the dis-
                                                                                                                   Page 3
                                     876 F.2d 26, *; 1989 U.S. App. LEXIS 9696, **;
                                                     1989 AMC 2371

trict court's sound discretion whether to decide a declar-            judgments outside the scope of Cone." 706 F.2d at
atory judgment action." Mission Ins. Co. v. Puritan                   601 n. 1.
Fashions Corp., 706 F.2d 599, 601 (5th Cir. 1983) (citing
                                                                           Five years later, the panel in Evanston Ins.
Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 62 S. Ct.
                                                                      Co. v. Jimco, Inc., 844 F.2d 1185 (5th Cir. 1988),
1173, 86 L. Ed. 1620 (1942)); see also Dresser Indus.,
                                                                      inadvertently overlooked Puritan Fashions and its
Inc. v. Insurance Co. of N. Am., 358 F. Supp. 327, 330
                                                                      rejection of Moses Cone, as applied to declaratory
(N.D.Tex.) (Declaratory Judgment Act "gives the court a
                                                                      judgment proceedings. In Jimco the panel held
choice, not a command"), aff'd, 475 F.2d 1402 (5th Cir.
                                                                      that in considering whether to dismiss a declara-
1973). And, although a district court may not dismiss a
                                                                      tory judgment action a district court should apply
request for declaratory judgment relief "on the basis of
                                                                      the Colorado River-Moses Cone factors. Jimco
whim or [*29] personal disinclination," Hollis v. Ita-
                                                                      thus placed stricter limitations than Puritan
wamba County Loans, 657 F.2d 746, 750 (5th Cir. 1981),
                                                                      Fashions on the district court's exercise of discre-
the court may consider a variety of factors in determining
                                                                      tion. The tension between Puritan Fashions and
whether to decide a declaratory judgment suit. For ex-
                                                                      Jimco was recognized in Sandefer Oil & Gas, Inc.
ample, declaratory judgment relief may be denied because
                                                                      v. Duhon, 871 F.2d 526 (5th Cir. 1989).
of a pending state court proceeding [**8] in which the
matters in controversy between the parties may be fully                    In the case at bar we follow Puritan Fashions.
litigated, Brillhart, 316 U.S. at 494-95, 62 S. Ct. at                We do so because we are bound to follow the de-
1175-76; Hollis, 657 F.2d at 750; Employers' Liab. As-                cision of the first panel. See Ryals v. Estelle, 661
surance Corp. v. Mitchell, 211 F.2d 441, 443 (5th Cir.),              F.2d 904 (5th Cir. 1981). In addition, we are
cert. denied, 347 U.S. 1014, 74 S. Ct. 869, 98 L. Ed. 1137            persuaded that Puritan Fashions states the better
(1954), because the declaratory complaint was filed in                rule, more consistent with the essence of the De-
anticipation of another suit and is being used for the                claratory Judgment Act.
purpose of forum shopping, Pacific Employers Ins. Co. v.
                                                                     [**9] In Mission Ins. Co. v. Puritan Fashions
M/V CAPT. W.D. CARGILL, 751 F.2d 801, 804 (5th Cir.),
                                                               Corp., 706 F.2d 599, 601 & n. 2 (5th Cir. 1983), we ad-
cert. denied, 474 U.S. 909, 106 S. Ct. 279, 88 L. Ed. 2d
244 (1985); Puritan Fashions, 706 F.2d at 602, because         dressed the standard to be applied when reviewing a dis-
of possible inequities in permitting the plaintiff to gain     trict court's decision to dismiss a declaratory judgment
                                                               complaint. Noting that dismissals under the Declaratory
precedence in time and forum, id., or because of incon-
                                                               Judgment Act and dismissals under the doctrine of forum
venience to the parties or the witnesses, id. 2
                                                               non conveniens typically are based on many of the same
                                                               considerations, we perceived no reason for the standard of
       2 In Puritan Fashions, 706 F.2d at 601 n.1, a
       panel of this court rejected application of Moses       review to vary. Forum non conveniens dismissals are
       H. Cone Memorial Hospital v. Mercury Con-               reviewed under an abuse of discretion standard. Piper
                                                               Aircraft Co. v. Reyno, 454 U.S. 235, 102 S. Ct. 252, 70 L.
       struction Corp., 460 U.S. 1, 103 S. Ct. 927, 74 L.
                                                               Ed. 2d 419 (1981). In Puritan Fashions we held that
       Ed. 2d 765 (1983), to declaratory judgment ac-
                                                               standard applicable to the review of dismissals of declar-
       tions. In Cone and its companion case, Colorado
                                                               atory judgment actions.
       River Water Conservation District v. United
       States, 424 U.S. 800, 96 S. Ct. 1236, 47 L. Ed. 2d           In the instant case the district court did not assign
       483 (1976), the Supreme Court narrowly circum-          reasons for its dismissal of Rowan's complaint. A reading
       scribed the instances in which a district court may     of the sparse record leads us to surmise that the dismissal
       dismiss an action because of parallel state court       was based on the trial court's conclusion that Rowan's
       litigation, absent traditional grounds for absten-      complaint failed to state a justiciable controversy, for the
       tion. The Court listed several factors a district       argument focused on this issue. If that be the case, the
       court must balance in determining the appropri-         district court erred as a matter of law for the court does
       ateness of a dismissal in the interest of wise judi-    have jurisdiction. [**10] However, after addressing the
       cial administration, and stressed that the balance      relevant factors the court will be free to exercise its dis-
       should be weighted heavily in favor of the exer-        cretion to maintain or reject the suit. 3
       cise of jurisdiction. Neither Colorado River nor
       Moses Cone, however, involved a declaratory                    3 Subsequent to the district court's dismissal of
       judgment suit. Recognizing this, the Puritan                   Rowan's complaint for declaratory judgment re-
       Fashions panel held that "the purely remedial and              lief, Griffin filed a maintenance and cure suit
       equitable nature of declaratory judgments vests                against Rowan in Texas state court. This is an
       the court with discretion, and sets declaratory                important factor that the district court should take
                                                                      into account. See Brillhart; Hollis; Mitchell. Fur-
                                                                                                                  Page 4
                                     876 F.2d 26, *; 1989 U.S. App. LEXIS 9696, **;
                                                     1989 AMC 2371

       ther, in an appropriate setting it may be significant   821 F.2d 1147, 1166 (5th Cir. 1987) (en banc), vacated on
       that a maintenance and cure claim joined with a         other grounds, Pan American World Airways, Inc. v.
       Jones Act claim must be submitted to a jury when        Lopez, 490 U.S. 1032, 109 S. Ct. 1928, 104 L. Ed. 2d 400
       both arise out of one set of facts. Fitzgerald v.       (1989). However, we have said definitively, that in the
       United States Lines Company, 374 U.S. 16, 83 S.         context of a forum non conveniens dismissal "a district
       Ct. 1646, 10 L. Ed. 2d 720 (1963).                      court abuses its discretion when it summarily denies or
                                                               grants a motion to dismiss without either written or oral
     If our surmising is incorrect and the district court
                                                               explanation" or "when it fails to address and balance the
concluded that an actual controversy [*30] existed but
                                                               relevant principles and factors of the doctrine." Id. As in
exercised its discretion to reject the suit, we nevertheless
                                                               Puritan Fashions, we perceive no reason why these re-
must remand. Without an assignment of reasons for the
                                                               quirements should not also apply to a district court's dis-
district court's action, we cannot perform the appellate
                                                               missal under the Declaratory Judgment Act, and we now
function. [**11] In determining whether a district court
                                                               hold that they do.
abused its discretion in dismissing on the basis of forum
non conveniens, we observed that "it is difficult to for-          The judgment of the district court is REVERSED and
mulate a list of examples which will always be abuses of       the matter is REMANDED for further proceedings in
discretion." In re Air Crash Disaster Near New Orleans,        conformity herewith.
                                                                                                                   Page 1




                  RUSK STATE HOSPITAL, PETITIONER, v. DENNIS BLACK AND PAM
                BLACK, INDIVIDUALLY AND AS REPRESENTATIVES OF THE ESTATE OF
                        TRAVIS BONHAM BLACK, DECEASED, RESPONDENTS

                                                      NO. 10-0548

                                           SUPREME COURT OF TEXAS

                              392 S.W.3d 88; 2012 Tex. LEXIS 731; 55 Tex. Sup. J. 1320

                                              October 6, 2011, Argued
                                          August 31, 2012, Opinion Delivered

SUBSEQUENT HISTORY:                Released for Publica-      HECHT filed a concurring [**2] opinion. JUSTICE
tion October 12, 2012.                                        LEHRMANN filed a concurring and dissenting opinion,
                                                              in which CHIEF JUSTICE JEFFERSON and JUSTICE
PRIOR HISTORY: [**1]                                          MEDINA joined.
  ON PETITION FOR REVIEW FROM THE COURT
OF APPEALS FOR THE TWELFTH DISTRICT OF                        OPINION BY: Phil Johnson
TEXAS.
Rusk State Hosp. v. Black, 379 S.W.3d 283, 2010 Tex.          OPINION
App. LEXIS 4687 (Tex. App. Tyler, June 23, 2010)
                                                                     [*91] In this health care liability claim the trial
                                                              court denied Rusk State Hospital's challenge to the plain-
                                                              tiffs' expert reports. The Hospital filed an interlocutory
COUNSEL: For Rusk State Hospital, Petitioner: Clar-
                                                              appeal from that ruling. On appeal the Hospital, for the
ence Andrew Weber, Kelly Hart & Hallman LLP, Austin
                                                              first time, asserted it was immune from suit. The court of
TX; Daniel T. Hodge, First Asst. Attorney General, Aus-
                                                              appeals refused to consider the immunity issue because it
tin TX; David C. Mattax, Director of Defense Litigation,
                                                              had not been presented to the trial court. After addressing
Timothy Edward Boughal, Office of the Attorney Gen-
                                                              the merits of the Hospital's challenge to the expert reports,
eral, Austin TX; David S. Morales, Office of the Attorney
                                                              the court of appeals remanded the case to the trial court for
General of Texas, Deputy First Assistant Attorney Gen-
                                                              further proceedings.
eral, Austin TX; Greg W. Abbott, Attorney General of
Texas, Austin TX; James C. Ho, Gibson Dunn & Crutcher              We conclude that the court of appeals erred by re-
LLP, Dallas TX; Jonathan F. Mitchell, Solicitor General       fusing to consider the immunity claim because immunity
Office of the Attorney General, Austin TX; Michael P.         from suit implicates courts' subject-matter jurisdiction.
Murphy, Asst. Solicitor General, Austin TX; William           After considering the immunity claim, which was briefed
(Bill) J. Cobb III, Attorney General's Office, Deputy Atty.   and argued in this Court, however, we affirm the judg-
General for Civil Litigation, Austin TX.                      ment of the court of appeals remanding the case to the trial
                                                              court because (1) the pleadings and record neither estab-
For Black, Dennis and Pam Black, Individually and as          lish a waiver of the Hospital's immunity nor conclusively
Representatives of the Estate of Travis Bonham Black,         negate such a waiver; and (2) the Hospital has not shown
Deceased, Respondent: Dennis Gerald Black, Jeremy             conclusively that [**3] either the plaintiffs had a full,
Mitchell Skaggs, Black & Skaggs, P.C., Tyler TX.              fair opportunity in the trial court to develop the record as
                                                              to immunity and amend their pleadings, or that if the case
JUDGES: JUSTICE JOHNSON delivered the opinion of              is remanded and the plaintiffs are given such an oppor-
the Court, in which JUSTICE HECHT, JUSTICE                    tunity they cannot show immunity has been waived.
WAINWRIGHT,      JUSTICE   GREEN,     JUSTICE
WILLETT, and JUSTICE GUZMAN joined. JUSTICE                   I. Background
                                                                                                                          Page 2
                                         392 S.W.3d 88, *; 2012 Tex. LEXIS 731, **;
                                                    55 Tex. Sup. J. 1320

     Travis Black was a psychiatric patient in Rusk State         considering the issue on interlocutory appeal when it had
Hospital when he was found unconscious with a plastic             not been presented to or ruled on by the trial court. Id. at
bag over his head. Efforts to resuscitate him were un-            . The appeals court, considering both Dr. Combs's report
successful and he died. Delbert Van Dusen, M.D., per-             and Dr. Van Dusen's autopsy report as statutory reports,
formed an autopsy, determined Travis died of asphyxia-            concluded that the Blacks' claims regarding sleep depri-
tion, and concluded that he committed suicide.                    vation, failure to prescribe adequate medication, and
                                                                  indifference to Travis's medical needs were not addressed
     Travis's parents, Dennis and Pam Black, filed a health
                                                                  by them, so it dismissed those claims with prejudice. Id. at
care liability suit against the Hospital and other entities
                                                                  . Although the appeals court also concluded that the
that are not parties to this appeal.1 The Blacks alleged that
                                                                  Blacks' expert reports were deficient with respect to their
the Hospital (1) was negligent by providing or allowing
                                                                  [**6] remaining negligence claims, it determined the
Travis access to a plastic bag that was inherently dan-
                                                                  reports nonetheless represented a good-faith effort to
gerous in an inpatient psychiatric setting, and the negli-
                                                                  comply with section 74.351 and remanded for the trial
gence involved a condition, use, or misuse of tangible
                                                                  court to consider whether to grant a 30-day extension for
personal property; (2) was negligent in training and su-
                                                                  the Blacks to cure the deficiencies. See TEX. CIV. PRAC. &
pervising its employees, which resulted in Travis's death
                                                                  REM. CODE § 74.351(c) (providing that "the court may
either by assisted suicide or murder; and (3) acted with
                                                                  grant one 30-day extension to the claimant in order to cure
deliberate indifference to Travis's medical and psychiatric
                                                                  the deficiency" if it concludes the claimant's timely filed
[**4] needs by depriving him of sleep and refusing to
                                                                  expert reports are deficient); Leland v. Brandal, 257
prescribe appropriate medication.
                                                                  S.W.3d 204, 205 (Tex. 2008) (holding that "when ele-
                                                                  ments of a timely filed expert report are found deficient,
        1 The Blacks also sued the State of Texas and
                                                                  either by the trial court or on appeal, one thirty-day ex-
        the Texas Department of State Health Services.
                                                                  tension to cure the report may be granted" and remanding
        The court of appeals dismissed the claims against
                                                                  the case to the trial court for it to consider whether to grant
        the State and the Department.        S.W.3d     ,
                                                                  an extension).
        . The Blacks do not complain of that action.
                                                                       The Blacks did not seek review of the court of ap-
     The Blacks timely served the Hospital with an expert
                                                                  peals' decision, but the Hospital did and we granted its
report from psychologist Dennis Combs, Ph.D., and a
                                                                  petition for review. 54 Tex. Sup. Ct. J. 1156 (June 17,
copy of Dr. Van Dusen's autopsy report. See TEX. CIV.
                                                                  2011). The Hospital argues that immunity from suit de-
PRAC. & REM. CODE § 74.351. The Hospital moved for
                                                                  prives the trial court of subject-matter jurisdiction and the
dismissal of the suit on the basis that these reports failed to
                                                                  interlocutory appeal statute did not preclude the court of
satisfy the statutory requirements of section 74.351. See
                                                                  appeals from determining the jurisdictional issue. The
id. The trial court denied the motion and the Hospital
                                                                  Hospital [**7] then argues that we should dismiss the
appealed. See id. § 51.014(a)(9) (providing that a person
                                                                  case because the Blacks' pleadings, even if true, do not
may immediately appeal an interlocutory trial court order
                                                                  allege a claim for which the Hospital's immunity has been
that denies all or part of the relief sought by a motion
                                                                  waived by the Tort Claims Act (TCA). See TEX. CIV.
under section 74.351(b)).
                                                                  PRAC. & REM. CODE §§ 101.001-.109.
      [*92] On interlocutory appeal the Hospital argued
                                                                       We begin by addressing our jurisdiction over the in-
that the trial court erred by denying its motion to dismiss
                                                                  terlocutory appeal.
and, for the first time, asserted it had sovereign immunity
from suit. Regarding its immunity claim, the Hospital
                                                                  II. Interlocutory Appeal Jurisdiction
argued that the Blacks' pleadings did not allege a cause of
action for which the [**5] Hospital's immunity was                     Generally, Texas appellate courts have jurisdiction
waived and therefore the Blacks failed to meet their bur-         only over final judgments. Bally Total Fitness Corp. v.
den of showing the trial court had jurisdiction.                  Jackson, 53 S.W.3d 352, 352 (Tex. 2001). An exception
S.W.3d       ,    . The Blacks responded that their filings       exists for certain interlocutory orders. See TEX. CIV. PRAC.
complied with statutory expert report requirements; the           & REM. CODE § 51.014(a); Jackson, 53 S.W.3d at 355. In
court of appeals could not consider the Hospital's im-            relevant part, section 51.014(a) provides that
munity argument because it was neither presented to nor
considered by the trial court; and in any event their                         A person may appeal from an interloc-
pleadings were sufficient to demonstrate a claim for                      utory order of a district court, county court
which the Hospital's immunity was waived. Id. at       .                  at law, or county court that:
     The court of appeals did not address the immunity                         ...
issue because "the weight of authority" precluded it from
                                                                                                                       Page 3
                                       392 S.W.3d 88, *; 2012 Tex. LEXIS 731, **;
                                                  55 Tex. Sup. J. 1320

            (8) grants or denies a plea to the ju-                   Sovereign immunity in Texas embodies two con-
       risdiction by a governmental unit . . . ; [or]           cepts: immunity from liability and immunity from suit.
                                                                Albert, 354 S.W.3d at 373. Immunity from liability pro-
            ...
                                                                tects governmental entities from judgments, while im-
             [*93] (9) denies all or part of the                munity from suit completely bars actions against those
       relief sought by a motion under Section                  entities unless the Legislature expressly consents to suit.
       74.351(b), except that an appeal may not                 Reata Constr. Corp. v. City of Dallas, 197 S.W.3d 371,
       be taken from an order granting an exten-                374 (Tex. 2006); Tooke v. City of Mexia, 197 S.W.3d 325,
       sion under Section 74.351.                               332 (Tex. 2006) ("[I]mmunity from suit . . . bars suit
                                                                [**10] against [a governmental] entity altogether.");
                                                                Wichita Falls State Hosp. v. Taylor, 106 S.W.3d 692, 696
TEX. CIV. PRAC. & REM. CODE § 51.014(a)(8), (9). Section        (Tex. 2003) ("Unlike immunity from suit, immunity from
74.351(b), which section 51.014(a)(9) references, speci-        liability does not affect a court's jurisdiction to hear a case
fies that a court must dismiss a health [**8] care liability    and cannot be raised in a plea to the jurisdiction."); Tex.
claim if the plaintiff does not timely serve an expert report   Natural Res. Conservation Comm'n v. IT-Davy, 74 S.W.3d
and the defendant physician or health care provider             849, 857 (Tex. 2002) ("We again reaffirm that it is the
properly objects. See id. § 74.351(b).                          Legislature's sole province to waive or abrogate sovereign
                                                                immunity."); Tex. Dep't of Transp. v. Jones, 8 S.W.3d 636,
      When an interlocutory appeal is taken pursuant to
                                                                638 (Tex. 1999) (per curiam).2
section 51.014(a), the court of appeals' judgment ordi-
narily is conclusive. See TEX. GOV'T CODE § 22.225(b)(3).
                                                                        2 In this case we address immunity from suit, so
But we may consider an interlocutory appeal when the                    references to immunity will be references only to
court of appeals' decision conflicts with the decision of               immunity from suit unless specified otherwise.
another court of appeals on a material issue of law. Id. §§
22.001(a)(2), (e); 22.225(c). This case presents an issue             [*94] The Legislature has waived governmental
on which the courts of appeals are in conflict: May an          entities' immunity from certain claims by means of the
appellate court consider on interlocutory appeal whether a      Tort Claims Act (TCA). See TEX. CIV. PRAC. & REM.
governmental entity has immunity when the trial court did       CODE §§ 101.001-.109. But the TCA embodies only lim-
not address the issue first. Compare             S.W.3d. at     ited waivers of sovereign immunity; it does not abolish it.
("[W]e hold that the weight of authority precludes our          See Kerrville State Hosp. v. Clark, 923 S.W.2d 582, 584
consideration on interlocutory appeal of jurisdictional         (Tex. 1996).
challenges not presented to or ruled on by the trial
court."), with Fort Bend Cnty. Toll Road Auth. v. Oliva-        B. Immunity and Interlocutory Appeals
res, 316 S.W.3d 114, 118 (Tex. App.--Houston [14th
                                                                     Referencing our decision in Waco Independent
Dist.] 2010, no pet.) ("An appellate court must consider
                                                                School District v. Gibson, 22 S.W.3d 849, 851 (Tex.
challenges to the trial court's subject-matter jurisdiction
                                                                2000), the Hospital argues that immunity from suit is an
on interlocutory appeal, regardless [**9] of whether
                                                                [**11] issue of subject-matter jurisdiction that may be
such challenges were presented to or determined by the
                                                                raised for the first time on interlocutory appeal in the same
trial court."). We have jurisdiction to resolve the conflict.
                                                                manner as standing and ripeness. Conversely, the Blacks
TEX. GOV'T CODE § 22.001(a)(2).
                                                                argue that Gibson is distinguishable and other cases cited
                                                                by the Hospital do not support its position because they
III. Sovereign Immunity
                                                                involved either appeals from final judgments or interloc-
                                                                utory appeals in which the trial court had granted or de-
A. Nature of Immunity
                                                                nied a plea to the jurisdiction.
     The doctrine of sovereign immunity derives from the
                                                                     In Gibson, the trial court granted, in part, Waco In-
common law and has long been part of Texas jurispru-
                                                                dependent School District's (WISD) motion to dismiss for
dence. See Hosner v. De Young, 1 Tex. 764, 769 (1847)
                                                                want of jurisdiction. 22 S.W.3d at 851. The motion was
(holding that the State could not be sued in her own courts
                                                                based on WISD's claim that the Gibsons failed to exhaust
absent her consent "and then only in the manner indicat-
                                                                their administrative remedies before filing suit. Id. The
ed"); see also City of Dallas v. Albert, 354 S.W.3d 368,
                                                                Gibsons filed an interlocutory appeal. Id. WISD re-
373 (Tex. 2011) ("[The] boundaries [of sovereign im-
                                                                sponded not only by re-urging its argument concerning
munity] are established by the judiciary, but we have
                                                                exhaustion of remedies, but also by challenging the trial
consistently held that waivers of it are the prerogative of
                                                                court's jurisdiction on standing and ripeness grounds. See
the Legislature.").
                                                                id. at 851. The court of appeals refused to address WISD's
                                                                standing and ripeness arguments, reasoning that those
                                                                                                                     Page 4
                                       392 S.W.3d 88, *; 2012 Tex. LEXIS 731, **;
                                                  55 Tex. Sup. J. 1320

issues were not preserved for appeal because WISD had          neither.") (Brister, J., [**14] concurring). The dissent
not presented them to the trial court in its motion to dis-    echoes that theme today. But regardless of whether im-
miss. Id. This Court reversed:                                 munity equates to a lack of subject-matter jurisdiction for
                                                               all purposes, it implicates a court's subject-matter juris-
          [T]he court [of appeals] [**12] con-                 diction over pending claims. So if a governmental entity
       cluded that standing and ripeness were not              validly asserts that it is immune from a pending claim, any
       properly preserved for its review. We                   court decision regarding that claim is advisory to the
       disagree. We decided in [Texas Associa-                 extent it addresses issues other than immunity, and the
       tion of Business v. Texas Air Control                   Texas Constitution does not afford courts jurisdiction to
       Board, 852 S.W.2d 440, 445 (Tex. 1993)]                 make advisory decisions or issue advisory opinions. Val-
       that because subject matter jurisdiction is             ley Baptist Med. Ctr. v. Gonzalez, 33 S.W.3d 821, 822
       essential to the authority of a court to de-            (Tex. 2000) (per curiam) ("Under article II, section 1 of
       cide a case, it cannot be waived and may                the Texas Constitution, courts have no jurisdiction to issue
       be raised for the first time on appeal.                 advisory opinions."); see also TEX. CONST. art. IV, §§ 1,
                                                               22 (empowering the attorney general, as part of the ex-
                                                               ecutive department of government, to issue advisory
Id.                                                            opinions to the governor and other officials).
      The Blacks are correct that Gibson does not precisely         Section 51.014(a) expands the jurisdiction of courts
square with the facts and posture of this case. Gibson         of appeals. It specifies circumstances in which a litigant
involved an interlocutory appeal from a trial court order      may immediately appeal from an order that would oth-
granting a plea to the jurisdiction, whereas here no juris-    erwise be unappealable because a final judgment has not
dictional argument was presented to or ruled on by the         been rendered in the matter. See TEX. CIV. PRAC. & REM.
trial court. Compare id. at 851, with       S.W.3d at     .    CODE § 51.014(a); [**15] see also Cherokee Water Co.
The jurisdictional issues in Gibson were also different:       v. Ross, 698 S.W.2d 363, 365 (Tex. 1985) (orig. proceed-
there the questions concerned standing and ripeness rather     ing) (per curiam) ("Unless there is a statute specifically
than immunity. See Gibson, 22 S.W.3d at 851. Further, in       authorizing an interlocutory appeal, the Texas appellate
Gibson the school district pled that the Gibsons' claims       courts have jurisdiction only over final judgments.").
were not ripe and that the Gibsons did not have standing.      Because section 51.014(a) is a limited exception to the
Id. But we disagree that these differences dictate a dif-      general rule that a party may appeal only from final
ferent outcome here.                                           judgments or orders, it is strictly construed. See Bally, 53
                                                               S.W.3d at 355. Strictly construing a statute, however, does
     The court of appeals reasoned that section 51.014(a)
                                                               not call for reading restrictions into it that violate consti-
precluded it from reviewing an immunity claim that was
                                                               tutional principles. The court of appeals effectively con-
neither raised nor ruled [**13] upon in the trial court.
                                                               strued section 51.014(a) to require appellate courts to
See       S.W.3d      . The Hospital argues that this rea-
                                                               address the merits of cases without regard to whether the
soning misapprehends the analysis regarding section
                                                               courts have jurisdiction. That construction violates con-
51.014(a) because the statute does not supplant the con-
                                                               stitutional principles. TEX. CONST. art. II, § 1. But section
stitutional requirement that courts must have jurisdiction
                                                               51.014(a) can be construed in a way so that it does not
to adjudicate a dispute. We agree with the Hospital. The
                                                               conflict with the Constitution. See Stockton v. Offenbach,
inquiry is not whether section 51.014(a) grants appellate
                                                               336 S.W.3d 610, 618 (Tex. 2011); Brooks v. Northglen
courts authority to review an immunity claim; rather, it is
                                                               Ass'n, 141 S.W.3d 158, 169 (Tex. 2004). See also TEX.
whether section 51.014(a) divests appellate courts of such
                                                               GOV'T CODE § 311.021(1) (specifying that the Legislature
authority. We conclude that it does not.
                                                               intends statutes to comply with the Constitution). We hold
      [*95] We have said on numerous occasions that            that if immunity is first asserted [**16] on interlocutory
sovereign immunity deprives courts of subject-matter           appeal, section 51.014(a) does not preclude the appellate
jurisdiction. See, e.g., Tex. Dep't of Parks & Wildlife v.     court from having to consider the issue at the outset in
Miranda, 133 S.W.3d 217, 225-26 (Tex. 2004); Jones, 8          order to determine whether it has jurisdiction to address
S.W.3d at 638; see also State v. Lueck, 290 S.W.3d 876,        the merits. We disapprove of those cases in which courts
880 (Tex. 2009) (recognizing that a plea to the jurisdiction   of appeals have held differently.3
properly presents the immunity issue). It has been sug-
gested that while immunity implicates subject-matter                   3     E.g., Clear Lake City Water Auth. v.
jurisdiction, it does not necessarily equate to a lack of              Friendswood Dev. Co., 256 S.W.3d 735, 747 n.14
subject-matter jurisdiction. See Reata, 197 S.W.3d at 381              (Tex. App.--Houston [14th Dist.] 2008, pet.
("[S]overeign immunity includes concerns about both                    dism'd); City of Celina v. Dynavest Joint Venture,
subject-matter and personal jurisdiction but is identical to           253 S.W.3d 399, 404 (Tex. App.--Austin 2008, no
                                                                                                                         Page 5
                                        392 S.W.3d 88, *; 2012 Tex. LEXIS 731, **;
                                                   55 Tex. Sup. J. 1320

        pet.); Univ. of Tex. Sw. Med. Ctr. at Dallas v.          to show jurisdiction despite having had full and fair op-
        Estate of Arancibia, 244 S.W.3d 455, 461-62 (Tex.        portunity in the trial court to develop the record and
        App.--Dallas 2007), aff'd on other grounds, 324          amend the pleadings; or, if such opportunity was not
        S.W.3d 544 (Tex. 2010); Kinney Cnty. Ground-             given, that the plaintiff would be unable to show the ex-
        water Conservation Dist. v. Boulware, 238 S.W.3d         istence of jurisdiction if the cause [**19] were remanded
        452, 461 (Tex. App.--San Antonio 2007, no pet.);         to the trial court and such opportunity afforded. If the
        Austin Indep. Sch. Dist. v. Lowery, 212 S.W.3d           governmental entity meets this burden, then the appellate
        827, 834 (Tex. App.--Austin 2006, pet. denied);          court should dismiss the plaintiff's case. See Koseoglu,
        Brenham Hous. Auth. v. Davies, 158 S.W.3d 53,            233 S.W.3d at 840 ("[W]e agree that Koseoglu deserves
        61 (Tex. App.--Houston [14th Dist.] 2005, no             the opportunity to amend his pleadings if the defects can
        pet.); City of Dallas v. First Trade Union Sav.          be cured. But Koseoglu's pleading defects cannot be
        Bank, 133 S.W.3d 680, 687-88 (Tex. App.--Dallas          cured, and he has made no suggestion as to how to cure
        2003, pet. denied).                                      the jurisdictional defect."); Gibson, 22 S.W.3d at 853
                                                                 ("With every available opportunity to generate record
      [*96] In addition to the constitutional concerns set
                                                                 evidence opposing WISD's challenges, the Gibsons could
out above, we note a practical significance to precluding
                                                                 not have done so because the evidence required to do so
appellate [**17] review of immunity on interlocutory
                                                                 did not exist."). If, however, the governmental entity does
appeal: precluding such review would be inconsistent
                                                                 not meet this burden, the appellate court should remand
with the purpose of section 51.014(a). If we agreed with
                                                                 the case to the trial court for further proceedings. [*97]
the court of appeals' reasoning--as the Blacks ask us to do
                                                                 See Westbrook v. Penley, 231 S.W.3d 389, 395 (Tex.
and the dissent contends we should do--then on remand
                                                                 2007) ("If the pleadings are insufficient to establish ju-
the Hospital could assert immunity and file a plea to the
                                                                 risdiction but do not affirmatively demonstrate an incur-
jurisdiction. If its plea were denied the Hospital could file
                                                                 able defect, the plaintiff should be afforded an opportunity
another interlocutory appeal. See TEX. CIV. PRAC. & REM.
                                                                 to replead."); Cnty. of Cameron v. Brown, 80 S.W.3d 549,
CODE § 51.014(a)(8). Such a process would work against
                                                                 559 (Tex. 2002) (remanding a case to the trial court for
the main purpose of the interlocutory appeal statute,
                                                                 repleading when the pleadings failed to show jurisdiction
which is to increase efficiency of the judicial process. See
                                                                 but did not [**20] affirmatively demonstrate an incura-
Tex. A&M Univ. Sys. v. Koseoglu, 233 S.W.3d 835, 845
                                                                 ble jurisdictional defect).
(Tex. 2007).
      But as we have previously acknowledged, a plaintiff        C. Response to the Dissent
may not have had fair opportunity to address jurisdic-
                                                                      The dissent urges that we fully re-examine the basis
tional issues by amending its pleadings or developing the
                                                                 for our numerous prior statements that immunity deprives
record when the jurisdictional issues were not raised in the
                                                                 courts of subject-matter jurisdiction.4 What the dissent
trial court. See Gibson, 22 S.W.3d at 853 (recognizing that
                                                                 effectively urges is a change in the nature of immunity in
safeguards are necessary to protect a plaintiff when an
                                                                 Texas, and in the relationship between the legislative and
appellate court considers an issue of subject-matter juris-
                                                                 judicial branches of government regarding management
diction in the first instance because the plaintiff has not
                                                                 of the public fisc. That is a significant issue, but the parties
had an opportunity to amend its pleadings, but concluding
                                                                 did not raise it in the courts below or this Court. Ad-
that the Gibsons [**18] could not show their claim was
                                                                 dressing it would take us beyond what is necessary to
ripe even with "every available opportunity to generate
                                                                 decide this appeal and we decline to do so, except to the
record evidence opposing WISD's challenges"). Under
                                                                 extent it is addressed by our opinion and holding.
such circumstances appellate courts must construe the
pleadings in favor of the party asserting jurisdiction, and,
                                                                         4 See Tex. Dep't of Ins. v. Reconveyance Servs.,
if necessary, review the record for evidence supporting
                                                                         Inc., 306 S.W.3d 256, 258 (Tex. 2010) (per
jurisdiction. Tex. Ass'n of Bus., 852 S.W.2d at 446. In
                                                                         curiam); Univ. of Tex. at El Paso v. Herrera, 322
some instances the pleadings or record may conclusively
                                                                         S.W.3d 192, 202 (Tex. 2010); Lueck, 290 S.W.3d
negate the existence of jurisdiction, in which case the suit
                                                                         at 880-81; Koseoglu, 233 S.W.3d at 843; State v.
should be dismissed. See Miranda, 133 S.W.3d at 227 ("If
                                                                         Shumake, 199 S.W.3d 279, 283 (Tex. 2006);
the pleadings affirmatively negate the existence of juris-
                                                                         Reata, 197 S.W.3d at 374; Harris Cnty. v. Sykes,
diction, then a plea to the jurisdiction may be granted
                                                                         136 S.W.3d 635, 638 (Tex. 2004); Miranda, 133
without allowing the plaintiffs an opportunity to
                                                                         S.W.3d at 225-26; Hoff v. Nueces Cnty., 153
amend."). But if the pleadings and record neither demon-
                                                                         S.W.3d 45, 48 (Tex. 2004) (per curiam); Dallas
strate jurisdiction nor conclusively negate it, then in order
                                                                         Area Rapid Transit v. Whitley, 104 S.W.3d 540,
to obtain dismissal of the plaintiff's claim, the defendant
                                                                         542 (Tex. 2003); [**21] State ex rel. State Dep't
entity has the burden to show either that the plaintiff failed
                                                                         of Highways & Pub. Transp. v. Gonzalez, 82
                                                                                                                      Page 6
                                         392 S.W.3d 88, *; 2012 Tex. LEXIS 731, **;
                                                    55 Tex. Sup. J. 1320

        S.W.3d 322, 327 (Tex. 2002); IT-Davy, 74 S.W.3d                The Hospital contends the Blacks' allegations that it
        at 855; Dep't of Transp. v. Garza, 70 S.W.3d 802,         provided or failed to prohibit access to a plastic bag, or
        803 (Tex. 2002); Travis Cnty. v. Pelzel & Assocs.,        that a Hospital employee either murdered Travis or as-
        Inc., 77 S.W.3d 246, 248 (Tex. 2002), superseded          sisted his suicide, do not fit within the TCA's limited
        on other grounds by statute as recognized in,             waiver of immunity, even if they are true. The Blacks
        Tooke, 197 S.W.3d at 342; Tex. Natural Res.               disagree. They emphasize that the Hospital's policy clas-
        Conservation Comm'n v. White, 46 S.W.3d 864,              sified the plastic bag as inherently dangerous in an inpa-
        866 (Tex. 2001); Tex. Dep't of Criminal Justice v.        tient psychiatric setting. The Blacks argue that their
        Miller, 51 S.W.3d 583, 585 (Tex. 2001); Kinnear           pleadings assert the Hospital was negligent in providing,
        v. Tex. Comm'n on Human Rights ex rel. Hale, 14           furnishing, or allowing Travis to access the bag; its neg-
        S.W.3d 299, 300 (Tex. 2000) (per curiam).                 ligence involved a use or condition of tangible personal
                                                                  property; and the negligence proximately caused Travis's
IV. The Blacks' Claim                                             death. They suggest such pleadings sufficiently allege a
                                                                  claim within the TCA's waiver of immunity. We disagree
A. The Tort Claims Act                                            with the Blacks.
     The court of appeals did not address the Hospital's               Neither providing nor prohibiting access to the bag
claim of immunity. Rather than remanding the case to the          was a "use." The Blacks' "use" argument erroneously
court of appeals for it to do so, however, we address the         equates providing, [**24] furnishing, or allowing access
issue in the interest of judicial economy. See TEX. R. APP.       to tangible property with putting or bringing the property
P. 53.4; Reid Road Mun. Util. Dist. No. 2 v. Speedy Stop          into action or service or applying the property to a given
Food Stores, Ltd., 337 S.W.3d 846, 855 (Tex. 2011).               purpose. See Cowan, 128 S.W.3d at 245-46 (explaining
                                                                  that "use" means "to put or bring into action or service; to
     As relevant to the Blacks' claim against the Hospital,
                                                                  employ for or apply to a given purpose" (citations omit-
the TCA provides that a governmental unit is liable for
                                                                  ted)). Comparing Cowan to the case at bar illustrates this
"personal injury and death so caused by a condition or use
                                                                  point. Cowan involved the death of James Roy Cowan, a
of tangible personal or real property if the governmental
                                                                  psychiatric patient at San Antonio State Hospital. Id. at
unit [**22] would, were it a private person, be liable to
                                                                  245. The hospital allowed Cowan access to suspenders
the claimant according to Texas law." TEX. CIV. PRAC. &
                                                                  and a walker, which Cowan then used in causing his own
REM. CODE § 101.021(2). Section 101.021(2) waives
                                                                  death. Id. We held that the hospital's immunity was not
immunity for claims based upon the "use" of tangible
                                                                  waived by the TCA because the hospital did not "use" the
personal property only when the governmental unit itself
                                                                  suspenders and walker within the meaning of section
uses the property. See id.; San Antonio State Hosp. v.
                                                                  101.021(2) by merely giving them to Cowan. See id. at
Cowan, 128 S.W.3d 244, 245-46 (Tex. 2004). A govern-
                                                                  246 ("[T]he Hospital's immunity can be waived only for
mental unit does not "use" property within the meaning of
                                                                  its own use of Cowan's walker and suspenders, and not by
the TCA when it merely allows someone else to use it.
                                                                  Cowan's use of them."). Here, the Blacks allege the Hos-
Cowan, 128 S.W.3d at 246; see Dallas Cnty. v. Posey, 290
                                                                  pital allowed Travis access to the plastic bag that was used
S.W.3d 869, 871 (Tex. 2009). Immunity is waived for
                                                                  in causing his death. These allegations do not present a
claims based on a "condition" of tangible property if the
                                                                  claim for which the Hospital's immunity is waived by the
condition proximately causes personal injury or death. See
                                                                  TCA because, as we held in Cowan, a hospital [**25]
TEX. CIV. PRAC. & REM. CODE § 101.021(2); Posey, 290
                                                                  does not "use" tangible personal property (e.g., a plastic
S.W.3d at 872; Dallas Cnty. Mental Health & Mental
                                                                  bag) within the meaning of section 101.021(2) by merely
Retardation v. Bossley, 968 S.W.2d 339, 343 (Tex. 1998).
                                                                  providing, furnishing, or allowing a patient access to it.
A condition does not proximately [*98] cause an injury
or death if it does no more than furnish the means to make             The Blacks also allege that a "condition" of the plas-
injury or death possible; that is, immunity is waived only        tic bag caused Travis's death. They emphasize the plastic
if the condition (1) poses a hazard in the intended and           bag was a contraband item and inherently dangerous in
ordinary use of the property and (2) actually causes an           the inpatient psychiatric setting. These facts, they argue,
injury or death. See Posey, 290 S.W.3d at 871, 873;               bring their claim under the TCA's waiver of immunity
Bossley, 968 S.W.2d at 343. [**23] The TCA does not               pursuant to our decision in Lowe v. Texas Tech University,
waive immunity for claims arising from intentional torts.         540 S.W.2d 297 (Tex. 1966). The Hospital responds that
See TEX. CIV. PRAC. & REM. CODE § 101.057(2) ("This               the Blacks' reliance on Lowe is misplaced because in that
chapter does not apply to a claim . . . arising out of assault,   case the property was being put to its intended and ordi-
battery, . . . or any other intentional tort.").                  nary use when a defect in the property caused an injury.
                                                                  The Hospital argues that because the plastic bag was not
B. Was the Hospital's Immunity Waived?                            being put to its ordinary, intended use when it caused
                                                                                                                      Page 7
                                       392 S.W.3d 88, *; 2012 Tex. LEXIS 731, **;
                                                  55 Tex. Sup. J. 1320

Travis's [*99] death, the Hospital's immunity is not            death, see TEX. PENAL CODE § 22.08(a), and section
waived for a claim based on the alleged condition of the        101.057(2) specifies that the Hospital's immunity is not
bag. The Hospital is correct.                                   waived for such a claim. See TEX. CIV. PRAC. & REM.
                                                                CODE § 101.057(2). We first address the Hospital's second
     In Lowe, the plaintiff alleged that he injured his knee
                                                                argument because it is dispositive.
playing football after the University's football coach or-
dered him to remove his knee brace and reenter a game                A person commits the criminal offense of aiding su-
without it. Id. at 302 (Greenhill, C.J., concurring).           icide if "with intent to promote or assist the commission of
[**26] The Court concluded that the knee brace was an           suicide by another, he aids or attempts to aid the other to
integral part of Lowe's football uniform and held that the      commit suicide." TEX. PENAL CODE § 22.08(a). The stat-
TCA waived the University's immunity because the uni-           ute proscribes action taken with the intent that a suicide
form it gave Lowe was defective due to its lack of a knee       result. Actions taken with the specific intent to inflict
brace. See id. at 300 (majority opinion). We subsequently       harm are characterized as intentional torts. See Reed Tool
limited the precedential value of Lowe "to claims in which      Co. v. Copelin, 689 S.W.2d 404, 406 (Tex. 1985). Thus,
a plaintiff alleges that a state actor has provided property    assuming, without deciding, that assisting [*100] sui-
that lacks an integral safety component and that lack of        cide or murder is a tort, it requires actions taken with
this integral component led to the plaintiff's injuries."       intent to cause harm and is an intentional tort. The Hos-
Kerrville State Hosp. v. Clark, 923 S.W.2d 582, 585 (Tex.       pital's immunity as to such a tort is not waived. See City of
1996).                                                          Laredo v. Nuno, 94 S.W.3d 786, 789 (Tex. App.--San
                                                                Antonio 2002, no pet.) (holding that section 101.057(2)
     Here, the Blacks argue that the Hospital's act of fur-
                                                                [**29] applied to claims against a police officer in part
nishing Travis with a plastic bag considered inherently
                                                                because the officer's conduct was referable to an inten-
dangerous in the inpatient psychiatric setting was analo-
                                                                tional decision to seize a vehicle illegally).
gous to giving him property that lacked an integral safety
component. They support this assertion by pointing out               In sum, even construed in their favor, the Blacks'
that we framed the issue in Cowan as "whether merely            pleadings do not allege a cause of action within the TCA's
providing someone with personal property that is not itself     waiver of the Hospital's immunity. And the record does
inherently unsafe is a 'use' within the meaning of the Act."    not contain any evidence to support jurisdiction.
128 S.W.3d at 245 (emphasis added). But, as the Hospital
                                                                     The Hospital argues that if we reach this point in our
maintains, the Blacks' argument fails to recognize that the
                                                                analysis, we should dismiss the Blacks' claims with
TCA waives immunity for an inherently dangerous con-
                                                                prejudice because they failed to carry their burden to show
dition [**27] of tangible personal property only if the
                                                                the trial court had jurisdiction. See, e.g., Miranda, 133
condition poses a hazard when the property is put to its
                                                                S.W.3d at 226-27; City of Garland v. Louton, 691 S.W.2d
intended and ordinary use, which the plastic bag was not.
                                                                603, 605 (Tex. 1985). But because the Hospital made its
See Posey, 290 S.W.3d at 872. In the circumstances of
                                                                immunity argument for the first time in the court of ap-
Travis's care at the Hospital, any inherently dangerous
                                                                peals, the case will be remanded for further proceedings
aspects of the plastic bag were at most a means to make
                                                                on the jurisdictional issue unless the Hospital shows that
his death possible. Cf. id. (reasoning that exposed tele-
                                                                one of three situations exist: (1) the Blacks' pleadings or
phone wires did not proximately cause an inmate's death
                                                                the record conclusively negate jurisdiction; (2) the Blacks
because the exposed wires were no more than a condition
                                                                had a full and fair opportunity in the trial court to develop
of the property that the inmate used to form a ligature to
                                                                the record and amend their pleadings to show jurisdiction
take his life).
                                                                yet failed to do so; or (3) if the Blacks did not have such an
     The Blacks alternatively urge that the Hospital's          opportunity, they cannot [**30] show jurisdiction even
negligence resulted in Travis's death by assisted suicide or    if the case is remanded to the trial court and they are given
murder. Their argument focuses on the possibility that a        the opportunity to develop the record as to jurisdiction and
Hospital employee assisted Travis in committing suicide,        amend their pleadings. We next look to see whether the
and they contend that aiding suicide is not an intentional      Hospital has conclusively shown one of the above situa-
tort within the meaning of section 101.057. See TEX. CIV.       tions.
PRAC. & REM. CODE § 101.057(2) (providing that the TCA
                                                                     The Blacks contend that they did not have a fair op-
does not apply to claims arising out of intentional torts).
                                                                portunity in the trial court to develop the record as to
The Hospital's response is twofold. It first asserts that the
                                                                jurisdiction. They note that there have been no oral dep-
TCA waives immunity only for certain torts, and assisted
                                                                ositions of the parties and they have been unable to ex-
suicide is a crime, not a tort. Second, the Hospital argues
                                                                plore the basis of statements contained in a report based
[**28] that even if assisted suicide falls within the ambit
                                                                on the Texas Department of Family and Protective Ser-
of the TCA, it is more akin to an intentional tort than
                                                                vice's investigation into Travis's death--particularly
negligence because it requires an intent to cause injury or
                                                                                                                       Page 8
                                       392 S.W.3d 88, *; 2012 Tex. LEXIS 731, **;
                                                  55 Tex. Sup. J. 1320

statements of another Hospital patient who claimed to           case",7 which must be ascertained by every court in every
have seen a Hospital staff member putting a bag over            case.8 A statute authorizing an interlocutory appeal does
Travis's head.                                                  not empower a court to decide issues in a case over which
                                                                it lacks subject-matter jurisdiction.
     We agree with the Blacks, in part. The Hospital has
not shown conclusively by this record either that they had
                                                                        2 TEX. CIV. PRAC. & REM. CODE § 74.351.
a full and fair opportunity in the trial court to develop the
                                                                        3 Id. §§ 101.021, 101.025.
record as to jurisdiction and amend their pleadings, or that
                                                                        4 Id. § 51.014(a)(9) (providing that a person
if the case is remanded to the trial court for further pro-
                                                                        may appeal from an interlocutory order that "de-
ceedings they will be unable to show jurisdiction. Thus,
                                                                        nies all or part of the relief sought by a motion
the cause will be remanded to the trial court for further
                                                                        under Section 74.351(b)").
proceedings.
                                                                        5 Cherokee Water Co. v. Ross, 698 S.W.2d 363,
                                                                        365 (Tex. 1985) ("Unless there is a statute specif-
VI. Conclusion
                                                                        ically authorizing an interlocutory appeal, the
     The [**31] judgment of the court of appeals is af-                 Texas appellate courts have jurisdiction only over
firmed. The Blacks' claims against the Hospital are re-                 final judgments.").
manded to the trial court for further proceedings con-                  6        S.W.3d       (Tex. App.--Tyler 2010).
sistent with this opinion.                                              7 Tellez v. City of Socorro, 226 S.W.3d 413, 413
                                                                        (Tex. 2007) [**33] (per curiam) (quoting United
    Phil Johnson
                                                                        States v. Cotton, 535 U.S. 625, 630, 122 S. Ct.
    Justice                                                             1781, 152 L. Ed. 2d 860 (2002)).
                                                                        8     Univ. of Tex. Sw. Med. Ctr. at Dallas v.
    OPINION DELIVERED: August 31, 2012                                  Loutzenhiser, 140 S.W.3d 351, 358 (Tex. 2004)
                                                                        ("[A] court is obliged to ascertain that subject
CONCUR BY: Nathan L. Hecht; Debra H. Lehrmann                           matter jurisdiction exists regardless of whether the
                                                                        parties have questioned it." (emphasis in origi-
CONCUR                                                                  nal)).
     We recently wrote that "we, like the U.S. Supreme               For two reasons, I agree that immunity from suit
Court, have recognized that our sometimes intemperate           "sufficiently partakes of the nature of a jurisdictional bar" 9
use of the term 'jurisdictional' has caused problems." 1 All    that it must be considered on interlocutory appeal, even if
we decide in this case is [*101] whether an appellate           not raised in the trial court. One is that if immunity is
court in an interlocutory appeal permitted by statute can       ultimately established, the decision on the merits of the
decide an issue of governmental immunity from suit out-         interlocutory appeal will have been advisory at the time it
side the scope of the appeal. The Court answers yes and         was rendered and therefore outside the court of appeals'
wisely stops there.                                             jurisdiction.10 The other reason is practical: an interlocu-
                                                                tory appeal is also permitted from a denial of immunity, 11
       1 In re United Servs. Auto. Ass'n, 307 S.W.3d            and it would conserve time and expense to decide the
       299, 306 (Tex. 2010) (footnote omitted).                 issue in one interlocutory appeal instead of two. Because
     Rusk State Hospital appealed from the trial court's        an appellate court can decide an immunity issue beyond
denial of its motion to dismiss this health care liability      the scope of an interlocutory appeal, and there are reasons
claim for want of an adequate expert report required by         why it should, I agree with the Court that it must [*102]
the Medical Liability Act ("MLA"),2 but also argued that        do so unless, as in this case, the record has not been suf-
its governmental immunity from suit has not been waived         ficiently developed.
by the Texas Tort Claims Act ("TTCA"),3 an argument it
did not make in the trial court. The statute permitting this            9 Edelman v. Jordan, 415 U.S. 651, 678, 94 S.
interlocutory appeal from the denial of the Hospital's                  Ct. 1347, 39 L. Ed. 2d 662 (1974) [**34] (refer-
motion to [**32] dismiss does not extend to issues of                   ring to Eleventh Amendment immunity).
immunity,4 and the court of appeals, mindful that its ju-               10 Valley Baptist Med. Ctr. v. Gonzalez, 33
risdiction over interlocutory appeals is limited to that                S.W.3d 821, 822 (Tex. 2000) (per curiam) ("Under
provided by statute,5 refused to consider the Hospital's                article II, section 1 of the Texas Constitution,
TTCA argument, deciding only that the trial court erred in              courts have no jurisdiction to issue advisory
failing to dismiss some of the claims against the Hospital              opinions.").
on its motion to dismiss under the MLA. 6 But immunity                  11 TEX. CIV. PRAC. & REM. CODE § 51.014(a)(8)
from suit implicates subject-matter jurisdiction, as the                (providing that a person may appeal from an in-
Court states, and thus "involves a court's power to hear a              terlocutory order that "grants or denies a plea to
                                                                                                                      Page 9
                                        392 S.W.3d 88, *; 2012 Tex. LEXIS 731, **;
                                                   55 Tex. Sup. J. 1320

        the jurisdiction by a governmental unit"); see Tex.      or can be, attributed to immunity from suit. With that
        A&M Univ. Sys. v. Koseoglu, 233 S.W.3d 835, 843          understanding, I join in the Court's opinion.
        (Tex. 2007) ("Pleas to the jurisdiction asserting
        sovereign immunity are the subject of Section                   16 Steel Co. v. Citizens for a Better Env't, 523
        51.014(a)(8).").                                                U.S. 83, 90, 118 S. Ct. 1003, 140 L. Ed. 2d 210
        12 8 S.W.3d 636, 638 (Tex. 1999) (per curiam).                  (1998) (quoting United States v. Vanness, 85 F.3d
        13 8 S.W.3d at 639. We have since held that a                   661, 663 n.2, 318 U.S. App. D.C. 95 (D.C. Cir.
        denial of immunity from suit can be immediately                 1996)); see also Morales v. Liberty Mut. Ins. Co.,
        appealed regardless of the procedural vehicle used              241 S.W.3d 514, 516 n.1 (Tex. 2007) ("Of course,
        to raise the issue. Tex. Dep't of Crim. Justice v.              'jurisdiction' has many meanings, and both courts
        Simons, 140 S.W.3d 338, 349 (Tex. 2004).                        and legislators often use it to mean something
                                                                        other than a court's power to adjudicate a case.
     But the Court does not equate immunity to a lack of
                                                                        Both the United States Supreme Court and this
subject-matter jurisdiction. The similarities between the
                                                                        Court have cautioned against assuming
two led us to state in Texas Department of Transportation
                                                                        'jurisdiction' means 'subject-matter jurisdiction'
v. Jones that "the law in Texas has been that absent the
                                                                        due to the stark consequences that accompany the
state's consent to suit, a trial court lacks subject matter
                                                                        latter term." (citations [**37] omitted)).
jurisdiction."12 But the only issue in [**35] that case was
whether immunity from suit can be asserted in a plea to              Nathan L. Hecht
the jurisdiction so that the government can immediately
                                                                     Justice
appeal an adverse ruling.13 Jones cannot fairly be read to
equate immunity from suit with a lack of subject-matter              OPINION DELIVERED: August 31, 2012
jurisdiction.
                                                                 DISSENT BY: Debra H. Lehrmann
     There are important differences between immunity
from suit and lack of subject-matter jurisdiction.14 For one
                                                                 DISSENT
thing, the government can waive immunity from suit,
either for broad classes of claims or on a case-by-case               Although I concur that this case should be remanded
basis.15 But it cannot waive subject-matter jurisdiction, for    to the trial court, I respectfully dissent, in part, from the
example, by consenting to suit on a claim beyond the             Court's judgment. While I agree that subject matter juris-
court's jurisdiction. For another, while a court is obliged to   diction issues such as mootness and ripeness must be
examine its subject-matter jurisdiction on its own in every      considered by an appellate court even if they were not first
case, we have never suggested that a court should raise          presented to the trial court, I disagree that sovereign im-
immunity on its own whenever the government is sued.             munity is of the same character. While sovereign im-
This case is more typical: not only did the trial court not      munity [*103] does, as the Court notes, implicate
raise immunity, the government itself did not raise the          subject matter jurisdiction, it also implicates personal
issue and has no explanation why.                                jurisdiction. However, acknowledging that sovereign
                                                                 immunity implicates subject matter jurisdiction does not
        14 See Reata Constr. Corp. v. City of Dallas,            mean that the harsh rules associated with that label nec-
        197 S.W.3d 371, 381 (Tex. 2006) ("[S]overeign            essarily apply. Because we should look to the jurisdic-
        immunity includes concerns about both subject            tional rules individually, applying them according to the
        matter and personal jurisdiction, but is identical to    purpose behind the doctrine of sovereign immunity, I
        neither.") (Brister, J., concurring).                    would require governmental entities to raise the issue first
        15        TEX. CIV. PRAC. & REM. CODE §§                 in the trial court.
        107.001-.004; [**36] see also Reata, 197 S.W.3d
        at 378 (a city's decision to file suit for damages       I. SOVEREIGN IMMUNITY
        "encompassed a decision to leave its sphere of
                                                                      The Court rests its decision on the notion that sover-
        immunity from suit" for monetary claims against
                                                                 eign immunity "implicates subject matter jurisdiction,"
        the city that are "germane to, connected with, and
                                                                 but carefully avoids squarely determining that it is an
        properly defensive to" the city's affirmative
                                                                 issue of subject matter jurisdiction. [**38] I write sepa-
        claims; the city was not immune to monetary
        claims against it to the extent those claims would       rately to explain why I would hold that it is not, were we
        offset the city's affirmative claims).                   to reach the issue.
                                                                     This Court first recognized sovereign immunity in
   "'Jurisdiction,' it has been observed, 'is a word of
                                                                 1847, holding that "no State can be sued in her own courts
many, too many, meanings.'"16 Not all of them have been,
                                                                 without her consent and then only in the manner indicat-
                                                                                                                      Page 10
                                         392 S.W.3d 88, *; 2012 Tex. LEXIS 731, **;
                                                    55 Tex. Sup. J. 1320

ed." Hosner v. De Young, 1 Tex. 764, 769 (1847). The              v. Lueck, 290 S.W.3d 876, 879 (Tex. 2009); State v.
Court has frequently referred to sovereign immunity as            Shumake, 199 S.W.3d 279, 282 (Tex. 2006); Hoff v.
jurisdictional. See, e.g., Anderson, Clayton & Co. v. State       Nueces Cnty., 153 S.W.3d 45, 47 (Tex. 2004) (per curiam);
ex rel. Allred, 122 Tex. 530, 62 S.W.2d 107, 110 (Tex.            Reata, 197 S.W.3d at 373; Harris Cnty. v. Sykes, 136
1933) (holding that when the State waived immunity by             S.W.3d 635, 637 (Tex. 2004); Miranda, 133 S.W.3d at
filing suit, the trial court "acquired jurisdiction of the        221-22; Dallas Area Rapid Transit v. Whitley, 104 S.W.3d
parties and subject-matter"); Tex. Dep't of Parks & Wild-         540, 541 (Tex. 2003); State ex rel. State Dep't of High-
life v. Miranda, 133 S.W.3d 217, 224-26 (Tex. 2004). We           ways & Pub. Transp. v. Gonzalez, 82 S.W.3d 322, 325
have often held that sovereign immunity is properly as-           (Tex. 2002); [**41] Travis Cnty. v. Pelzel & Assocs.,
serted in the trial court by a plea to the jurisdiction. See,     Inc., 77 S.W.3d 246, 247 (Tex. 2002); Tex. Natural Res.
e.g., Miranda, 133 S.W.3d at 225-26; Tex. Dep't of                Conservation Comm'n v. IT--Davy, 74 S.W.3d 849, 851
Transp. v. Jones, 8 S.W.3d 636, 638-39 (Tex. 1999) (per           (Tex. 2002); Tex. Dep't of Transp. v. Garza, 70 S.W.3d
curiam).                                                          802, 804 (Tex. 2002); Tex. Dep't of Crim. Justice v. Mil-
                                                                  ler, 51 S.W.3d 583, 586 (Tex. 2001); Tex. Natural Res.
     Although we have consistently referred to sovereign
                                                                  Conservation Comm'n v. White, 46 S.W.3d 864, 866 (Tex.
immunity as jurisdictional, we have not clearly defined
                                                                  2001); Jones, 8 S.W.3d at 637. Moreover, in none of these
that term. Subject matter jurisdiction and personal juris-
                                                                  cases has the Court analyzed the legal issues involved in
diction are jurisdictional; a court cannot render judgment
                                                                  holding that sovereign immunity is an issue of subject
without both. CSR Ltd. v. Link, 925 S.W.2d 591, 594 (Tex.
                                                                  matter jurisdiction.
1996). [**39] Subject matter jurisdiction involves a
court's power to hear and resolve the legal and factual
                                                                  A. Sovereign Immunity Implicates Aspects of Both
issues of a class of cases. Middleton v. Murff, 689 S.W.2d
                                                                  Subject Matter Jurisdiction and Personal Jurisdiction
212, 213 (Tex. 1985) (per curiam) (citing Deen v. Kirk,
508 S.W.2d 70, 72 (Tex. 1974)). Subject matter jurisdic-               Characterizing an issue as subject matter jurisdiction
tion cannot be waived or conferred by agreement, can be           has profound consequences. Therefore, we should be
raised at any time, and must be considered by a court sua         cautious when we apply that label and should not default
sponte. Reata Constr. Corp. v. City of Dallas, 197 S.W.3d         to using it in circumstances when it is not clear that the
371, 379 (Tex. 2006) (Brister, J., concurring) (citing Univ.      issue is solely one of subject matter jurisdiction. I would
of Tex. Sw. Med. Ctr. at Dallas v. Loutzenhiser, 140              hold that, because sovereign immunity implicates aspects
S.W.3d 351, 358 (Tex. 2004)); see also Waco Indep. Sch.           of both personal jurisdiction and subject matter jurisdic-
Dist. v. Gibson, 22 S.W.3d 849, 850 (Tex. 2000). In con-          tion, but is identical to neither, the rules associated with
trast, personal jurisdiction involves a court's power to bind     subject matter jurisdiction do not apply generally. Rather,
a particular party. CSR Ltd., 925 S.W.2d at 594. Unlike           jurisdictional rules apply individually, [**42] according
subject matter jurisdiction, personal jurisdiction can be         to the purposes underlying the doctrine of sovereign
voluntarily waived by an appearance. Reata, 197 S.W.3d            immunity. Reata, 197 S.W.3d at 382 (Brister, J., concur-
at 379 (Brister, J., concurring) (citing Hilburn v. Jennings,     ring).
698 S.W.2d 99, 100 (Tex. 1985)).
                                                                       Although some of our recent cases have, with no
     In the last decade, we have sometimes referred to            analysis, referred to sovereign immunity as an issue of
sovereign immunity as a matter of subject matter juris-           subject matter jurisdiction, sovereign immunity impli-
diction, beginning with a per curiam opinion in Texas             cates elements of both personal jurisdiction and subject
Department of Transportation v. Jones, 8 S.W.3d at 639            matter jurisdiction, and has always had its own set of
[**40] (holding that the court of appeals had to determine        jurisdictional rules. In the earliest Texas cases, sovereign
whether the driver's pleadings in a suit for damages stated       immunity was addressed in terms of amenability to suit, a
a claim under the Texas Tort Claims Act before affirming          term borrowed from personal jurisdiction. Reata, 197
the trial court's denial of the Department of Transporta-         S.W.3d at 380 & n.16 (Brister, J., concurring) ("'[I]t is one
tion's plea to the jurisdiction); see also, e.g., Univ. of Tex.   of the essential attributes of sovereignty not to be ame-
at El Paso v. Herrera, 322 S.W.3d 192, 202 (Tex. 2010);           nable to the suit of a private person without its own con-
Reata, 197 S.W.3d at 374; Miranda, 133 S.W.3d at                  sent . . . .'" (quoting Bd. of Land Comm'rs v. Walling,
225-26. However, these cases did not involve a govern-            Dallam 524 (Tex. 1843))). These cases were not anoma-
mental unit attempting [*104] to raise sovereign im-              lies, as sovereign immunity has been traditionally con-
munity for the first time on interlocutory appeal; instead,       sidered a problem of personal jurisdiction. In his Com-
in every case the governmental unit had raised the issue of       mentaries on the Laws of England, Blackstone concluded
sovereign immunity to the trial court. See Herrera, 322           that sovereign immunity arose from the nature of the
S.W.3d at 193; Tex. Dep't of Ins. v. Reconveyance Servs.,         sovereign party, not the subject matter of the case:
Inc., 306 S.W.3d 256, 258 (Tex. 2010) (per curiam); State
                                                                                                                    Page 11
                                        392 S.W.3d 88, *; 2012 Tex. LEXIS 731, **;
                                                   55 Tex. Sup. J. 1320

           Hence, it is, that no suit or action can be          limitation on the court's power to hear the case."). A suit
       brought against the king, even in civil                  against the State is beyond the judicial cognizance of the
       [**43] matters, because no court can have                courts because of the State's role as a party, not because of
       jurisdiction over him. For all jurisdiction              the subject matter of the suit. Despite sometimes referring
       implies superiority of power: authority to               to sovereign immunity as an issue of subject matter ju-
       try would be vain and idle, without an                   risdiction, we have also held that the State no longer had
       authority to redress; and the sentence of a              immunity because it filed an affirmative claim for relief.
       court would be contemptible, unless that                 Reata, 197 S.W.3d at 377 (holding that the City of Dallas's
       court had power to command the execution                 decision to file suit "encompassed a decision to leave its
       of it: but, who . . . shall command the king?            sphere of immunity" for related claims); see also Kinnear
                                                                v. Tex. Comm'n on Human Rights, 14 S.W.3d 299, 300
                                                                (Tex. 2000) (per curiam) (holding that the trial court had
1 WILLIAM BLACKSTONE, COMMENTARIES *242. The                    jurisdiction over claims against the State in a case where
Founders also referred to sovereign immunity in terms of        the State had filed suit); IT--Davy, 74 S.W.3d at 861
personal jurisdiction. See Caleb Nelson, Sovereign Im-          (Hecht, J., concurring) ("[T]he State can waive immunity
munity as [*105] a Doctrine of Personal Jurisdiction,           by filing suit."). These decisions are inconsistent with the
115 HARV. L. REV. 1559, 1565-66 (2002) (explaining that         absolute nature [**46] of subject matter jurisdiction,
the Founders believed sovereign immunity was more               which cannot be waived and can be raised at any time. See
relevant to personal jurisdiction than subject matter ju-       Gibson, 22 S.W.3d at 850 ("[S]ubject matter jurisdiction
risdiction). In addressing the question of state sovereign      challenges cannot be waived, and may be raised for the
authority, Alexander Hamilton borrowed the language of          first time on appeal."); Scott Dodson, Hybridizing Juris-
personal jurisdiction when he wrote in the Federalist           diction, 99 CALIF. L. REV. 1439, 1473 (2011) (noting that
Papers, "It is inherent in the nature of sovereignty not to     sovereign immunity lacks some features of subject matter
be amenable to the suit of an individual without its con-       jurisdiction). The ability of states to waive immunity or
sent." THE FEDERALIST NO. 81 (Alexander Hamilton);              consent to suit is an important feature which is incon-
see also, e.g., Kawasaki Steel Corp. v. Middleton, 699          sistent with the characterization of sovereign immunity as
S.W.2d 199, 200 (Tex. 1985) (per curiam) (listing the           an issue of subject matter jurisdiction:
defendant being "amenable to the jurisdiction of the
court" [**44] as one of the elements of personal juris-                   The state legislature may wish to waive
diction).                                                              immunity in an entire class of cases, such
                                                                       as discrimination cases. Or, the [*106]
     As I have noted, sovereign immunity implicates el-
                                                                       state may wish to consent to a particular
ements of both subject matter jurisdiction and personal
                                                                       lawsuit from which it would otherwise be
jurisdiction. While the decision whether to compensate
                                                                       immune. Public pressure or individualized
particular claimants may raise separation of powers con-
                                                                       considerations of fairness and justice may
cerns, implicating policy issues beyond the traditional
                                                                       motivate a state's decision to waive or
realm of judicial proceedings, see Tex. Parks & Wildlife
                                                                       consent. On the other hand, equally im-
Dep't v. Sawyer Trust, 354 S.W.3d 384, 401 (Tex. 2011)
                                                                       portant concerns for the state fisc might
(Hecht, J., concurring in part and dissenting in part), and
                                                                       justify a decision not to waive immunity or
invoking subject matter jurisdiction issues, these consid-
                                                                       consent to suit. In short, the [non-subject
erations also arise from the fact that the State is the party
                                                                       matter jurisdiction] characteristics of
being sued. While it is true that the judiciary is not the
                                                                       waiver and consent provide an opportunity
proper branch of government to decide how the State
                                                                       for the states to strike a balance between
should spend its money, the authority to render judgment
                                                                       [**47] the legitimate concerns of suing a
that obliges parties to pay is not related to whether the
                                                                       state and the need for redress of injuries
party can or should pay. The sovereign immunity doctrine
                                                                       caused by the state. The importance of the
flows from the fact that the State is the party at risk--an
                                                                       ability to waive immunity or consent to
issue more closely aligned with personal jurisdiction. At
                                                                       suit supports a [non-subject matter juris-
its core, there is something incongruous about saying that
                                                                       dictional] characterization.
traditional contract and tort suits are beyond the subject
matter of the judiciary simply because one party is a
governmental entity. [**45] See Scott Dodson, Manda-
                                                                Dodson, Mandatory Rules, supra, at 23 (citations omit-
tory Rules, 61 STAN. L. REV. 1, 20 (2008) ("The primary
                                                                ted). It is clear that "sovereign immunity is diffi-
function of state sovereign immunity--granting a state the
                                                                cult--perhaps impossible--to characterize as [subject
right not to be subject to a lawsuit at the insistence of an
individual--speaks to a right of a particular party, not to a
                                                                                                                   Page 12
                                      392 S.W.3d 88, *; 2012 Tex. LEXIS 731, **;
                                                 55 Tex. Sup. J. 1320

matter jurisdiction] because it can be waived or consented            munity both explicitly and by its conduct
to." Dodson, Hybridizing Jurisdiction, supra, at 1483.                during litigation. A court may raise an
                                                                      Eleventh Amendment issue sua sponte; by
     Similarly, in federal courts, sovereign immunity is
                                                                      contrast, it must address Article III matters,
not synonymous with subject matter jurisdiction. See
                                                                      such as standing or an absence of federal
Idaho v. Coeur D'Alene Tribe of Idaho, 521 U.S. 261, 267,
                                                                      question jurisdiction, as soon as they come
117 S. Ct. 2028, 138 L. Ed. 2d 438 (1997) (holding that
                                                                      to its attention. Congress may, when acting
the Eleventh Amendment "enacts a sovereign immunity
                                                                      pursuant to its Fourteenth Amendment
from suit, rather than a nonwaivable limit on the Federal
                                                                      authority, abrogate state sovereign im-
Judiciary's subject-matter jurisdiction"); Katherine Flo-
                                                                      munity; it has no corresponding power
rey, Insufficiently Jurisdictional: The Case Against
                                                                      with respect to any other Article III doc-
Treating State Sovereign Immunity as an Article III Doc-
                                                                      trine. Finally, state sovereign immunity,
trine, 92 CALIF. L. REV. 1375, 1399 (2004) ("[S]tate sov-
                                                                      unlike any other Article [**50] III ques-
ereign immunity and [subject matter] jurisdictional re-
                                                                      tion, is subject to a broad and important
quirements are more different than alike."). Federal courts
                                                                      exception: under the doctrine of Ex parte
have recognized that states may waive their sovereign
                                                                      Young, a suit for prospective injunctive
immunity, revealing [**48] an inconsistency with sub-
                                                                      relief against a state official is not consid-
ject matter jurisdiction, which cannot be created by
                                                                      ered a suit against the state and may be
waiver or consent. See Commodity Futures Trading
                                                                      pursued in federal court.
Comm'n v. Schor, 478 U.S. 833, 851, 106 S. Ct. 3245, 92
L. Ed. 2d 675 (1986) (explaining that parties cannot con-
fer subject matter jurisdiction beyond the limitations
                                                              Florey, supra, at 1379-80 (citations omitted). The ability
imposed by Article III by consent (citing United States v.
                                                              of states to waive sovereign immunity or consent to suit is
Griffin, 303 U.S. 226, 229, 58 S. Ct. 601, 82 L. Ed. 764
                                                              inconsistent with the characterization of sovereign im-
(1938))); Atascadero State Hosp. v. Scanlon, 473 U.S.
                                                              munity as a subject matter jurisdiction issue under both
234, 238, 105 S. Ct. 3142, 87 L. Ed. 2d 171 (1985) (noting
                                                              federal and Texas case law.
that a State may waive its immunity and consent to suit in
federal court); Ballew v. Cont'l Airlines, Inc., 668 F.3d          Additionally, in many states, sovereign immunity is
777, 786 (5th Cir. 2012) (noting that parties cannot create   not considered an element of subject matter jurisdiction.
subject matter jurisdiction by consent or waiver (citing      See, e.g., Sea Hawk Seafoods, Inc. v. State, 215 P.3d 333,
Buchner v. FDIC, 981 F.2d 816, 818 (5th Cir. 1993)));         339 (Alaska 2009) (describing state sovereign immunity
Elam v. Kan. City S. Ry. Co., 635 F.3d 796, 802 (5th Cir.     as an affirmative defense "that does not affect a court's
2011) ("Litigants cannot bestow subject matter jurisdic-      subject-matter jurisdiction"); Washington v. Whitaker,
tion on federal courts by waiver or consent."); Meyers ex     317 S.C. 108, 451 S.E.2d 894, 898 (S.C. 1994) ("[W]e
rel. Benzing v. Tex., 410 F.3d 236, 255 (5th Cir. 2005)       overrule the antiquated rule that sovereign immunity is a
("[W]hen Texas removed this case to federal court it          jurisdictional bar and, accordingly, cannot be waived. We
voluntarily invoked the jurisdiction of the federal courts    join those jurisdictions which hold that sovereign im-
and waived its immunity from suit in federal court."          munity is an affirmative defense that must be pled." (ci-
(citing Lapides v. Bd. of Regents of Univ. Sys. of Ga., 535   tations omitted)). Indeed, some states have held that sov-
U.S. 613, 122 S. Ct. 1640, 152 L. Ed. 2d 806 (2002)));        ereign immunity is an issue of personal jurisdiction
Nelson, supra, at 1610 [**49] ("In deriving its doctrine      [**51] rather than an issue of subject matter jurisdiction.
of sovereign immunity, the [Supreme] Court has therefore      See, e.g., German v. Wis. Dep't of Transp., Div. of State
mixed together two very different sorts of ideas; it has      Patrol, 2000 WI 62, 235 Wis. 2d 576, 612 N.W.2d 50, 55
blended concepts drawn from the law of personal juris-        (Wis. 2000) ("If sovereign immunity is properly raised,
diction with concepts drawn from the law of subject           then the court is without personal jurisdiction over the
matter jurisdiction."). One scholar summed up the diffi-      state."); Data Gen. Corp. v. Cnty. of Durham, 143 N.C.
culties inherent in federal courts treating sovereign im-     App. 97, 545 S.E.2d 243, 246 (N.C. Ct. App. 2001)
munity as a subject matter jurisdiction issue:                ("[S]overeign immunity presents a question of personal
                                                              jurisdiction rather than subject matter jurisdiction . . . .").
          [S]overeign immunity doctrine contains              Sovereign immunity is far from universally considered a
       elements that are inconsistent with re-                subject matter jurisdiction issue.
       garding it as a limit on subject matter ju-
                                                                  Given that sovereign immunity implicates aspects of
       risdiction. While parties cannot ordinarily
                                                              both subject matter and personal jurisdiction, it becomes
       create a basis for federal jurisdiction by
                                                              apparent that its jurisdictional rules cannot be derived
       consenting to litigate in federal [*107]
                                                              simply by labeling sovereign immunity subject matter or
       court, a state may waive sovereign im-
                                                                                                                  Page 13
                                       392 S.W.3d 88, *; 2012 Tex. LEXIS 731, **;
                                                  55 Tex. Sup. J. 1320

personal jurisdiction. Accordingly, it is time to recognize    interlocutory appeals in section 51.014, which allows
that "sovereign immunity has always had its own set of         them under certain circumstances, including when the
jurisdictional rules because jurisdiction over private and     trial court denies a plea to the jurisdiction by a govern-
public parties is simply different." Reata, 197 S.W.3d at      mental entity. See id. § 51.014(a)(8); Bally Total Fitness
379 (Brister, J., concurring).                                 Corp. v. Jackson, 53 S.W.3d 352, 355 (Tex. 2001) (noting
                                                               "the Legislature's intent that section 51.014 be strictly
B. The Implications of Treating Sovereign Immunity             construed"). Our courts of appeals have repeatedly held
as a Subject Matter Jurisdiction Issue                         that sovereign immunity should be raised in the trial court,
                                                               and that [**54] issues not presented to the trial court on a
     A decision that sovereign immunity presents a ques-
                                                               plea to the jurisdiction may not be raised in an interlocu-
tion of subject matter jurisdiction [**52] would have
                                                               tory appeal. See Scott v. Alphonso Crutch LSC Charter
profound implications. Since subject matter jurisdiction
                                                               Sch., Inc.,      S.W.3d      ,    , 2010 Tex. App. LEXIS
"'cannot be conferred upon any court by consent or
                                                               6811 (Tex. App.--Austin 2010, pet. filed) (mem. op.); Scott
waiver,' a judgment [against a governmental actor] will
                                                               v. Alphonso Crutch Life Support Ctr.,          S.W.3d      ,
never be considered final if the court lacked sub-
                                                               , 2009 Tex. App. LEXIS 5111 (Tex. App.--Austin 2009,
ject-matter jurisdiction." Dubai Petrol. Co. v. Kazi, 12
                                                               pet. filed) (mem. op.); Clear Lake City Water Auth. v.
S.W.3d 71, 76 (Tex. 2000) (quoting Fed. Underwriters
                                                               Friendswood Dev. Co., 256 S.W.3d 735, 747 n.14 (Tex.
Exch. v. Pugh, 141 Tex. 539, 174 S.W.2d 598, 600 (Tex.
                                                               App.--Houston [14th Dist.] 2008, pet. dism'd); City of
1943)). In Wisconsin Department of Corrections v.
                                                               Celina v. Dynavest Joint Venture, 253 S.W.3d 399, 404
Schacht, Justice Kennedy noted problems with allowing
                                                               (Tex. App.--Austin 2008, no. pet.); Univ. of Tex. Sw. Med.
States to belatedly assert sovereign immunity:
                                                               Ctr. at Dallas v. Estate of Arancibia, 244 S.W.3d 455,
                                                               461-62 (Tex. App.--Dallas 2007), aff'd on other grounds,
            [*108] [W]e allow States to proceed
                                                               324 S.W.3d 544 (Tex. 2010); Kinney Cnty. Groundwater
       to judgment without facing any real risk of
                                                               Conservation Dist. v. Boulware, 238 S.W.3d 452, 461
       adverse consequences. Should the State
                                                               (Tex. App.--San Antonio 2007, no pet.); Austin Indep. Sch.
       prevail, the plaintiff would be bound by
                                                               Dist. v. Lowery, 212 S.W.3d 827, 834 (Tex. App.--Austin
       principles of res judicata. If the State were
                                                               2006, pet. denied); Brenham Hous. Auth. v. Davies, 158
       to lose, however, it could void the entire
                                                               S.W.3d 53, 61 (Tex. App.--Houston [14th Dist.] 2005, no
       judgment simply by asserting its immunity
                                                               pet.); City of Dallas v. First Trade Union Sav. Bank, 133
       on appeal.
                                                               S.W.3d 680, 687-88 (Tex. App.--Dallas 2003, pet. denied).
                                                               But see Tex. Dep't of Transp. v. Olivares, 316 S.W.3d 89,
                                                               95 (Tex. App.--Houston [14th Dist.] 2010, no pet.).
524 U.S. 381, 394, 118 S. Ct. 2047, 141 L. Ed. 2d 364
(1998) (Kennedy, J., concurring). Even a losing plaintiff           Looking [**55] to the purposes behind the doctrine
would be able to avoid the entire judgment by asserting        of sovereign immunity for guidance, I agree with those
the State's sovereign immunity on appeal. If sovereign         courts of appeals that have held that an immunity defense
immunity deprives the courts of subject matter jurisdic-       may not be raised for the first time on appeal. First, im-
tion, governmental entities could attack years-old judg-       munity from suit protects the government from the ex-
ments by asserting sovereign immunity because without          pense involved in defending lawsuits. Reata, 197 S.W.3d
subject matter jurisdiction, the [**53] judgments would        at 382 (Brister, J., concurring). Requiring the government
be void. Due to the dramatic effects and perpetual uncer-      to raise the issue of sovereign immunity in the trial court
tainty caused by characterizing an issue as one of subject     reduces [*109] such expense by avoiding ongoing,
matter jurisdiction, this Court in Dubai noted that "the       unnecessary litigation early in the process. Because sov-
modern direction of policy is to reduce the vulnerability of   ereign immunity's modern rationale is the protection of
final judgments to attack on the ground that the tribunal      the public fisc, it should be asserted as early as possible.
lacked subject matter jurisdiction." 12 S.W.3d at 76           See Tooke v. City of Mexia, 197 S.W.3d 325, 331-32 (Tex.
(quoting RESTATEMENT (SECOND) OF JUDGMENTS § 11                2006) (stating that an important purpose of sovereign
cmt. e (1982) (internal quotation marks omitted)).             immunity is "to shield the public from the costs and
                                                               consequences of improvident actions of their govern-
II. ASSERTING SOVEREIGN IMMUNITY ON                            ments"); Wichita Falls State Hosp. v. Taylor, 106 S.W.3d
INTERLOCUTORY APPEAL                                           692, 695 (Tex. 2003) (noting that states have retained
                                                               immunity to "protect the public treasury"). The purpose of
      Generally, appellate jurisdiction exists only in cases
                                                               protecting the public fisc is ill-served by allowing im-
where a court has rendered a final judgment disposing of
                                                               munity to be raised post-judgment, possibly even years
all issues and parties. See TEX. CIV. PRAC. & REM. CODE §
                                                               after litigation has ended. See Dodson, Mandatory Rules,
51.012. The Legislature provided a narrow exception for
                                                               supra, at 24 [**56] (noting that a governmental actor
                                                                                                                      Page 14
                                       392 S.W.3d 88, *; 2012 Tex. LEXIS 731, **;
                                                  55 Tex. Sup. J. 1320

"has little to gain by asserting immunity only late in the      excused from raising an issue due to inadvertence; the
proceedings"). Taxpayers are penalized when the State is        State should not be treated differently. For these reasons, I
not required to bring the matter up early to get the case       would hold that governmental entities may not raise sov-
dismissed before money is expended defending the law-           ereign immunity for the first time on appeal.
suit. When attorneys for the State fail to raise sovereign
immunity in the trial court, that failure might not be based    III. Conclusion
on oversight. The State's attorneys often make tactical
                                                                      I concur in the Court's judgment remanding the case
decisions in deciding which issues they choose to raise.
                                                                to the trial court, but for the reason set forth by the court of
By not requiring the State to raise the issue of sovereign
                                                                appeals--so that the trial court may consider granting the
immunity in the trial court, the Court is providing it with a
                                                                Blacks a thirty-day extension to cure the deficiencies in
strategic advantage that other parties lack. Moreover, such
                                                                their reports--rather than for the reasons expressed by this
a lenient rule penalizes taxpayers by dissuading consci-
                                                                Court today. Any issues dealing with sovereign immunity
entious attorneys for the State from developing proce-
                                                                should be raised at that time in the trial court. I disagree
dures to ensure that the matter is raised timely (in order to
                                                                that the government is entitled to raise the issue for the
avoid subsequent liability), resulting in unnecessary and
                                                                first time on appeal.
costly litigation. Second, the doctrine should not result in
"one law for the sovereign and another for the subject," as          Debra H. Lehrmann
such a rule would look "less like sovereign immunity than
                                                                     Justice
sovereign inequity." Reata, 197 S.W.3d at 383 (Brister, J.,
concurring). Whether the failure to assert immunity in the           OPINION DELIVERED: August 31, 2012
[**57] trial court is intentional or not, no other party is
                                                                                                                  Page 1
                                             2005 Tex. App. LEXIS 564, *




                       Southern Union Company, Appellant v. CSG Systems, Inc., Appellee

                                                 NO. 03-04-00172-CV

                        COURT OF APPEALS OF TEXAS, THIRD DISTRICT, AUSTIN

                                              2005 Tex. App. LEXIS 564


                                               January 27, 2005, Filed

SUBSEQUENT HISTORY:                [*1]                      awarded and does not challenge liability. Because there is
53.7(F) mot. for extension of time filed by, 03/14/2005      legally sufficient evidence in the record to support the
                                                             judgment, we affirm the award except as modified.
PRIOR HISTORY:        FROM THE DISTRICT
COURT OF TRAVIS COUNTY, 201ST JUDICIAL                       BACKGROUND
DISTRICT NO. GN-100403, HONORABLE PAUL
                                                                  Beginning in the late 1990's, Southern Union expe-
DAVIS, JUDGE PRESIDING.
                                                             rienced technological difficulties and realized that its [*2]
                                                             computer system was no longer capable of printing and
DISPOSITION:         Affirmed as Modified.
                                                             mailing approximately one million bills per month to its
                                                             customers. 1 Southern Union investigated companies to
                                                             which it could outsource these operations and then re-
COUNSEL: For APPELLANT: Ms. Cynthia Keely
                                                             quested proposals from several potential vendors. CSG
Timms, Mr. W. Scott Hastings, LOCKE, LIDDELL &
                                                             responded to Southern Union's request in February 2000.
SAPP, L.L.P., Dallas, TX, Mr. John L. Foster, MINTON,
                                                             Southern Union selected CSG's bid from the field of
BURTON, FOSTER & COLLINS, Ms. Jennifer Ramsey,
                                                             candidates, and the two companies engaged in formal
CANTEY & HANGER, L.L.P., Austin, TX.
                                                             negotiations from April until September.
For APPELLEE: Mr. Scott S. Cooley, Mr. Patton G.
                                                                    1     At the time, Southern Union had a contract
Lockridge, Mr. Travis C. Barton, McGINNIS,
                                                                    with Pitney Bowes for that company to package
LOCKRIDGE & KILGORE, L.L.P., Austin, TX.
                                                                    the mailings after Southern Union processed and
                                                                    printed them, but that contract was set to expire in
JUDGES: Before Justices Kidd, Patterson and Puryear;
                                                                    December 2001.
Justice Kidd not participating.
                                                                  A contract was finalized and signed by representa-
OPINION BY: Jan P. Patterson                                 tives from both Southern Union and CSG as of October
                                                             13, 2000. The contract contained a "discontinuance fee"
OPINION                                                      provision, obligating Southern Union to pay a specified
                                                             amount of damages to CSG in the event that Southern
MEMORANDUM OPINION                                           Union terminated the agreement before its five-year term
                                                             expired. [*3] The parties agree that the provision was
     Southern Union Company, a gas utility provider,
                                                             intended as a liquidated damages provision.
contracted with CSG Systems, Inc., a printing company,
to outsource Southern Union's print-and-mail operations.          After the contract was finalized, CSG provided
The conversion of services was more problematic than         Southern Union with a written project plan contemplating
anticipated, causing Southern Union to cease operations      December 1, 2000 as the date for CSG to "go live" with
and sue CSG for breach of contract. Following trial, the     the print-and-mail operations. In the months leading up to
jury found in favor of CSG. Accordingly, the trial court     that deadline, implementation problems arose on both
entered a final judgment awarding damages to CSG.            sides and the conversion fell behind schedule. The com-
Southern Union appeals only the amount of damages            panies continued discussions in an attempt to solve the
                                                                                                                      Page 2
                                               2005 Tex. App. LEXIS 564, *


                                                                     2
problems until the first week of January 2001, when                    acknowledges and agrees that, without
Southern Union ceased work on the project. Southern                  the certainty of revenue promised by the
Union filed suit against CSG on February 7, asserting                commitments set forth in this Agreement,
breach of contract among other causes of action.                     CSG would have been unwilling to pro-
                                                                     vide the Services at the fees set forth in the
     In its verdict, the jury found that Southern Union and
                                                                     Agreement. Because of the difficulty in
CSG were both in breach of the agreement, but that CSG's
                                                                     ascertaining CSG's actual damages for
breach was excused, and that CSG would be fairly and
                                                                     a termination or other breach of the
reasonably compensated by an award of $ 2.1 million for
                                                                     Agreement by Customer resulting in a
the discontinuance fee; $ 111,000 for the cost of paper and
                                                                     termination of this Agreement before
envelopes purchased by CSG; $ 1,045,944 for CSG's lost
                                                                     the expiration of the then-current term,
profits; and $ 140,000 for the cost of software licenses
                                                                     Customer agrees that prior to such
provided by CSG to Southern Union. Beneath the last
                                                                     termination and [*6] in addition to
element of damages, the jury wrote "upon return of 300
                                                                     all other amounts then due and owing to
licenses to CSG, the answer [*4] would be $ 0." The trial
                                                                     CSG, Customer will pay to CSG (as a
court determined that, as a matter of law, it was proper to
                                                                     contract and not as a penalty) an
award liquidated damages in lieu of actual damages, and
                                                                     amount equal to a percentage of the to-
therefore entered a final judgment in conformance with
                                                                     tal Subscriber Statement Minimum for
the jury's verdict, for a total amount of $ 2,351,000, plus
                                                                     the remaining term of the Agreement,
interest and attorney's fees.
                                                                     as defined in Schedule C, times the then
                                                                     current ESP Processing Fees for the
ANALYSIS
                                                                     First Physical Page, as defined in
     On appeal, Southern Union challenges the award of               Schedule C beginning with the calendar
damages to CSG Systems, claiming that CSG should not                 month in which termination occurs
be awarded any liquidated damages pursuant to the dis-               ("Discontinuance Fee"). If any such
continuance fee provision, but rather that CSG's recovery            termination occurs prior to the first
should be confined to $ 1,045,944 in lost profits. Southern          anniversary of the Effective Date of this
Union first asserts that, based on the timing of its breach,         Agreement, the percentage shall be fifty
the proper calculation of the fee results in a zero sum.             percent (50%). If between the first and
Alternatively, Southern Union asserts that even if the               second anniversary of the Effective Date it
proper calculation is $ 2.1 million, CSG is not entitled to          shall be thirty percent (30%) and if fol-
recover the award because that amount constitutes an                 lowing the second anniversary of the Ef-
illegal penalty. Southern Union also claims that pre-                fective Date it shall be ten percent (10%).
judgment interest should not be awarded on CSG's dam-                Customer acknowledges and agrees that
ages for the discontinuance fee or lost profits. Finally,            the Discontinuance Fee is a reasonable
Southern Union urges that it is entitled to a remittitur of $        estimation of the actual damages which
140,000 because it returned the software licenses to CSG.            CSG would suffer if CSG were to fail to
                                                                     receive the amount of processing busi-
The Discontinuance Fee Provision                                     ness contemplated by this Agreement.
                                                                     Customer shall not be required to pay the
     Southern [*5] Union's first issue, asserting that the
                                                                     Discontinuance Fee if CSG terminates this
timing of Southern Union's breach results in zero damages
                                                                     Agreement other than as a result of Cus-
for the discontinuance fee, turns on a construction of the
                                                                     tomer's breach of its obligations hereunder
provision's terms. We agree with the parties that the pro-           or if Customer [*7]          terminates the
vision is unambiguous. We therefore review this issue as a           Agreement for a material, uncured breach
matter of law, looking only to the contract's four corners
                                                                     by CSG. The Discontinuance Fee shall be
and interpreting its plain meaning. See French v. Chev-
                                                                     CSG's sole remedy resulting from a ter-
ron U.S.A., Inc., 896 S.W.2d 795, 796-97, 38 Tex. Sup. Ct.
                                                                     mination or other breach of this Agreement
J. 445 (Tex. 1995). The discontinuance fee provision
                                                                     by Customer resulting in a termination of
states:                                                              this Agreement before the expiration of the
                                                                     then-current term. In the event of a sale or
          The parties have mutually agreed upon
                                                                     transfer of all or substantially all of
       the fees for the Services to be provided
                                                                     Southern Union Company's assets to a
       hereunder based upon certain assumed
                                                                     third party, the percentages used to calcu-
       volumes of processing activity, and the
                                                                     late the Discontinuance Fee shall be
       length of the term of Agreement. Customer
                                                                                                                    Page 3
                                               2005 Tex. App. LEXIS 564, *


       twenty-five percent (25%), fifteen percent              vision specifies the circumstances in which Southern
       (15%) and five percent (5%), respectively.              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
(Emphasis added.)                                              be liable for the discontinuance fee, at [*10] a rate of
                                                               fifty percent, should it cause "any termination" within one
       2    The provision refers to Southern Union as          year of signing the contract.
       "Customer."
                                                                    Testimony of witnesses from both Southern Union
      The parties agree that, given the plain meaning of the   and CSG also supports CSG's assertion that the provision
relevant language, the proper way to calculate the dis-        was intended to apply during the implementation phase, to
continuance fee for a breach within the first year of          protect the significant up-front contributions made by
signing the agreement is to multiply the applicable            CSG before it had received any profits from the agree-
"Subscriber Statement Minimum" by the applicable "ESP          ment. Pamela Vanlandingham, CSG's Senior Vice Presi-
Processing Fees" and then take fifty percent of that total.    dent and General Manager of the statement processing
The parties disagree, however, on how to determine one         center, testified that during November and December, the
[*8] factor of this equation: the Subscriber Statement         CSG team "worked around the clock" to complete the
Minimum. Southern Union asserts that, pursuant to              project, which included working "very hard over the
Schedule C, the minimum does not accrue until after the        holidays," and that "CSG [had] expended right at 500 to
"commencement date." 3 Because Southern Union                  600 hours" when Southern Union breached the contract.
breached this agreement prior to the commencement date,        Southern Union officials confirmed that the nature of this
4
  it claims that the minimum was zero, and that the total      contract required front-loaded efforts by CSG and that,
calculation should therefore be zero.                          prior to terminating the agreement, they were aware of the
                                                               money CSG invested on supplies and equipment, and of
       3    Schedule C states that, within the first year of   the hours CSG put toward programming, testing, and
       the contract, the "minimums begin ninety (90)           implementing the new system. David Kvapil, the Chief
       days . . . following the initiation date of services    Financial Officer for Southern Union, testified that he
       ('Commencement Date'). . . ." The contract defines      knew CSG had worked "well beyond the number of hours
       the commencement date as "the first day of the          they were [*11] going to dedicate to the project," that
       calendar month in which the Services commence."         CSG had provided a "significant batch of bills" to
       Schedule D discusses "services" as including a list     Southern Union for approval, and that CSG had spent
       of activities related to the printing, inserting and    over $ 100,000 on envelopes and paper by the end of
       mailing of customer bills in a specified carrier        December 2000. Christine Shores, a business analyst for
       envelope, during specified billing cycles.              Southern Union's mail services division, testified that
       4    CSG agrees that the commencement date had          Southern Union approved the order for paper and enve-
       not yet occurred at the time of Southern Union's        lopes prior to CSG placing it, and that Southern Union
       breach.                                                 was aware of the time and money spent by CSG in its
                                                               efforts to commence live operations.
     CSG interprets the provision to mean that, [*9]
although Schedule C prevents Southern Union from                    Based on the plain meaning of the provision, as
having to pay the monthly minimum until after the              supported by the witnesses' testimony, Southern Union's
commencement date, that time restriction does not apply        liability for the discontinuance fee is not limited to a
to Southern Union's liability under the discontinuance fee     breach occurring after the commencement of live opera-
provision. CSG asserts that Southern Union's interpreta-       tions. Southern Union is liable under the discontinuance
tion is wrong because it allows Southern Union to breach       fee for its breach of the agreement during the implemen-
the contract without consequence, so long as it does so        tation phase. The amount of fair and reasonable damages
within ninety days of the commencement date, regardless        pursuant to the discontinuance fee was therefore properly
of the significant time and money invested by CSG during       calculated by the jury, and affirmed by the trial court, as $
the implementation phase. According to CSG, the liqui-         2.1 million. Southern Union's first issue is overruled.
dated damages provision is most necessary during this
initial time period because of the parties' unequal contri-    Liquidated Damages
butions and because of the difficulty in calculating po-
                                                                   Southern Union claims in its second issue that, if the
tential damages before any actual profits have been made.
                                                               discontinuance fee is properly calculated as $ 2.1 million,
    We agree with CSG's reading of the contract. Noth-         [*12] then CSG is not entitled to any recovery of that
ing in the provision limits its applicability to a breach      amount because it constitutes an improper penalty. For the
occurring after the commencement of services. The pro-         purposes of this case, the parties agree that the discon-
                                                                                                                    Page 4
                                               2005 Tex. App. LEXIS 564, *


tinuance fee should be treated as an award of liquidated       timate and therefore agreed a liquidated damages provi-
damages.                                                       sion was necessary.
     A liquidated damages provision may only be en-                 "The fundamental purpose of a valid liquidated
forced when the court finds "(1) that the harm caused by       damages provision is to provide a reasonable measure of
the breach is incapable or difficult of estimation and (2)     compensation in the event of a breach where, at the time
that the amount of liquidated damages called for is a          the provision is agreed to the damages are indeterminable
reasonable forecast of just compensation." Phillips v.         or will be otherwise difficult to prove." 24 Williston on
Phillips, 820 S.W.2d 785, 788, 35 Tex. Sup. Ct. J. 220         Contracts § 65:3, at 250 (4th ed. 2002). It is well estab-
(Tex. 1991). The party challenging the award of liquidated     lished that lost profits can be inherently difficult to esti-
damages has the burden to establish that the two-prong         mate. See Texas Inst., Inc. v. Teletron Energy Mgmt.,
test is not satisfied and that, instead, the award of liqui-   Inc., 877 S.W.2d 276, 279, 37 Tex. Sup. Ct. J. 676 (Tex.
dated damages is an unenforceable penalty. See                 1994). Frequently, lost profits are too speculative to re-
Dominzo v. Progressive County Mut. Ins. Co., 54 S.W.3d         cover because their calculation depends on "uncertain
867, 875 (Tex. App.--Austin 2001, pet. denied). Whether        [*15] and changing conditions, such as market fluctua-
the liquidated damages provision is enforceable is a           tions," and this uncertainty is heightened where no profits
question of law. Phillips, 820 S.W.2d at 788.                  have been made at the time the contract is breached. Id.
                                                               The contract reflects that Southern Union and CSG sought
Difficulty of Estimation                                       to avoid such speculation in agreeing to the liquidated
                                                               damages provision. The sliding scale of damages recog-
     Southern Union seeks to satisfy the first part of its
                                                               nized the front-loaded value to be provided by CSG. As
burden by claiming that CSG's damages were easy to
                                                               argued by CSG, had there not been a discontinuance fee to
estimate. Southern Union bases this claim on a "price
                                                               rely on, in the event of a breach by Southern Un-
projection" [*13] document prepared by CSG before
                                                               ion--particularly early in the contract term--then CSG
entering the agreement, which anticipated that CSG
                                                               would have risked being unable to recover because of the
would earn a total profit of $ 1,045,944 over the five-year
                                                               uncertainty in calculating its lost profits.
term of its contract with Southern Union. Because the jury
ultimately awarded this exact amount to CSG as lost                 That CSG prepared a projection of its prices, and that
profits, Southern Union argues that CSG was capable of         the jury looked to the projection as a reasonable calcula-
precisely estimating its damages, and therefore the liqui-     tion for lost profits, does not satisfy Southern Union's
dated damages provision is an unenforceable penalty from       burden. The purpose of the document was not to define
which CSG is not entitled to recover. The record, how-         CSG's potential damages. Rather, as Vanlandingham
ever, shows otherwise.                                         testified, the projection was an internal tool used by CSG
                                                               to outline the prices it anticipated charging for its
     The language of the discontinuance fee provision
                                                               print-and-mail services, so that CSG could make an in-
supports the trial court's determination that an award of
                                                               formed bid in response to Southern Union's request for
liquidated damages was proper because CSG's actual
                                                               proposal. Vanlandingham also testified that the projection
damages were not easy to estimate. The provision ex-
                                                               [*16] was prepared with a "conservative accounting
pressly states that it was included in the contract "because
                                                               approach to pricing." CSG excluded several items from its
of the difficulty in ascertaining CSG's actual damages for
                                                               calculations because, prior to entering the contract, the
a termination or other breach of the Agreement," and that
                                                               parties had not assigned a value to these items. This in-
"CSG would have been unwilling to provide the Services
                                                               creased the difficulty of estimating damages. CSG's ex-
at the fees set forth in the Agreement" had Southern Union
                                                               pert confirmed the difficulty of this estimation by ex-
not promised "certainty of revenue" by obligating itself to
                                                               plaining several different ways that CSG's lost profits
pay the discontinuance fee in the event that it breached the
                                                               could be calculated, with the results ranging between
contract. This provision was a bargained-for exchange,
                                                               approximately $ 1 million to $ 4 million. After hearing
negotiated and approved [*14] by both companies.
                                                               this evidence, the jury determined that $ 1,045,944 was a
     When a provision is mutually bargained for by             reasonable award of lost profits. But their verdict does not
equally competent parties, we give deference to its en-        establish that the estimation was either an easy or precise
forcement. See Shel--Al Corp. v. American Nat'l Ins.           one to make. Given the mutually agreed-upon terms of the
Co., 492 F.2d 87, 94 (5th Cir. 1974). Stanley Mayer,           provision, and the evidence in support of its plain mean-
Southern Union's Chief Information Officer, testified that     ing, we are unpersuaded by Southern Union's assertion
the provision's terms were negotiated between attorneys        that CSG's damages were easy to estimate.
representing both companies. From the face of the con-
tract, Southern Union understood at the time it entered the    Reasonable Forecast of Just Compensation
agreement that CSG's damages would be difficult to es-
                                                                                                                    Page 5
                                               2005 Tex. App. LEXIS 564, *


     Southern Union seeks to satisfy the second part of its     when the terms are mutually bargained for between
burden by showing that the discontinuance fee provision         equally competent parties. See Shel--Al Corp., 492 F.2d
is an unenforceable penalty because the amount awarded          at 94; Loggins Constr. Co. v. Stephen F. Austin State
to CSG as liquidated damages is unreasonable. Southern          Univ. Bd. of Regents, 543 S.W.2d 682, 685 (Tex.
Union claims that this is established simply by the fact        App.--Tyler 1976, writ ref'd). Southern Union's own wit-
[*17] that the $ 2.1 million awarded to CSG pursuant to         nesses testified that the language of the discontinuance fee
the discontinuance fee is double the amount found by the        provision was bargained for and intended by the parties,
jury as lost profits. A liquidated damages provision will       and that the amount awarded under the discontinuance fee
be considered an unenforceable penalty if the amount            was reasonable. In response to questions on
awarded is so disproportionate to the actual or anticipated     cross-examination, Stanley Mayer agreed that the provi-
damages that it in effect punishes the breach, thereby          sion was mutually negotiated, that he approved its terms,
coercing performance of the contract by making it too           and that he knew Southern Union would be responsible
costly to not adhere to its terms. 24 Williston on Contracts    for paying the fee if it breached the contract. When David
§ 65:3, at 249 (4th ed. 2002); see also Kothe v. R.C.           Kvapil was asked whether he was aware at the time
Taylor Trust, 280 U.S. 224, 226, 74 L. Ed. 382, 50 S. Ct.       Southern Union filed suit against CSG "that the calcula-
142 (1930).                                                     tion of the discontinuance fee would be approximately $ 2
                                                                million," he responded that, [*20] "Yeah. I think that's
     But Southern Union fails to cite, and we are unaware
                                                                what it calculates to." Kvapil further agreed that Southern
of, any cases in support of its claim that a two-to-one ratio
                                                                Union understood the purpose of the discontinuance fee
of liquidated-to-actual damages is unreasonable per se.
                                                                was "to compensate CSG for all the work they have done
There is, however, authority to the contrary. In Baker v.
                                                                and all their expectation" and that this was "fair."
International Record Syndicate, Inc., our sister court
approved a liquidated damages award of $ 51,000, which               The jury was asked to determine what amount would
was more than triple the $ 15,000 found as actual dam-          be "fair and reasonable" to award CSG pursuant to the
ages. 812 S.W.2d 53, 56 (Tex. App.--Dallas 1991, no             discontinuance fee, and it responded "$ 2.1 million." A
writ). The Texas Supreme Court also upheld a trial court's      jury's findings on damages should be upheld if there is
judgment awarding $ 790,000 in liquidated damages,              sufficient evidence in the record to show that the amount
which was twice the $ 395,000 found as actual damages.          is fair and reasonable compensation. Dillard Dep't
[*18] Sealock v. Texas Fed. Sav. & Loan Assoc., 755             Stores, Inc. v. Silva, 148 S.W.3d 370, 371, 48 Tex. Sup. Ct.
S.W.2d 69, 70, 31 Tex. Sup. Ct. J. 511 (Tex. 1988).             J. 63 (Tex. 2004). Here, the jury was entitled to make this
                                                                finding based on both the express language of the contract
     Southern Union seeks to distinguish such cases by
                                                                and on the testimony of Southern Union's witnesses. We
urging that, even if it is normally reasonable to award
                                                                find that this is sufficient evidence from which the jury
liquidated damages in an amount that is double the actual
                                                                could determine that it was reasonable to award CSG $ 2.1
damages, this ratio is unreasonable in a case where the
                                                                million in liquidated damages. Southern Union's second
amount at issue involves millions rather than thousands of
                                                                issue is overruled.
dollars, as here. Again, while no cases support Southern
Union's claim, there is authority to the contrary. In a case
                                                                Prejudgment Interest
involving high-end commercial real estate, the Fifth
Circuit held that a liquidated damages award of $ 5 mil-             Southern Union urges in its third issue that, regard-
lion was reasonable, despite an internal memorandum             less of whether CSG is awarded lost profits or the dis-
stating that the anticipated damages were $ 1.4 million.        continuance fee, CSG is not entitled to recover prejudg-
Thanksgiving Tower Partners v. Anros Thanksgiving               ment interest on [*21] either award because both en-
Partners, 64 F.3d 227, 232 (5th Cir. 1995). Thus, as a          compass elements of future damages, and section
matter of law, it is not unreasonable per se to award liq-      304.1045 of the finance code, as amended in 2004, spe-
uidated damages in an amount that is double the actual          cifically prohibits recovery of prejudgment interest on
damages. Moreover, in this case, the reasonableness of          awards of future damages. Tex. Fin. Code Ann. §
CSG's award is supported by the record.                         304.1045 (West Supp. 2004-05). CSG counters that the
                                                                finance code does not prevent prejudgment interest in this
     The discontinuance fee expressly states that it "is not
                                                                case because, by its express terms, the provision only
a penalty" and that it "is a reasonable estimation of the
                                                                applies to cases involving "wrongful death, personal in-
actual damages which CSG would suffer if CSG were
                                                                jury, or property damage." Tex. Fin. Code Ann. §§
[*19] to fail to receive the amount of processing busi-
                                                                304.101, .1045 (West 1998 & Supp. 2004-05). Southern
ness as contemplated by this Agreement." Although par-
                                                                Union asserts in response that, despite its express terms,
ties cannot avoid a challenge to a liquidated damages
                                                                section 304.1045 prevents prejudgment interest here
provision simply by characterizing it as "reasonable,"
                                                                based on the Texas Supreme Court's holding that the
such express language is instructive of the parties' intent
                                                                                                                    Page 6
                                               2005 Tex. App. LEXIS 564, *


statutory framework should be applied to all cases, not        ing Co. v. Olcott, 744 S.W.2d 929, 932, 31 Tex. Sup. Ct. J.
just those involving "wrongful death, personal injury, and     213 (Tex. 1988) (Wallace, J., dissenting) ("The Legisla-
property damage." Johnson & Higgins of Tex., Inc. v.           ture has given contracting parties notice that if they enter
Kenneco Energy, Inc., 962 S.W.2d 507, 514, 530, 41 Tex.        into and subsequently breach agreements in which dam-
Sup. Ct. J. 268 (Tex. 1998). CSG argues, however, that         ages are liquidated or otherwise ascertainable, they may
even if section 304.1045 prevents prejudgment interest on      be held liable for prejudgment interest. Parties to contracts
future damages in a breach-of-contract case, it is still       have always had this corresponding obligation and right . .
proper for CSG to recover prejudgment interest [*22] on        . .").
the amount awarded as the discontinuance fee because it
                                                                    We decline to reach the issue of whether the finance
is an award of liquidated, not future, damages. We review
                                                               code prevents recovery of prejudgment interest on future
the trial court's award of prejudgment interest for an abuse
                                                               damages in a breach-of-contract case because we agree
of discretion. Purcell Const., Inc. v. Welch, 17 S.W.3d
                                                               with CSG's argument that liquidated damages are distinct
398, 402 (Tex. App.--Houston [1st Dist.] 2000, no pet.).
                                                               from future damages and, as such, section 304.1045 does
      Southern Union and CSG agree that the discontinu-        not prohibit the recovery of prejudgment [*24] interest
ance fee was intended to be a liquidated damages provi-        on liquidated damages. The trial court therefore did not
sion. Liquidated damages are given in lieu of actual           abuse its discretion in awarding prejudgment interest to
damages and thus they are not considered "future dam-          CSG on the $ 2.1 million it recovered pursuant to the
ages," even though aspects of the liquidated award may         discontinuance fee.
compensate the party for what would have otherwise been
recovered as future losses. See Lafarge Corp. v. Wolff,        Remittitur
Inc., 977 S.W.2d 181, 188 n.13 (Tex. App.--Austin 1998,
                                                                    In its final issue, Southern Union asserts that the
pet. denied); Eberts v. Businesspeople Personnel Servs.,
                                                               judgment should be modified to remit $ 140,000 of CSG's
Inc., 620 S.W.2d 861, 864-65 (Tex. App.--Dallas 1981, no
                                                               damages. The jury expressly stated in the verdict that if
writ). Liquidated damages are distinct from future dam-
                                                               Southern Union returned the software licenses provided to
ages because the measure of liquidated damages is stipu-
                                                               it by CSG, then CSG would be entitled to zero damages
lated to before the occurrence of a breach and thus, unlike
                                                               for the licenses. It is undisputed that Southern Union
future damages, the amount of liquidated damages can be
                                                               returned the licenses. The trial court awarded CSG $
immediately ascertained at the time of the breach. See
                                                               140,000 for the licenses, over Southern Union's objection.
Phillips, 820 S.W.2d at 788. [*23] It is permissible for a
                                                               CSG does not oppose a remittitur of $ 140,000. Southern
trial court to award prejudgment interest when a contract
                                                               Union's fourth issue is sustained and we modify the
"provides the conditions on which liability depends and . .
                                                               judgment accordingly. In all other respects, the trial
. fixes a measure by which the sum payable can be as-
                                                               court's judgment is affirmed.
certained with reasonable certainty." Wheat v. American
Title Ins. Co., 751 S.W.2d 943, 944-45 (Tex.
                                                                          Jan P. Patterson, Justice
App.--Houston [1st Dist.] 1988, no writ); see also
Sealock, 755 S.W.2d. at 70 (upholding award of pre-
judgment interest on liquidated damages); Perry Roof-
                                                                                                                     Page 1




                                                   1 of 1 DOCUMENT

                SOUTHWESTERN BELL TELEPHONE COMPANY, Petitioner, v. EUGENE C.
                                  DELANNEY, Respondent

                                                       No. C-8282

                                           SUPREME COURT OF TEXAS

                               809 S.W.2d 493; 1991 Tex. LEXIS 25; 34 Tex. Sup. J. 402


                                                March 6, 1991, Delivered

SUBSEQUENT HISTORY:                   [**1]     Dissenting    to publication of the 1980-1981 directory, DeLanney's
Opinion of June 19, 1991.                                     wife asked [**2] Bell to cancel the single line and add a
                                                              third number to their existing rotary line. The Yellow
PRIOR HISTORY:            From Galveston County; Sixth        Pages advertisement was billed to DeLanney's single line.
District.                                                     When that line was canceled, DeLanney's Yellow Pages
                                                              advertisement was automatically deleted from the direc-
                                                              tory due to Bell's internal procedures.
JUDGES: Thomas R. Phillips, Chief Justice. Concurring
                                                                   When the advertisement was not published as prom-
Opinion by Justice Raul A. Gonzalez. Concurring Opin-
                                                              ised, DeLanney sued Bell, alleging negligence and viola-
ion by Justice Lloyd Doggett. Dissenting Opinion by
                                                              tion of the Texas Deceptive Practices -- Consumer Pro-
Justice Oscar H. Mauzy.
                                                              tection [*494] Act ("DTPA"), TEX. BUS. & COM.
                                                              CODE §§ 17.41-17.63. Bell answered and urged by spe-
OPINION BY: PHILLIPS
                                                              cial exception that DeLanney's petition failed to state a
                                                              cause of action for negligence. No ruling was made on this
OPINION
                                                              special exception, and DeLanney proceeded to trial on
                                                              both claims.
 [*493] OPINION
                                                                   After DeLanney rested his case in chief, Bell moved
     We consider whether a cause of action for negligence
                                                              for a directed verdict on both theories of liability. The trial
is stated by an allegation that a telephone company neg-
                                                              court granted Bell's motion as to the DTPA claim, but
ligently failed to perform its contract to publish a Yellow
                                                              denied it as to negligence. The remaining issues were
Pages advertisement. The court of appeals held that the
                                                              submitted to a jury.
company's failure to perform its contract was a basis for
recovery in tort as well as contract, and that the clause          The jury found that Bell was negligent in omitting
limiting the telephone company's liability could not apply    DeLanney's advertisement from the Yellow Pages and
to limit tort damages. 762 S.W.2d 772. We reverse the         that such negligence was a proximate cause of damages to
judgment of the court of appeals and render judgment in       DeLanney. The jury assessed these damages at $ 109,000
favor of Bell.                                                [**3] for lost profits in the past and $ 40,000 for lost
                                                              profits in the future. After ordering a partial remittitur
Facts                                                         which reduced future lost profits to $ 21,480, the trial
                                                              court rendered judgment for DeLanney. Bell appealed.
     Eugene DeLanney advertised his real estate business
in the Galveston Yellow Pages for several years. For the
                                                              Breach of Contract or Negligence
1980-1981 directory, he again contracted with Bell for a
Yellow Pages advertisement. At this time DeLanney had             The court of appeals, with one justice concurring and
two business phones, a rotary line and a single line. Prior   one justice dissenting, affirmed. A majority of the court
                                                                                                                     Page 2
                                       809 S.W.2d 493, *; 1991 Tex. LEXIS 25, **;
                                                  34 Tex. Sup. J. 402

held that Bell's cancellation of DeLanney's Yellow Pages        ordinarily on the contract. See PROSSER AND KEETON
advertisement was correctly submitted as a negligence           at 656; 1 J. EDGAR, JR. & J. SALES, TEXAS TORTS
claim. The dissenting justice argued that because               AND REMEDIES § 1.03[4][b] at 1-36 (1990). We ap-
DeLanney sought damages for breach of a duty created            plied this analysis in Jim Walter Homes, [*495] Inc. v.
under the contract, rather than a duty imposed by law, the      Reed, 711 S.W.2d 617, 618 (Tex. 1986), where we wrote:
claim sounded only in contract. We agree with the dissent.
                                                                The [**6] acts of a party may breach duties in tort or
    The majority below relied on Montgomery Ward &
                                                                contract alone or simultaneously in both. The nature of the
Co. v. Scharrenbeck, 146 Tex. 153, 157, 204 S.W.2d 508,
                                                                injury most often determines which duty or duties are
510 (1947), where we quoted from 38 AM. JUR. Negli-
                                                                breached. When the injury is only the economic loss to the
gence § 20 (1941) as follows:
                                                                subject of a contract itself the action sounds in contract
     Accompanying every contract is a common-law duty           alone.
to perform with care, skill, reasonable expedience and
                                                                     Bell's duty to publish DeLanney's advertisement
faithfulness the thing agreed to be done, and a negligent
                                                                arose solely from the contract. DeLanney's damages, lost
failure to observe any of these conditions is a tort, as well
                                                                profits, were only for the economic loss caused by Bell's
as a breach of the contract.In Scharrenbeck, the defendant
                                                                failure to perform. Although DeLanney pleaded his action
agreed to repair [**4] a water heater in plaintiff's home.
                                                                as one in negligence, he clearly sought to recover the
A short time after repair, the heater ignited the roof, de-
                                                                benefit of his bargain with Bell. We hold that Bell's failure
stroying the house and its contents. Although the contract
                                                                to publish the advertisement was not a tort. 2 Under our
obligated the defendant to put the water heater back in
                                                                analysis in Reed, DeLanney's claim was solely in con-
good working order, the law also implied a duty to the
                                                                tract.
defendant to act with reasonable skill and diligence in
making the repairs so as not to injure a person or property
                                                                       2 Prosser and Keeton suggest seven generaliza-
by his performance. In failing to repair the water heater
                                                                       tions as helpful in distinguishing between tort and
properly, the defendant breached its contract. In burning
                                                                       contract liability. Those which are useful to this
down plaintiff's home, the defendant breached a com-
                                                                       case include: (1) obligations imposed by law are
mon-law duty as well, thereby providing a basis for
                                                                       tort obligations; (2) misfeasance or negligent af-
plaintiff's recovery in tort.
                                                                       firmative conduct in the performance of a promise
     The principle recognized in Scharrenbeck has also                 generally subjects an actor to tort liability as well
been recognized by commentators in this area. As one                   as contract liability for physical harm to persons
prominent authority has explained: "Tort obligations are               and tangible things; (3) recovery of intangible
in general obligations that are imposed by law -- apart                economic losses is normally determined by con-
from and independent of promises made and therefore                    tract law; and (4) there is no tort liability for
apart from the manifested intention of the parties -- to               nonfeasance, i.e., for failing to do what one has
avoid injury to others." W. KEETON, D. DOBBS, R.                       promised to do in the absence of a duty to act apart
KEETON & D. OWEN, PROSSER AND KEETON ON                                from the promise made. PROSSER AND
THE LAW OF TORTS § 92 at 655 (5th Ed. 1984)                            KEETON at 656-57.
[hereinafter "PROSSER AND KEETON"]. If the de-
                                                                      [**7] DeLanney, however, did not request jury
fendant's conduct -- such as negligently burning down a
                                                                questions on breach of contract, and he did not object to
house [**5] -- would give rise to liability independent of
                                                                their omission. Because the jury was asked only questions
the fact that a contract exists between the parties, the
                                                                as to liability resulting from Bell's negligence, DeLanney
plaintiff's claim may also sound in tort. Conversely, if the
                                                                waived any claim for breach of contract. Ramos v. Fri-
defendant's conduct -- such as falling to publish an ad-
                                                                to-Lay, Inc., 784 S.W.2d 667, 668 (Tex. 1990) (the plain-
vertisement -- would give rise to liability only because it
                                                                tiff has the "burden to obtain affirmative answers to jury
breaches the parties' agreement, the plaintiff's claim or-
                                                                questions as to the necessary elements of his cause of
dinarily sounds only in contract. 1
                                                                action") (citing TEX. R. CIV. P. 279).
       1 Of course, some contracts involve special re-              DeLanney did obtain an affirmative answer to the
       lationships that may give rise to duties enforceable     question whether there was a disparity in bargaining
       as torts, such as professional malpractice.              power between the parties in negotiating the Yellow
                                                                Pages agreement. The court of appeals correctly deter-
     In determining whether the plaintiff may recover on a
                                                                mined that disparity in bargaining power is irrelevant in a
tort theory, it is also instructive to examine the nature of
                                                                negligence suit. Perhaps the issue was submitted because
the plaintiff's loss. When the only loss or damage is to the
                                                                DeLanney pled that Bell's conduct was unconscionable
subject matter of the contract, the plaintiff's action is
                                                                under the DTPA. Because of his failure to comply with
                                                                                                                        Page 3
                                        809 S.W.2d 493, *; 1991 Tex. LEXIS 25, **;
                                                   34 Tex. Sup. J. 402

the notice requirements of the DTPA, however,                    feasance or nonfeasance, it is, in substance an action on
DeLanney's entire cause of action under the DTPA, in-            the contract, whatever may be the form of the pleading."
cluding any claim of unconscionability, was dismissed by         (citations omitted).Id. at 735. I believe that this formula-
a directed verdict. For this reason, and because DeLanney        tion comes closer than Scharrenbeck to [**10] stating a
submitted no contract issues, the jury finding concerning        general rule to distinguish contract from tort and that the
disparity of [**8] bargaining power is of no effect.             broad language in Scharrenbeck must be read in light of
                                                                 the particular circumstances of that case. The opinion in
    For the foregoing reasons, the judgment of the court
                                                                 Scharrenbeck is correct in its observation that a contract
of appeals is reversed, and judgment is rendered that
                                                                 may be the occasion that brings the parties together, but it
DeLanney take nothing.
                                                                 is the relationship or situation of the parties that gives rise
                                                                 to a duty in law, the breach of which is a tort. See Greater
CONCUR BY: GONZALEZ; DOGGETT
                                                                 Houston Transp. Co. v. Phillips, 801 S.W.2d 523 (Tex.
                                                                 1990). Had Montgomery Ward repaired the water heater
CONCUR
                                                                 gratuitously, it would have owed Scharrenbeck a duty not
                                                                 to create a dangerous condition. See Colonial Sav. Ass'n v.
CONCURRING OPINION
                                                                 Taylor, 544 S.W.2d 116, 119 (Tex. 1976); Fox v. Dallas
    Raul A. Gonzalez, Justice, concurring.                       Hotel Co., 111 Tex. 461, 240 S.W. 517, 520 (Tex. 1922);
                                                                 RESTATEMENT (SECOND) OF TORTS § 323 (1965).
     I agree with the court that Bell's failure to publish the
                                                                 Thus the duty to not create a dangerous condition existed
advertisement was not a tort and that it sounded solely in
                                                                 independent of any contractual relationship.
contract. I also agree that DeLanney failed to discharge
his burden to obtain affirmative findings to jury questions           In summary, when a party must prove the contents of
on the contract. However, I do not fault the court of ap-        its contract and must rely on the duties created therein, the
peals for its confusion. We have muddled the law of              action is "in substance an action on the contract, even
"contorts" and an all encompassing bright line demarca-          though it is denominated an action for negligent perfor-
tion of what constitutes a tort distinct from breach of          mance of the contract." Bernard [**11] Johnson, Inc.
contract has proven to be elusive. See generally W.              v. Continental Constructors, Inc., 630 S.W.2d 365, 368
PROSSER & W. KEETON, THE LAW OF TORTS § 1                        (Tex. App. -- Austin 1982, writ ref'd n.r.e.) (emphasis in
(5th ed. 1984); see also American Nat'l Petro. Co. v.            original).
Transcontinental Gas Pipe Line Corp., 798 S.W.2d 274,
280 (1990) (Gonzalez, J., dissenting).                           Bell's Duty
     DeLanney and the court of appeals rely heavily on the            The majority in the court of appeals also suggested
statement in Montgomery Ward & Co. v. Scharrenbeck,              that negligence was a proper theory because Bell care-
146 Tex. 153, 204 S.W.2d 508, 510 (Tex. 1947), that:             lessly deleted DeLanney's advertisement while making
                                                                 changes to his telephone service. In this manner, the court
Accompanying every contract is a common-law duty to              endeavored to connect the omission of the Yellow Pages
perform with [**9] care, still, reasonable expedience            advertisement to Bell's duty of public service.
and faithfulness the thing agreed to be done, and a neg-
                                                                       The gravamen of DeLanney's complaint, however,
ligent failure to observe any of these conditions [*496]
                                                                 was not with his telephone service, which was changed
is a tort, as well as a breach of the contract.
                                                                 according to request and apparently to his satisfaction.
     Despite this broad language, not every breach of            Rather, his complaint was with Bell's failure to publish his
contract accompanied by negligence creates a cause of            advertisement as promised, and this was a matter of pri-
action in tort. In International Printing Pressman & As-         vate contract. A-ABC Appliance, Inc. v. Southwestern
sistants' Union v. Smith, 145 Tex. 399, 198 S.W.2d 729,          Bell Tel. Co., 670 S.W.2d 733, 735 (Tex. App. -- Austin
735 (Tex. 1946), we acknowledged that no single concise          1984, writ ref'd n.r.e.). Although Bell is a regulated public
rule will define the rights of parties in every situation. We    utility, all of its functions are not in the realm of public
nonetheless wrote:                                               service. The "printing, distribution, or sale of advertising
                                                                 in telephone directories" is not a public service function.
     Generally speaking, "actions in contract and in tort
                                                                 TEX. REV. CIV. STAT. ANN. art. 1446c, § 3(s) (Vernon
are to be distinguished in that an action in contract is for
                                                                 Supp. 1991).
the breach of a duty arising out of a contract either express
or implied, while an action in tort is for a breach of duty          Limitation of Liability
imposed by law. . . ." "If the action is not maintainable
                                                                      [**12] The connection drawn by the court of ap-
without pleading and proving the contract, where the gist
                                                                 peals between the Yellow Pages advertisement and
of the action is the breach of the contract, either by mal-
                                                                 DeLanney's telephone service also affected the court's
                                                                                                                      Page 4
                                       809 S.W.2d 493, *; 1991 Tex. LEXIS 25, **;
                                                  34 Tex. Sup. J. 402

view regarding the validity of a limitation of liability        at 735. I therefore believe that the majority view presents
clause contained in the contract between Bell and               the sounder approach.
DeLanney. This clause provided:
                                                                Unconscionability
     The applicant agrees that the telephone company
shall not be liable for errors in or omissions of the direc-         Even though the Yellow Pages is a matter of private
tory advertising beyond the amount paid for the directory       contract, DeLanney may still recover the full value of the
advertising omitted in which error occurs for the issue life    consequential damages caused by Bell's breach of con-
of the directory involved.DeLanney argued that the clause       tract if the clause limiting Bell's liability is unenforceable
was unenforceable and, in the context of DeLanney's             because a court may deny enforcement of an uncon-
[*497] negligence claim, the court of appeals agreed.           scionable clause or contract. See Tri-Continental Leasing
762 S.W.2d at 776.                                              Corp. v. Burns, 710 S.W.2d 604, 609 (Tex. App. -- Hou-
                                                                ston [1st Dist.] 1985, [**15] writ ref'd n.r.e.) (Levy, J.,
     In an apparent attempt to resolve conflicting deci-
                                                                dissenting); see also Universal C.I.T. Credit Corp. v.
sions, the court of appeals suggested that the clause might
                                                                Daniel, 150 Tex. 513, 243 S.W.2d 154, 159-60 (Tex.
be enforced to limit a claim for breach of contract, see
                                                                1951); RESTATEMENT (SECOND) OF CONTRACTS §
Wade v. Southwestern Bell Tel. Co., 352 S.W.2d 460 (Tex.
                                                                208 (1979); TEX. BUS. & COM. CODE ANN. § 2.302
Civ. App. -- Austin 1961, no writ), but could not be ap-
                                                                (Tex. UCC)(Vernon 1968). We must consider then
plied to limit liability for negligence. See Reuben H.
                                                                whether the clause limiting Bell's liability for errors or
Donnelly Corp. v. McKinnon, 688 S.W.2d 612 (Tex. App.
                                                                omissions to the cost of the Yellow Pages advertising is
-- Corpus Christi 1985, writ ref'd n.r.e.); see also Helms v.
                                                                unconscionable under the circumstances of this case.
Southwestern Bell Tel. Co. [**13] , 794 F.2d 188 (5th
Cir. 1986). The conflict between Wade and McKinnon                   DeLanney argues that it is. Because he had no
mirrors a larger split of authority regarding the validity of   meaningful choice and no bargaining power in the trans-
such limitation of liability clauses. See Annotation, Lia-      action, he contends that his contract with Bell was one of
bility of Telephone Company for Mistakes in or Omissions        adhesion. Yellow Pages was the only commercial tele-
From its Directory, 47 A.L.R. 4th 882 (1986).                   phone directory in DeLanney's market area at the time.
                                                                The only way to buy space in this directory was on Bell's
     McKinnon follows a minority line of cases which
                                                                terms dictated through a non-negotiable, standardized
refuse to enforce such provisions. See Morgan v. South
                                                                contract. DeLanney concludes that his inability to nego-
Cent. Bell Tel. Co., 466 So.2d 107 (Ala. 1985); Allen v.
                                                                tiate more favorable terms rendered the limitation of lia-
Michigan Bell Tel. Co., 61 Mich. App. 62, 232 N.W.2d
                                                                bility clause unenforceable. In support of this argument,
302 (Mich. Ct. App. 1975); Rozeboom v. Northwestern
                                                                he relies on a jury finding that a disparity in bargaining
Bell Tel. Co., 358 N.W.2d 241 (S.D. 1984); Discount
                                                                power existed between himself and Bell when the contract
Fabric House, Inc. v. Wisconsin Tel. Co., 117 Wis. 2d
                                                                was made. 1
587, 345 N.W.2d 417 (Wis. 1984). The unifying theme of
these decisions is that directory advertising is a unique
                                                                        1 The following question was submitted to the
advertising medium inextricably linked to the telephone
                                                                        jury over Bell's objections:
company's public service function. Thus on the premise of
Bell's status as a public utility monopoly, these courts                     Do you find from a preponderance of the
have rejected the limitation of liability as contrary to the            evidence that there was a disparity of bargaining
public interest or unconscionable.                                      power between the plaintiff and the defendant in
                                                                        negotiating the contract for Yellow Page adver-
     A larger number of jurisdictions, however, have up-
                                                                        tising.
held similar liability limitation clauses for directories. In
[**14] Helms v. Southwestern Bell Telephone Co., the                         Instruction: A disparity of bargaining power
Fifth Circuit lists decisions from twenty-six states which              exists when one party has no real choice in ac-
have upheld similar clauses. Helms, 794 F.2d at 192 n.9;                cepting a agreement limiting the liability of the
see generally Annotation, Liability of Telephone Com-                   other party.
pany for Mistakes in or Omissions From its Directory, 47
                                                                            The jury found there was a disparity of bar-
A.L.R. 4th 882. These decisions have generally recog-
                                                                        gaining power.
nized Yellow Pages advertising to be a matter of private
contract, rather than a public service function. The ma-              [**16] [*498] Bell responds that the validity of
jority view is compatible with Texas law, which also            the clause limiting liability was not a question of fact for
excludes the sale of advertising in directories from Bell's     the jury, but one of law for the court. I agree. 2 This is
public service function. TEX. REV. CIV. STAT. ANN.              clearly the case under the Uniform Commercial Code.
art. 1446c, § 3(s); see also A-ABC Appliance, 670 S.W.2d        TEX. BUS. & COM. CODE § 2.302 comments 1 & 3
                                                                                                                  Page 5
                                      809 S.W.2d 493, *; 1991 Tex. LEXIS 25, **;
                                                 34 Tex. Sup. J. 402

(Tex. UCC)(Vernon 1968); G. WALLACH, THE LAW                         3    The comment to UCC section 2.302 provides:
OF SALES UNDER THE UNIFORM COMMERCIAL
                                                                          The basic test is whether, in light of the gen-
CODE para. 5.04 at 5-5 (1981); see also RESTATEMENT
                                                                     eral commercial background and the commercial
SECOND OF CONTRACTS § 208, comment f (1979).
                                                                     needs of the particular trade or case, the clauses
Although the UCC does not expressly apply to service
                                                                     involved are so one-sided as to be unconscionable
transactions, such as the sale of advertising in the Yellow
                                                                     under the circumstances existing at the time of the
Pages, the provision pertaining to unconscionability "has
                                                                     making of the contract. . . . The principal is one of
been applied to numerous transactions outside the cov-
                                                                     the prevention of oppression and unfair surprise . .
erage of Article 2 of the Code." J. CALAMARI & J.
                                                                     . and not of disturbance of allocation of risks be-
PERILLO, THE LAW OF CONTRACTS § 9-39 at 420
                                                                     cause of superior bargaining power.
(3d Ed. 1987); see also J. WHITE & R. SUMMERS, THE
UNIFORM COMMERCIAL CODE § 4-32 at 200 (3d ed.                            Tex. Bus. & Com. Code Ann. § 2.302 com-
1989).                                                               ment 1.
                                                                     4 A comment to section 208 of the Restatement
       2 Here we are concerned with unconscionability                provides:
       under the common law as distinguished from
       unconscionability under the DTPA. The DTPA                         The determination that a contract or term is or
                                                                     is not unconscionable is made in the light of its
       defines "unconscionable action or course of ac-
                                                                     setting, purpose and effect. Relevat factors include
       tion" and, unlike the common law, makes it an
                                                                     weaknesses in the contracting process like those
       issue of fact for the jury. Tex. Bus. & Com. Code
                                                                     involved in more specific rules as to contractual
       Ann. § 17.45 (5); see also Chastain v. Koonce, 700
       S.W.2d 579, 582 (Tex. 1985).                                  capacity, fraud, and other invalidating causes; the
                                                                     policy also overlaps with rules which render par-
      [**17] I also agree with Bell that bargaining dis-             ticular bargains or terms unenforceable on
parity alone does not establish unconscionability. Com-              grounds of public policy.
ments to the UCC indicate that the principle of
                                                                        RESTATEMENT (SECOND)                 OF    CON-
unconscionability is "not of disturbance of allocation of
risks because of superior bargaining power." TEX. BUS.               TRACTS § 208 comment a (1979).
& COM. CODE ANN. § 2.302 comment 1. A comment to                    [**19] Although many factors are relevant and no
the Restatement provides that a "bargain is not uncon-        single formula exists, 5 proof of a claim [*499] of
scionable merely because the parties to it are unequal in     unconscionability begins with two broad questions: (1)
bargaining position, nor even because the inequality re-      How did the parties arrive at the terms in controversy; and
sults in an allocation of risks to the weaker party." RE-     (2) Are there legitimate commercial reasons which justify
STATEMENT (SECOND) OF CONTRACTS § 208 com-                    the inclusion of these terms? Mallor, Unconscionability in
ment d. The Code and Restatement thus agree that a dis-       Contracts Between Merchants, 40 SW. L.J. 1065, 1072
parity in bargaining power, while relevant, is not the        (1986); 1 J. WHITE & R. SUMMERS, UNIFORM
litmus test for unconscionability. See Wade v. Austin, 524    COMMERCIAL CODE, § 4-3, 4-4 (3d ed. 1988); J.
S.W.2d 79, 85-86 (Tex. Civ. App. -- Texarkana 1975, no        CALAMARI & J. PERILLO, THE LAW OF CON-
writ). Something more must be shown.                          TRACTS, § 9-40 (3d. 1987); R. HILLMAN, J.
     How much more is a difficult question, however,          MCDONNELL & S. NICKLES, COMMON LAW AND
because the term unconscionable has no precise legal          EQUITY UNDER THE UNIFORM COMMERCIAL
                                                              CODE para. 6.02 [2][b-d] (1985); Williams v. Walk-
definition. Courts and commentators have struggled with
                                                              er-Thomas Furniture Co., 121 App. D.C. 315, 350 F.2d
its meaning. In Wade v. Austin, the court wrote that a
                                                              445 (DC Cir. 1965). The first question, often described as
determination of unconscionability must be made from
"the entire atmosphere in which the agreement was             the procedural aspect of unconscionability, 6 is concerned
made." Id. at 86. One authority has [**18] written that       with assent and focuses on the facts surrounding the
                                                              bargaining process. Mallor, Unconscionability in Con-
unconscionability cannot be defined because "it is not a
                                                              tracts Between Merchants, 40 SW. L.J. 1065, 1072
concept, but a determination to be made in light of a
                                                              (1986). The second question, often described as the sub-
variety of factors not unifiable into a formula." 1 J.
                                                              stantive aspect of unconscionability, is concerned with the
WHITE & R. SUMMERS, UNIFORM COMMERCIAL
CODE § 4-3 at 203 (3d ed. 1988)(emphasis in original).        fairness of the resulting agreement. Id.
The UCC 3 and Restatement 4 recognize the doctrine of
                                                                     5 The Supreme Court of Kansas has identified
unconscionability, but provide only a rough outline of its
                                                                     ten factors as useful aids in determining
meaning.
                                                                     unconscionability questions. They are: (1) the use
                                                                     of printed form contracts drawn by the party in the
                                                                                                                     Page 6
                                        809 S.W.2d 493, *; 1991 Tex. LEXIS 25, **;
                                                   34 Tex. Sup. J. 402

        strongest economic position, which establish in-         vice, Board of Realtors, yard signs, radio and television.
        dustry-wide standards offered on a take it or leave      After weighing all of the above, I am not convinced that
        it basis; (2) excessive price; (3) a denial of basic     the clause limiting Bell's liability for errors or omissions
        rights and remedies to a consumer buyer; (4) the         to the cost of the Yellow Pages advertising is uncon-
        inclusion of penalty clauses; (5) the circumstances      scionable.
        surrounding the execution of the contract, in-
                                                                    For the foregoing reasons, I concur with the judg-
        cluding commercial setting; (6) the hiding of
                                                                 ment.
        disadvantageous clauses in a mass of fine print or
        in inconspicuous places; (7) phrasing clauses in
                                                                 CONCURRING OPINION
        language that is incomprehensible to a layman or
        that diverts his attention from the problems they            Lloyd Doggett, Justice
        raise; (8) a overall imbalance in the obligations
                                                                     I concur in the court's judgment but write separately
        and rights imposed by the bargain; (9) exploitation
                                                                 because it should, and could, be based solely upon our
        of the underprivileged, unsophisticated, unedu-
                                                                 holding in Jim Walter Homes, Inc. v. Reed, 711 S.W.2d
        cated, and the illiterate; and (10) inequality of
        bargaining or economic power. Wille v. South-            617, 618 (Tex. 1986). Today's brief writing concerning the
        western Bell Tel. Co., 219 Kan. 755, 549 P.2d 903,       nature of torts and contracts unnecessarily adds more
                                                                 confusion than clarity.
        906-07 (Kan. 1976).
        6 As & framework for decision commentators                     [*500] The court does recognize that in some as
        and courts have generally followed the analysis          yet unspecified instances a tort action may lie between
        proposed by Professor Arthur Leff. Leff,                 contracting parties. It appropriately observes that a tort
        unconscionability and the Code -- The Emperor's          action may arise based upon a number of relationships
        New Clause, 115 U. Pa. L. Rev. 485, 487 (1967).          that could be created by contract. Although the court
        Professor Leff labelled the different types of           offers only one example of a contractual relationship
        unconscionability as "substantive" and "proce-           [**22] creating duties the breach of which gives rise to
        dural," distinguishing the content of the contract       actions both in tort and contract,       S.W.2d at      n.1
        from the process by which the allegedly offensive        (the relationship between a professional and client), our
        terms found their way into the agreement.                developing jurisprudence recognizes others. See. e.g.,
                                                                 Viles v. Security Nat'l Ins. Co., 788 S.W.2d 566, 567 (Tex.
      [**20] DeLanney concentrates on the procedural
                                                                 1990) (relationship between insured and insurer). In ad-
aspect, emphasizing the absence of any meaningful choice
                                                                 dition, the court correctly recognizes that the breach of
in the bargain. Bell, on the other hand, contends that the
                                                                 certain common-law duties creates liability in tort; the
provision was nevertheless fair and reasonable under the
existing commercial circumstances.                               existence of a contract does not alter those duties.

     Bell submits that its contract merely sought to real-            It is thus incumbent upon the trial courts not to begin
                                                                 and end their inquiry with the contract but to examine the
locate the commercial risk inherent in its business in a
                                                                 circumstances surrounding the parties' relationship, in-
reasonable manner. This risk existed because the directory
                                                                 cluding any duties imposed by law, in determining
was to run for one year and mistakes could not be cor-
                                                                 whether a tort action may be maintained.
rected during this period. Bell contends that the enormous
benefit derived from Yellow Pages advertising by some
subscribers when compared to the relatively modest               DISSENT BY: MANZY
amount charged by Bell, coupled with Bell's inability to
mitigate damages, created a business risk it needed to           DISSENT
reallocate. This it attempted to do by limiting its liability.
                                                                 DISSENTING OPINION
     Bell further submits that the clause limiting liability
was not one-sided or grossly unfair because it benefitted            Oscar H. Manzy, Justice, dissenting.
both parties. It benefitted the subscriber by keeping Yel-           I respectfully dissent. The contractual relationship
low Pages rates low in relation to other types of adver-         creates duties not only under contract law, but under tort
tising and in relation to the return expected by the sub-        law as well. A contract may create the state of things
scriber. It benefitted Bell by shielding it from a risk of       which furnishes the occasion for the tort. Montgomery
potential liability which was out of proportion [**21] to        Ward & Co. v. Scharrenbeck, 146 Tex. 153, 157, 204
the consideration charged by Bell. Although it would not         S.W.2d 508, 510 (1947).
negotiate, Bell argues that DeLanney had other suitable
advertising alternatives such as newspapers, magazines,              Every contract is accompanied by a duty [**23] to
direct mail, phone solicitation, the Multiple Listing Ser-       perform that contract with care, skill, reasonable expedi-
                                                                                                                    Page 7
                                        809 S.W.2d 493, *; 1991 Tex. LEXIS 25, **;
                                                   34 Tex. Sup. J. 402

ence and faithfulness, and the negligent failure to observe      even contemplated within the telephone service contract.
any of the conditions imposed by this duty constitutes a         It was the negligent performance of the telephone service
tort. Id. In determining whether the action is one in con-       contract that the jury found was the proximate cause of
tract or tort or both, the court must look to the substance of   DeLanney's damages. 1 Southwestern Bell breached its
the cause of the action, and not necessarily the manner in       duty to perform the telephone service contract with care,
which it was pleaded. Jim Walter Homes, Inc. v. Reed,            skill and faithfulness.
711 S.W.2d 617, 617-18 (Tex. 1986)(citing International
Printing Pressman and Ass't Union v. Smith, 145 Tex.                    1 In its answers to the special issues, the jury
399, 198 S.W.2d 729 (Tex. 1946)). Where the injury in-                  specifically found Bell to be negligent.
volves failure to perform a contract and the only loss is
                                                                              Issue (1)(a) Whether Bell was negligent in
that economic loss that is the substance of the contract
                                                                        failing to inform DeLanney that the installation of
itself, the action sounds only in contract and not in tort.
                                                                        a rotary system would cancel the Yellow Pages
Jim Walter Homes, 711 S.W.2d at 618.
                                                                        listing.
     However, this case not only involves the failure to
                                                                             Issue (1)(b) Whether Bell was negligent in
perform a contract, it also involves the negligent perfor-
                                                                        failing to adequately train and inform its em-
mance of a second contract. DeLanney had two contracts
                                                                        ployees that a order to cancel one of the telephone
with Bell. For several years he had contracted with Bell
                                                                        numbers would cancel the Yellow Pages adver-
for Yellow Pages advertisements. Prior to the incident the
                                                                        tisement; and
subject of this lawsuit, he had already contracted with Bell
for a 1980-81 Yellow Pages listing. In addition [**24] to                    Issue (i)(c) Whether Bell was negligent in
the Yellow Pages advertisement contract, DeLanney had a                 failing to recognize that the automatic cancellation
separate contract with Bell for telephone service.                      of the Yellow Pages advertisement would occur
                                                                        when the billing procedure was changed.
     Prior to the publication of the 1980-81 telephone di-
rectory, DeLanney contracted to alter his telephone ser-                     The jury further found that each of these acts
vice by canceling his single line and adding a third num-               of negligence proximately caused DeLanney's
ber to his two-number rotary line. When the alteration of               injuries.
the telephone service was requested, the separate contract
for the Yellow Pages advertisement was not modified or                 [**25] This case was correctly tried in the trial
                                                                 court, and the jury's verdict formed the basis of the trial
even mentioned by either party. Cancellation of the single
                                                                 court's judgment, which the court of appeals affirmed.
telephone line, pursuant to the telephone service contract,
resulted in the cancellation of the Yellow Pages adver-              I would affirm the judgment of the court of appeals.
tisement because the advertisement was billed to that
number. The Yellow Pages advertisement itself, was not               Oscar H. Mauzy, Justice.
                                                                                                                      Page 1
                                    334 S.W.3d 275, *; 2010 Tex. App. LEXIS 8448, **




                SP TERRACE, L.P. AND TYEE MANAGEMENT, LLC, Appellants v. MERITAGE
                                   HOMES OF TEXAS, LLC, Appellee

                                                    NO. 01-09-00155-CV

                         COURT OF APPEALS OF TEXAS, FIRST DISTRICT, HOUSTON

                                       334 S.W.3d 275; 2010 Tex. App. LEXIS 8448


                                             October 21, 2010, Opinion Issued

SUBSEQUENT HISTORY:                  Released for Publica-       extended the deadline, or alternatively that its compliance
tion April 6, 2011.                                              was excused. It claims fact issues exist on its affirmative
                                                                 defenses of oral modification, waiver, delay and inter-
PRIOR HISTORY: [**1]                                             ference by Meritage, on the amount of attorney's fees, and
   On Appeal from the 165th District Court, Harris               on its counterclaim against Meritage. We conclude [**2]
County, Texas. Trial Court Cause No. 2007-43637.                 that SP Terrace raises a fact issue on the issues of waiver
SP Terrace, L.P. v. Meritage Homes of Tex., LLC, 2010            and delay, but not as to contract modification or inter-
Tex. App. LEXIS 3438 (Tex. App. Houston 1st Dist., May           ference. We therefore reverse the trial court's summary
6, 2010)                                                         judgment and remand the case for trial. We grant rehear-
                                                                 ing and withdraw our opinion and judgment dated May 6,
                                                                 2010, to address an argument that SP Terrace raises in its
COUNSEL: For APPELLANT: Michael C. O'Connor,                     motion for rehearing. Our disposition is unchanged.
O'Connor, Craig, Gould & Evans, P.C., Houston, TX.
                                                                 Background
For APPELLEE: David Watkin Jones, Beck, Redden &
Secrest, LLP, Houston, TX.                                       Underlying Facts
                                                                      SP Terrace entered into an earnest money contract
JUDGES: Panel consists of Chief Justice Radack and
                                                                 with Meritage to develop and sell ninety-six lots in a
Justices Bland and Massengale.
                                                                 proposed Harris County subdivision. The development
                                                                 plan required small and narrow lots, and Meritage was
OPINION BY: Jane Bland
                                                                 one of a few builders who could construct houses to fit the
                                                                 particular lot sizes. The contract terms required SP Ter-
OPINION
                                                                 race to improve the overall subdivision. In particular, it
                                                                 required SP Terrace to file a subdivision plat with Harris
 [*279] OPINION ON REHEARING
                                                                 County by a December 31, 2005 substantial completion
     In this dispute over an earnest money contract to           deadline. After substantial completion, Meritage would
develop a plat of real estate, the trial court granted sum-      then purchase the lots in a series of transactions. The total
mary judgment in favor of Meritage Homes of Texas,               purchase price was $ 2,688,000. Meritage deposited ten
LLC (Meritage) on its breach of contract claim against SP        percent of this price, $ 268,000, with SP Terrace as ear-
Terrace, LP, and Tyee Management, LLC (collectively,             nest money. If SP Terrace did not achieve substantial
SP Terrace). The trial court summarily rejected SP Ter-          completion [**3] by December 31, 2005, Meritage
race's counterclaims for breach of contract against              could terminate the contract and recover its earnest money
Meritage.                                                        deposit. But, if Meritage delayed SP Terrace's perfor-
                                                                 mance of its contractual obligations, the substantial com-
      The contract called for SP Terrace to file a subdivi-
                                                                 pletion deadline would "be extended to the extent of any
sion plat by December 31, 2005. SP Terrace concedes that
                                                                 such delay."
it did not meet this deadline. But it argues that the contract
                                                                                                                   Page 2
                                   334 S.W.3d 275, *; 2010 Tex. App. LEXIS 8448, **


     On November 30, representatives from Meritage and         noted that SP Terrace failed to present any evidence that
SP Terrace met to discuss [*280] the project. At this          the amount of liquidated damages was an unreasonable
point, SP Terrace was ready to file the subdivision plat.      forecast of the amount of its damages.
Meritage asked for changes to the plat, and it requested
                                                                    SP Terrace responded with the Todd and Smalley
that SP Terrace postpone filing the plat to accommodate
                                                               affidavits to show that fact issues existed regarding (1) an
those changes. SP Terrace agreed, but informed Meritage
                                                               agreement to extend the substantial completion deadline;
that a six-month extension of the substantial completion
                                                               (2) whether Meritage, through its oral agreement to ex-
deadline would be necessary to address these and any
                                                               tend the deadline and its continued work with SP Terrace
future changes to the development. According to Tyler
                                                               after December 31, 2005, waived the deadline; and (3)
Todd, the president of Tyee Management, SP Terrace's
                                                               whether Meritage breached its duties to cooperate with SP
general partner, and Kelly Smalley, the project manager,
                                                               Terrace and to not delay or interfere with [**6] SP
the parties orally agreed to extend the substantial com-
                                                               Terrace's performance of its contractual obligations. SP
pletion deadline, and the representatives of Meritage
                                                               Terrace also argued that the liquidated damages provision
agreed to sign a written extension memorializing the oral
                                                               of the contract, which limited SP Terrace's recovery to
modification. Smalley mailed a written agreement to
                                                               retention of the earnest money deposit, was unenforceable
Meritage before December 31, 2005. She never received a
                                                               penalty because it hypothetically would allow the forfei-
response.
                                                               ture of the deposit due to any breach by Meritage, in-
     The parties continued to work together to make            cluding a trivial one.
changes [**4] and improvements to the development
                                                                     [*281] The trial court granted Meritage's motions.
into early February 2006. But on February 3, Meritage
                                                               Shortly thereafter, Meritage moved for entry of a final
informed SP Terrace that, due to SP Terrace's failure to
                                                               judgment, asking the trial court to award it $ 268,000 in
meet the substantial completion deadline, Meritage was
                                                               damages, $ 71,170.50 in attorney's fees incurred in pros-
terminating the contract and demanding the return of its
                                                               ecuting its claims in the trial court proceedings, $ 40,000
earnest money deposit.
                                                               in attorney's fees if SP Terrace appeals to an intermediate
                                                               appellate court, and an additional $ 27,500 in attorney's
Procedural History
                                                               fees if Meritage ultimately prevails after full briefing and
     After SP Terrace refused to return the earnest money      oral argument to the Texas Supreme Court.
deposit, Meritage sued for breach of contract. SP Terrace
                                                                    SP Terrace moved the trial court to reconsider the
counterclaimed for breach of contract, alleging that
                                                               summary judgment. SP Terrace attached excerpts from
Meritage (1) delayed SP Terrace's performance, (2) failed
                                                               the deposition of Michael Pizzitola, taken after the orig-
to cooperate with SP Terrace, and (3) breached their oral
                                                               inal submission of the summary judgment motions, to
agreement to extend the substantial completion deadline
                                                               further support its contentions. SP Terrace also attached
by six months, all of which entitled SP Terrace to retain
                                                               the affidavit of its counsel of record opposing Meritage's
the earnest money deposit and recover actual damages in
                                                               requested amount [**7] of attorney's fees. The trial
addition to the earnest money it kept.
                                                               court's docket sheet includes the following entry for De-
     Meritage moved for traditional and no-evidence            cember 8, 2008: "D. (seller) Motion for leave of court to
summary judgment on its claims against SP Terrace and          file additional evidence granted." The trial court did not
on SP Terrace's counterclaim. Meritage contended that          memorialize the docket entry in any order, even though
the parties never agreed to extend the substantial com-        SP Terrace submitted a proposed order and requested that
pletion deadline. Meritage argued that SP Terrace's            the trial court sign it. The trial court entered a final
counterclaim failed as a matter of law because it did not      judgment in favor of Meritage, awarding the $ 268,000
state a claim for affirmative relief and the liquidated        earnest money deposit as damages and the full amount of
damages provision in the contract precluded [**5] SP           attorney's fees requested by Meritage.
Terrace from recovering actual damages in excess of the
earnest money deposit. Meritage contended that SP Ter-         Discussion
race's waiver defense failed because Meritage never re-
nounced its right to terminate the contract, and the for-      Standard of Review
ty-eight days that had passed between the substantial
                                                                    We review de novo the trial court's grant of a motion
completion deadline and the date Meritage demanded the
                                                               for summary judgment. Provident Life & Accid. Ins. Co.
return of its earnest money deposit was not long enough to
                                                               v. Knott, 128 S.W.3d 211, 215-16 (Tex. 2003). After an
show that Meritage intended to yield its right to terminate.
                                                               adequate time for discovery, a party may move for
Meritage argued that any oral modification of the contract
                                                               no-evidence summary judgment if there is no evidence of
is unenforceable because it materially altered the obliga-
                                                               one or more essential elements of a claim or defense on
tions of the underlying written contract. Meritage also
                                                                                                                       Page 3
                                    334 S.W.3d 275, *; 2010 Tex. App. LEXIS 8448, **


which the adverse party bears the burden of proof at trial.      Dist.] 1990, no writ) (citing Energo Int'l Corp. v. Modern
TEX. R. CIV. P. 166a(i). Once a party moves for                  Indus. Heating, Inc., 722 S.W.2d 149, 151-52 (Tex.
no-evidence summary judgment, the burden shifts to the           App.--Dallas 1986, no writ) ("Consequently, there is no
non-movant to present evidence raising a genuine issue of        indication in the record that permission of the court was
material fact on each element specified in the motion.           requested or obtained to file the amended answer and that
Mack Trucks, Inc. v. Tamez, 206 S.W.3d 572, 582 (Tex.            the amended answer was properly before the court.")). SP
2006). [**8] We review the evidence in the light most            Terrace contends that our holding in Dolcefino supports
favorable to the non-movant, crediting favorable evidence        its argument despite these cases. In Dolcefino, however,
if reasonable jurors could, and disregarding contrary ev-        the trial judge stated on the record at the motion for re-
idence unless reasonable jurors could not. Mann Frank-           consideration hearing that "the court will include the
fort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d         evidence offered today in the summary judgment record.
844, 848 (Tex. 2009) (citing City of Keller v. Wilson, 168       The court, even taking this evidence into the record, de-
S.W.3d 802, 827 (Tex. 2005)).                                    nies Plaintiff's motion for new trial." See Dolcefino, 126
                                                                 S.W.3d at 134. We noted that the trial judge's statement on
     When we construe a contract, we must "ascertain and
                                                                 the record indicated that the judge had accepted the evi-
give effect to the parties' intentions as expressed in the
                                                                 dence as belatedly offered summary judgment evidence.
document." Frost Nat'l Bank v. L & F Distribs., Ltd., 165
                                                                 See id. Here, in contrast, SP Terrace requested that the
S.W.3d 310, 311-12 (Tex. 2005) (per curiam). We con-
                                                                 trial court sign an order granting leave to file the addi-
sider the contract as a whole in order to give effect to all
                                                                 tional evidence that it had attached to [**11] the motion
provisions of the contract. See id. at 312. We give con-
                                                                 for reconsideration. It attached the docket sheet and a
tractual terms their plain, ordinary, and generally accepted
                                                                 proposed order, but the trial court never entered the order.
meaning unless the contract shows that the parties in-
                                                                 Following Miller, we decline to extend the Dolcefino
tended a different meaning to control. See Heritage Res. v.
                                                                 analysis to docket sheet entries, and thus hold that this
NationsBank, 939 S.W.2d 118, 121 (Tex. 1996).
                                                                 evidence is not part of the summary judgment record.
Late-Filed Summary Judgment Evidence                                 In a similar vein, Meritage, in its response to SP
                                                                 Terrace's motion for reconsideration, attached excerpts
     SP Terrace initially contends that the trial court erred
                                                                 from the deposition of Tyler Todd that it had not previ-
in granting summary judgment because the late-filed
                                                                 ously filed with the trial court. Meritage did not request
deposition testimony of Meritage's Michael Pizzitola
                                                                 leave of court to late-file these excerpts from Todd's
creates fact issues. Texas Rule of Civil Procedure 166a(c)
                                                                 deposition, and thus these excerpts do not form part of the
provides that "[e]xcept on leave of [**9] court, the ad-
                                                                 summary judgment record. See TEX. R. CIV. P. 166a(c);
verse party, not later than seven days prior to the day of
                                                                 Dolcefino, 126 S.W.3d at 133.
hearing may file and serve opposing affidavits or other
written response." TEX. R. CIV. P. 166a(c). A trial court
                                                                 Oral Modification of the Substantial Completion Dead-
may accept late-filed summary judgment evidence, but it
                                                                 line
must affirmatively indicate that it accepted or considered
that [*282] evidence. See Stephens v. Dolcefino, 126                  Turning to the merits, SP Terrace first contends that
S.W.3d 120, 133-34 (Tex. App.--Houston [1st Dist.] 2003,         an oral modification to the contract exists and thus it is not
pet. denied). If no order in the record indicates that the       liable for any breach associated with missing the De-
court gave leave to file untimely evidence, then we pre-         cember 31 deadline. Under the statute of frauds, a contract
sume that the trial court did not consider the evidence. See     for the sale of real estate must be in writing and signed by
Benchmark Bank v. Crowder, 919 S.W.2d 657, 663 (Tex.             the party charged with compliance with its terms. TEX.
1996); Dixon v. E.D. Bullard Co., 138 S.W.3d 373, 375-76         BUS. & COM. CODE ANN. § 26.01(b)(4) (Vernon 2009).
(Tex. App.--Houston [14th Dist.] 2004, pet. granted,             Generally, if a contract falls within [**12] the statute of
judgm't vacated w.r.m.); Farmer v. Ben E. Keith Co., 919         frauds, then a party cannot enforce any subsequent oral
S.W.2d 171, 176 (Tex. App.--Fort Worth 1996, no writ).           material modification to the contract. See Dracopoulas v.
                                                                 Rachal, 411 S.W.2d 719, 721 (Tex. 1967); see also Walker
     SP Terrace relies on the trial court's docket entry as
                                                                 v. Tafralian, 107 S.W.3d 665, 670 (Tex. App.--Fort Worth
sufficient indication that the trial court granted it leave to
                                                                 2003, pet. denied).
late-file the Pizzitola deposition as summary-judgment
evidence. We previously have held, however, that a                    In Dracopoulas, the Texas Supreme Court held un-
docket entry "forms no part of the record we may con-            enforceable an oral modification [*283] that extended
sider; it is a memorandum made for the trial court and           the time for performance indefinitely. See Dracopoulas,
clerk's convenience. [**10] This rule results, in part,          411 S.W.2d at 722. The court reasoned that the termina-
from the inherent unreliability of docket entries." Miller v.    tion date of the contract was the "hinge upon which still
Kendall, 804 S.W.2d 933, 944 (Tex. App.--Houston [1st            other contractual rights and duties turn," and extending
                                                                                                                     Page 4
                                   334 S.W.3d 275, *; 2010 Tex. App. LEXIS 8448, **


the termination date indefinitely would destroy other           It is thus undisputed that the parties never signed a written
contractual provisions that depended on the termination         agreement to extend the deadline beyond December 31. In
date to become operative. See id.; see also King v.             addition, SP Terrace viewed the extension of time to be a
Texacally Joint Venture, 690 S.W.2d 618, 620 (Tex.              material alteration to the contract, sufficient to excuse it
App.--Austin 1985, writ ref'd n.r.e.) ("It has been held that   from further performance, stating to the trial court:
attempted alteration of the time for performance in real                     Meritage agreed to extend the substan-
estate contracts is a material alteration." (citing Vendig v.            tial completion date and/or caused a de-
Traylor, 604 S.W.2d 424 (Tex. Civ. App.--Dallas 1980,                    fault or delay in the substantial comple-
writ ref'd n.r.e.))). But see Triton Comm'l Props., Ltd. v.              tion. Meritage then refused to perform
Norwest Bank Tex., N.A., 1 S.W.3d 814, 819 (Tex. App.--                  under the Contract by its February 3, 2006
Corpus Christi 1999, pet. denied) (holding that extending                letter. This evidence is sufficient to show a
[**13] the time for performance does not, by itself, ma-                 prior or anticipatory [**15] breach by
terially alter the underlying obligations, even if the con-              Meritage, which would excuse further
tract would otherwise terminate). In the right circum-                   performance by SP Terrace.
stances, an extension for the time for performance can be
a material alteration.
                                                                SP Terrace thus asserts that Meritage's breach of the al-
     This case presents one of those circumstances. Even
                                                                leged oral extension of the substantial completion dead-
if the oral modification extending performance would not
                                                                line was sufficient to excuse any further performance by
ordinarily materially alter the underlying written contract,
                                                                SP Terrace. The modification here is a [*284] material
when a party relies on the modification to assert that the
                                                                term--as such, it is unenforceable because it was never
other party is in material breach to excuse further per-
                                                                reduced to writing. See Walker, 107 S.W.3d at 670; King,
formance, the modification then becomes material and
                                                                690 S.W.2d at 620. We hold that the trial court correctly
unenforceable unless in writing. See Walker, 107 S.W.3d
                                                                granted summary judgment on SP Terrace's affirmative
at 670; King, 690 S.W.2d at 620.
                                                                defense of modification.
     Todd and Smalley described the November 30
meeting between Meritage and SP Terrace representa-             Waiver of the Substantial Completion Deadline
tives. Each averred that, at this meeting, Meritage repre-
                                                                     SP Terrace next contends that a fact issue exists re-
sentatives requested that SP Terrace delay filing the sub-
                                                                garding Meritage's waiver of the December 31 deadline.
division plat to allow the parties to continue making
                                                                A party establishes waiver by demonstrating (1) the ex-
changes to the development. SP Terrace agreed, but re-
                                                                press renunciation of a known right or (2) silence or in-
quested a six-month extension of the December 31 dead-
                                                                action for so long as to show the intent to yield a known
line. According to Todd and Smalley, Meritage's repre-
                                                                right. See Motor Vehicle Bd. v. El Paso Indep. Auto
sentatives agreed to extend the deadline and to sign a
                                                                Dealers, 1 S.W.3d 108, 111 (Tex. 1999). Waiver can also
written agreement confirming that extension. Smalley
                                                                result from acts that induce the other party to believe that
mailed a [**14] written extension to Meritage before
                                                                the party will not insist on exact performance within the
December 31, and although Meritage never returned a
                                                                contractual time limits. See Kennedy Ship & Repair, LP v.
signed extension, it also never objected.
                                                                Pham, 210 S.W.3d 11, 20 (Tex. App.--Houston [14th
     Meritage points to a January 20, 2006, letter from         Dist.] 2006, no pet.); [**16] see also KMI Continental
Smalley to Steve Harding as evidence that the parties did       Offshore Prod. Co. v. ACF Petrol. Co., 746 S.W.2d 238,
not agree to extend the deadline:                               243 (Tex. App.-- Houston [1st Dist.] 1987, writ denied)
                                                                ("[A] waiver can occur if a party knowingly possessing
           I had previously sent you an addendum                the right acts in such a manner that the party misleads the
       to the Earnest Money Contract prior to the               opposing party into believing that a waiver has oc-
       end of the year extending the date of the                curred."); Alfred, Meroney & Co. v. Rowe, 619 S.W.2d
       contract to June 30, 2006. As of this date, I            210, 213 (Tex. App.--Amarillo 1981, writ ref'd n.r.e.).
       have not received an executed addendum. I
                                                                     The surrounding facts and circumstances must
       know there are still questions to be an-
                                                                plainly demonstrate a party's intent to waive a known
       swered, but we need some assurance that
                                                                right. See El Paso Indep. Auto Dealers, 1 S.W.3d at 111.
       we can reach an agreement and declare
                                                                Waiver may result when: (1) a party assents to the other
       some sort of modified substantial comple-
                                                                party's continued performance without objection to the
       tion.
                                                                delay; (2) a party states that it will not require strict
                                                                compliance with a deadline or acts such that the other
                                                                party reasonably believes strict compliance will not be
                                                                                                                      Page 5
                                   334 S.W.3d 275, *; 2010 Tex. App. LEXIS 8448, **


required; or (3) a party insists on performance by the other   Delgado, 936 S.W.2d at 485 ("A party to a contract may
party even after breach of the agreement. See Delgado v.       effectively waive a breach by the other party by continu-
Methodist Hosp., 936 S.W.2d 479, 485 (Tex.                     ing to insist on performance by the other party even after a
App.--Houston [14th Dist.] 1996, no writ); Fairfield Fin.      breach.").
Group, Inc. v. Gawerc, 814 S.W.2d 204, 209 (Tex.
App.--Houston [1st Dist.] 1991, no writ); Seismic & Dig-       Delay and Interference by Meritage
ital Concepts, Inc. v. Digital Res. Corp., 590 S.W.2d 718,
                                                                   SP Terrace contends that fact issues exist as to
721 (Tex. Civ. App.--Houston [1st Dist.] 1979, no writ).
                                                               whether Meritage caused delays and interfered with SP
[**17] Ordinarily waiver is a fact question; however, we
                                                               Terrace's performance of its contractual obligations thus
decide a waiver issue as a matter of law if the facts and
                                                               breaching an implied duty to cooperate.
circumstances are admitted or established. See El Paso
Indep. Auto Dealers, 1 S.W.3d at 111.                               We examine the written contract to determine the
                                                               obligations of the parties. See Bank One, Tex., N.A. v.
     Todd and Smalley aver that, at the end of November,
                                                               Stewart, 967 S.W.2d 419, 435 (Tex. App.--Houston [14th
SP Terrace was prepared to file the subdivision plat, but
                                                               Dist.] 1998, pet. denied), cited with approval in Keck v.
delayed the filing at Meritage's request. They both averred
                                                               Nat'l Union Fire Ins. Co., 20 S.W.3d 692, 701 (Tex. 2000);
that they told Meritage that delaying the filing of the plat
                                                               Nalle v. Taco Bell Corp., 914 S.W.2d 685, 687 (Tex.
would require a six-month extension of the substantial
                                                               App.--Austin 1996, writ denied). We do not imply a
completion deadline and that Meritage orally agreed to
                                                               covenant regarding a matter specifically covered by the
this extension, which suggested to them that Meritage
                                                               terms of the written contract, but we imply a duty to co-
would not insist upon the December 31 deadline. Smalley
                                                               operate to the extent necessary for the contract's perfor-
further averred that she mailed the written extension prior
                                                               mance. See Stewart, 967 S.W.2d at 434. Thus, a party
to December 31 and never received any objections to the
                                                               cannot "hinder, prevent, or interfere with [another's] abil-
extension. Todd and Smalley continued to work with
                                                               ity to perform [its] duties under [the] agreement." See id.
Meritage on the development into February 2006.
                                                               at 435. [**20] The implied covenant to cooperate differs
Smalley participated in a January 10, 2006, meeting with
                                                               from the broader implied covenant of good faith and fair
Steve Harding of Meritage to "discuss the proposed sub-
                                                               dealing, which the Texas Supreme Court has rejected. See
division changes."
                                                               Case Corp. v. Hi-Class Bus. Sys. of Am., Inc., 184 S.W.3d
     Meritage cites Beal Bank, S.S.B. v. Schleider, 124        760, 770 (Tex. App.--Dallas 2005, pet. denied) (citing
S.W.3d 640 (Tex. App.--Houston [14th Dist.] 2003, pet.         Tex. Nat'l Bank v. Sandia Mtg. Corp., 872 F.2d 692,
denied), to support its contention that SP Terrace does not    698-99 (5th Cir. 1989)).
raise a fact issue on waiver. In Beal Bank, [**18] the
                                                                    When one party prevents another from timely per-
Fourteenth Court of Appeals held that representations that
                                                               forming its contractual obligations, the failure to timely
"an extension would not be a problem," the parties were
                                                               perform is excused. See Anderson Dev. Corp. v. Coastal
"set to go," and the bank would "get [*285] back to"
                                                               States Crude Gathering Co., 543 S.W.2d 402, 406 (Tex.
Schleider were insufficient to establish waiver. See id. at
                                                               Civ. App.--Houston [14th Dist.] 1976, writ ref'd n.r.e.);
654. In contrast, here, Todd and Smalley aver that
                                                               see also Dorsett v. Cross, 106 S.W.3d 213, 217 (Tex.
Meritage continued to participate in meetings with SP
                                                               App.--Houston [1st Dist.] 2003, no pet.) ("Prevention of
Terrace representatives and work with SP Terrace on
                                                               performance by one party excuses performance by the
further changes to the development even after the De-
                                                               other party."). According to Todd and Smalley, SP Ter-
cember 31 deadline, indicating that it continued to insist
                                                               race prepared to file the subdivision plat in November
on performance after breach of the agreement. In his
                                                               2005, but at Meritage's request, it delayed filing it.
affidavit, Tyler Todd states that SP Terrace "continued to
                                                               Smalley also stated the following:
work with [Meritage] under the Contract and to accom-
modate changes requested by [Meritage] throughout De-
                                                                         The development was often delayed by
cember 2005, January 2006, and into February 2006."
                                                                      lack of information, delays in approvals
Kelly Smalley states that a Meritage representative par-
                                                                      and changes in plans and designs from
ticipated in a meeting to discuss the proposed subdivision
                                                                      [Meritage]. For example, I could not ob-
changes on January 10, 2006, after the deadline. We hold
                                                                      tain timely approval from [Meritage] for
that SP Terrace raises a fact issue as to whether Meritage
                                                                      finalizing the design of the [**21] fences,
waived the December 31 substantial completion deadline
                                                                      the location of the electrical service, Steve
and its right to terminate the contract on this basis, par-
                                                                      Harding's failure to attend a meeting on
ticularly in light of the contract provision that the sub-
                                                                      November 16, 2005 with CenterPoint En-
stantial completion deadline "would be [**19] extend-
                                                                      ergy and failure to respond to CenterPoint
ed" to the extent of any delay caused by Meritage. See
                                                                      Energy on various [*286] issues. These
                                                                                                                      Page 6
                                     334 S.W.3d 275, *; 2010 Tex. App. LEXIS 8448, **


        failures and delays caused a delay in the                      Meritage argues that because SP Terrace always
        substantial completion of the subdivision.                possessed the earnest money deposit, and if SP Terrace
                                                                  prevailed or Meritage abandoned its claim, SP Terrace
                                                                  would simply retain the earnest money. Therefore, SP
Section 16(k) of the contract provides that: "Seller [SP          Terrace's counterclaim, which asks the trial court to de-
Terrace] shall not be responsible for any damage or delay         termine that SP Terrace is entitled to the earnest money, is
caused by Purchaser [Meritage] or Purchaser's agent . . .         essentially a claim for declaratory relief. We disagree. SP
and the time limits for Seller's performance hereunder            Terrace asked the trial court to determine it has a right to
shall be extended to the extent of any such delay." 1 We          the earnest money deposit, but it also seeks actual dam-
hold that SP Terrace's summary judgment evidence raises           ages beyond the earnest money deposit. See Howell v.
a fact issue as to whether a delay caused by Meritage             Mauzy, 899 S.W.2d 690, 706 (Tex. App.--Austin 1994,
extended the substantial completion deadline.                     writ denied) ("A court may allow a declaratory-judgment
                                                                  counterclaim, however, if it is something more than a
        1 The contract provides in section 16(k) that the         mere denial of the plaintiff's claim and has greater rami-
        substantial completion deadline "would be ex-             fications than the original suit. A counterclaim has greater
        tended" if Meritage caused the delay of the dead-         ramifications than the original suit if it seeks affirmative
        line. Meritage argued in the trial court that SP          relief.") (internal citations [**24] omitted). We hold that
        Terrace's reference to section 16(k) in an amended        SP Terrace's allegations state a claim for relief inde-
        pleading filed after its motion for partial summary       pendent of Meritage's breach of contract [*287] claim.
        judgment was filed came too late to support its           If the trier of fact concludes that Meritage has waived
        contractual defenses. We disagree, in so much as          performance of the substantial completion deadline and
        SP Terrace expressly argued in its summary                was in breach of the agreement, then SP Terrace is entitled
        judgment response that "by words, actions                 to pursue its claim for breach.
        [**22] and inaction, Meritage caused the default
        and/or delay in the substantial completion."              B. Earnest Money as Liquidated Damages
                                                                       SP Terrace asked the trial court to set aside the ear-
Summary Judgment on SP Terrace's Counterclaim
                                                                  nest money liquidated damages provision for a breach by
    SP Terrace also sues Meritage for breach of contract,         Meritage, contending that it penalizes Meritage because it
and seeks damages beyond the earnest money deposit.               requires Meritage to forfeit its earnest money no matter
The trial court rejected this claim, and SP Terrace appeals.      how trivial its breach. SP Terrace requests this interpre-
Meritage responds that SP Terrace's counterclaim is not           tation of the contract so that its damages claim against
one for affirmative relief, but in any event, SP Terrace's        Meritage can exceed the earnest money deposit it kept
recovery is limited to the earnest money contract.                after Meritage terminated the contract. The clause in
                                                                  question provides that, upon default by Meritage, SP
A. Claim for Affirmative Relief                                   Terrace, as its sole remedy, may terminate the contract
                                                                  and retain the earnest money deposit.
     Meritage argues that SP Terrace's asserted contrac-
tual defense to the refund of Meritage's earnest money                 We enforce a liquidated damages clause if (1) the
deposit is not an affirmative claim for relief. To qualify as     harm caused by the breach is incapable or difficult of
a claim for affirmative relief, the defendant must allege a       estimation, and (2) the amount of liquidated damages is a
cause of action independent of the plaintiff's claim, on          reasonable forecast of just compensation. See Phillips v.
which the defendant can recover benefits, compensation,           Phillips, 820 S.W.2d 785, 788 (Tex. 1991). [**25] An
or relief, even though the plaintiff may abandon or fail to       assertion that a liquidated damages provision constitutes
establish its claim. See Gen. Land Office v. OXY USA,             an unenforceable penalty is an affirmative defense, and
Inc., 789 S.W.2d 569, 570 (Tex. 1990). If the defendant           the party asserting penalty bears the burden of proof. See
only resists the plaintiff's right to recover, then it does not   Urban Television Network Corp. v. Liquidity Solutions,
state a claim for affirmative relief. See id.                     277 S.W.3d 917, 919 (Tex. App.--Dallas 2009, no pet.);
                                                                  Fluid Concepts, Inc. v. DA Apts., LP, 159 S.W.3d 226, 231
     In its "Second Amended Answer and First Amended
                                                                  (Tex. App.--Dallas 2005, no pet.). Generally, that party
Counterclaim," SP Terrace stated that Meritage's [**23]
                                                                  must prove the amount of actual damages, if any, to
"actions, promises and representations" constituted a prior
                                                                  demonstrate that "the actual loss was not an approxima-
breach of the contract by Meritage, which excused SP
                                                                  tion of the stipulated sum." Baker v. Int'l Record Syndi-
Terrace from further performance and entitled SP Terrace
                                                                  cate, Inc., 812 S.W.2d 53, 55 (Tex. App.--Dallas 1991, no
to retain the earnest money deposit and recover actual
                                                                  writ). If the amount stipulated in the liquidated damages
damages, including lost profits, of at least $ 1,400,000.
                                                                  clause is "shown to be disproportionate to actual damag-
                                                                                                                     Page 7
                                   334 S.W.3d 275, *; 2010 Tex. App. LEXIS 8448, **


es," we should declare that the clause is a penalty and limit   thousand dollars . . . would be so unreasonable that no
recovery to actual damages. Johnson Eng'rs, Inc. v.             court would lend its power to enforce it"); Community
Tri-Water Supply Corp., 582 S.W.2d 555, 557 (Tex. Civ.          Dev., 679 S.W. 2d at 727 (jury findings and evidence
App.-- Texarkana 1979, no writ); see also TEX. BUS. &           supported claim that earnest money provision operated as
COM. CODE ANN. § 2.718(a) (Vernon 2009) ("A term                penalty); Bethel, 635 S.W.2d at 843 (upholding trial
fixing unreasonably large liquidated damages is void as a       court's determination that liquidated damages clause was
penalty."). Whether a liquidated damages clause is an           penalty against breaching party, and limiting plaintiff's
unenforceable penalty is a question of law for the court,       recovery to actual damages).
but sometimes factual issues [**26] must be resolved
                                                                     A liquidated damages provision is a penalty if it
before the court can decide the legal question. See Phil-
                                                                punishes the breaching party by subjecting it to a dis-
lips, 820 S.W. 2d at 788. For example, in Phillips, the
                                                                proportionately high amount of damages relative to rea-
Texas Supreme Court observed that "to show that a liq-
                                                                sonably anticipated actual damages. Absent evidence that
uidated damages provision is unreasonable because the
                                                                the earnest money amount here was not a reasonable
actual damages incurred were much less than the amount
                                                                approximation of an anticipated breach, limiting recovery
contracted for, a defendant may be required to prove what
                                                                to the earnest money deposit and preventing a party from
the actual damages were." Id.
                                                                recovering actual damages in excess of the bargained for
     SP Terrace adduced no evidence in the trial court that     liquidated amount does not constitute a penalty to the
Meritage's forfeit of its earnest money operated as a pen-      breaching party. 2 We decline to hold as a matter of law
alty because Meritage's breach was a trivial one. Its aim       that the earnest money provision in this case is a penalty.
was just the opposite--it was to prove that Meritage's          Cf. Phillips, 820 S.W.2d at 788-89 (no fact issue that
breach caused damages far higher than the earnest money         provision was penalty against breaching party because it
amount, although it offered no proof of that theory either.     provided that actual damages be determined [**29] and
We decline to remove a limitation of remedy provision           multiplied tenfold).
absent any evidence that the liquidated amount in the
contract is unreasonably high or low in light of the alleged           2 Other jurisdictions that have addressed this
breach. See Urban Television, 277 S.W.3d at 919; Fluid                 issue have held similarly, and refused to strike the
Concepts, Inc., 159 S.W.3d at 231.                                     liquidated damages provision on the ground that it
                                                                       is an unenforceable penalty. See, e.g., Mahoney v.
     SP Terrace relies on cases in which courts have dis-
                                                                       Tingley, 85 Wn.2d 95, 529 P.2d 1068, 1070
regarded liquidated damages provisions as unreasonable
                                                                       (Wash. 1975) ("A penalty exists where there is an
in their approximation of actual damages for trivial
                                                                       attempt to enforce an obligation to pay a sum fixed
breaches. See Stewart v. Basey, 150 Tex. 666, 245 S.W.2d
                                                                       by agreement of the parties as a punishment for the
484, 487 (Tex. 1952) [**27] ("Our conclusion is that,
                                                                       failure to fulfill some primary contractual obliga-
since the contract provided the same reparation for the
                                                                       tion. In this case, it is not the party in default who
breach of each [*288] and every covenant, and since it
                                                                       seeks relief from an excessively high liquidated
would be unreasonable and a violation of the principle of
                                                                       damages provision. Rather, the provision operates
just compensation to enforce it as to some of them, the
                                                                       to limit the recovery of the party who incurred a
provision for stipulated damages should be treated as a
                                                                       loss as a result of the other parties' breach. There
penalty."); Community Dev. Serv., Inc. v. Replacement
                                                                       being no element of punishment involved, it
Parts Mfg., Inc., 679 S.W.2d 721, 727 (Tex.
                                                                       cannot be said that plaintiff is being penalized in
App.--Houston [1st Dist.] 1984, no writ) (holding that
                                                                       any sense.")(internal citations omitted); Margaret
liquidated damages clause in earnest money contract was
                                                                       H. Wayne Trust v. Lipsky, 123 Idaho 253, 846
unenforceable penalty, because even though it provided
                                                                       P.2d 904, 910 (Idaho 1993) (following Mahoney
reasonable damages for major breaches of the contract, it
                                                                       and refusing to strike down liquidated damages
also allowed unreasonable damages for trivial breaches);
                                                                       provision as penalty when non-breaching party
Bethel v. Butler Drilling Co., 635 S.W.2d 834, 837-38
                                                                       sought damages in excess of provision amount).
(Tex. App.--Houston [14th Dist.] 1982, writ ref'd n.r.e.)
(holding same). These cases are distinguishable in that
                                                                Required Notice to Recover Earnest Money
either it was the breaching party who argued that the
provision was a penalty, or in that the party seeking to set         Finally, SP Terrace contends that it did not receive
aside the provision adduced evidence that the liquidated        thirty days' notice and an opportunity [**30] to cure the
damages clause was not a reasonable approximation of            default. Section 9(c) of the contract states:
damages caused by the breach. See Stewart, 245 S.W.2d at
487 (where actual damages incurred by breaching party                     In the event Seller shall default in
amounted to $ 38.50, [**28] "stipulation to pay several                Seller's obligations hereunder . . . Pur-
                                                                                                                     Page 8
                                   334 S.W.3d 275, *; 2010 Tex. App. LEXIS 8448, **


       chaser shall give Seller thirty (30) days               (Tex. 2003) ("[W]e must examine and consider the entire
       written notice and opportunity to cure such             writing in an effort to harmonize and give effect to all the
       default. If Seller fails to cure its default            provisions of the contract so that none will be rendered
       within the thirty day period provided in                meaningless."). We therefore hold that SP Terrace was
       [*289] the notice, Purchaser, as its sole               not entitled to notice and a thirty day opportunity to cure
       and exclusive remedies, may either (i)                  any failure to comply with the substantial completion
       terminate this Contract and obtain the re-              deadline.
       turn of its Earnest Money or (ii) enforce
       specific performance of Seller's obligation             Conclusion
       to convey the Lot(s) upon payment of the
                                                                    We hold that SP Terrace failed to raise a fact issue on
       Purchase Price.
                                                               its affirmative defenses of modification and interference
                                                               by Meritage, but raises fact issues whether Meritage
                                                               waived performance of the December 31 substantial
Meritage responds that the contract does not require no-
                                                               completion deadline and whether Meritage caused delay
tice and an opportunity to cure because section 4(i) states
                                                               that extended the time for performance. We further hold
that if "Substantial Completion does not occur by De-
                                                               that SP Terrace's counterclaim states a claim for affirma-
cember 31, 2005 at option of Purchaser this Contract shall
                                                               tive relief, but that SP Terrace fails to prove on this record
terminate and Purchaser is relieved of any obligation
                                                               that the earnest money provision of the contract is unen-
hereunder." We agree, and hold that once Meritage exer-
                                                               forceable as a matter of law. We therefore [**32] reverse
cised its option to terminate due to SP Terrace's failure to
                                                               and remand the case for further proceedings. 3
meet the deadline, Meritage was relieved of further con-
tractual obligations, including the requirement of
                                                                       3 SP Terrace also contends that the trial court
providing notice and an opportunity to cure. Reading the
                                                                       awarded unreasonable and excessive attorney's
contract to require notice and an opportunity to cure be-
                                                                       fees to Meritage. Because we reverse and remand
fore recovering the earnest [**31] money, even if SP
                                                                       on the merits, we vacate the award of attorney's
Terrace did not achieve substantial completion by De-
                                                                       fees.
cember 31, would render section 4(i)'s provision that
failure to achieve substantial completion by December 31           Jane Bland
relieves Meritage of any contractual obligation a nullity.
                                                                   Justice
See J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229
                                                                                                                      Page 1




                        The State of Texas, Appellant, v. Harry W. Margolis et al., Appellees

                                                         No. 11654

                                Court of Civil Appeals of Texas, Third District, Austin

                    439 S.W.2d 695; 1969 Tex. App. LEXIS 2467; 1969 Trade Cas. (CCH) P72,751


                                                      March 26, 1969

SUBSEQUENT HISTORY:                 [**1]    N.R.E.            person of certain goods on both Saturday and Sunday.
                                                               The plan operates by means of contracts under which
PRIOR HISTORY:            From the District Court of           Sundaco each Saturday night acquires from the other
T5avis County, 167th Judicial District, No. 161990,            appellee corporations all merchandise in their stores and,
Honorable Herman Jones, Judge Presiding.                       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 be-
JUDGES: Trueman E. O'Quinn, Associate Justice.                 tween Sundaco and the other corporations.
                                                                    Appellees brought suit for declaratory judgment un-
OPINION BY: O'QUINN
                                                               der Section 15.12 of the Texas Business and Commerce
                                                               Code which purports to authorize suit when petitioner is
OPINION
                                                               "* * * uncertain of whether or not his action or proposed
      [*697] Appellees sought and obtained a declara-          action violates or will violate the prohibition contained in
tory judgment in district court holding that they did not      Section 15.04 of this code * * *" (Emphasis supplied).
violate State statutes, prohibiting monopolies, trusts, or     Section 15.04 of the code prohibits all monopolies, trusts,
conspiracies in restraint of trade, by operating a mer-        and conspiracies in restraint of trade and declares such
chandising conception designed to avoid the restraints of      combinations illegal.
a penal statute making it unlawful for any person to sell
                                                                    We have decided [**3] that because there is absent
certain goods on both of the two consecutive days of
                                                               from the record any showing that a presently justiciable
Saturday and Sunday.
                                                               controversy exists between the State and the appellees,
     The State of Texas, defendant below, has appealed         any judgment under the record would be an advisory
from this judgment and contends that appellees are en-         opinion the courts are not authorized to render. We do
gaged in a monopoly or trust that fixes, maintains, affects,   not reach the State's points of error as to price control and
or controls prices and that their activity tends to lessen     lessening competition, and will notice only briefly the
competition. The State also urges that the statute under       point under which validity of Section 15.12 is challenged.
which this suit was brought for a declaratory judgment         We will order the cause dismissed.
violates provisions of the State Constitution forbidding
                                                                    Appellees alleged the following with regard to the
the rendition of advisory opinions by the courts.
                                                               existence of a presently justiciable controversy:
     Appellees are individuals and corporations engaged
in an arrangement under which Sundaco, Inc., a retail                      "The Defendant, The State of Texas,
store entity organized for the purpose [**2] of making                 acting under its Attorney General and/or
the arrangement, is open for business only on Sundays,                 District Attorney of Tarrant County, Tex-
and the other appellee corporations are open only on                   as, and other Counties in which a corporate
Mondays through Saturdays. The purpose of this system                  Plaintiff has operations, has contended that
of merchandising is to avoid violation of Article 286a,                the actions and/or proposed actions of all
Texas Penal Code, which makes unlawful the sale by any                 of the Plaintiffs, their agents and employ-
                                                                                                                      Page 2
                                    439 S.W.2d 695, *; 1969 Tex. App. LEXIS 2467, **;
                                             1969 Trade Cas. (CCH) P72,751

        ees, violate or will violate the prohibitions            Juice, Inc., 160 Tex. 586, 334 S.W.2d 780 (1960); Lee v.
        contained in Section 15.04 of the Business               Calvert, 356 S.W.2d 840 (Tex.Civ.App., 1962, Austin,
        and Commerce Code. It is contended by                    writ ref. n.r.e.). It is the duty of the court to decide
        said Defendant that said actions or pro-                 whether a justiciable controversy exists. Ainsworth
        posed actions of the Plaintiffs, their em-               [**6] v. Oil City Brass Works, 271 S.W.2d 754
        ployees and agents, constitute a monopoly,               (Tex.Civ.App., 1954, Beaumont, no writ).
        trust, and/or conspiracy in restraint of
                                                                      The Supreme Court recently declared, "In the ab-
        trade, as defined in Section 15.01, 15.02,
                                                                 sence of a constitutional provision authorizing the Texas
        and 15.03, [**4] of the Business and
                                                                 courts to render advisory opinions, such power does not
        Commerce Code. That by reason of said
                                                                 exist and may not be conferred by agreement of the par-
        actions and/or proposed actions, the
                                                                 ties." Firemen's Insurance Company of Newark, New
        Plaintiffs are subject to the civil and
                                                                 Jersey v. Burch, 442 S.W.2d 331, 12 Tex.Sup.Ct. Jour. 49
        criminal penalties provided for in Section
                                                                 (October 11, 1968).
        15.29 through Section 15.33 of the Busi-
        ness and Commerce Code. Further, said                         The State contends that Section 15.12 of the Business
        Defendant has indicated its intention to                 and Commerce Code is unconstitutional in providing for
        [*698] proceed against the Plaintiffs                    declaratory judgments where there is a lack of justiciable
        pursuant to said penalty provisions of said              controversy. "The provisions of Section 15.12," the State
        Code, which has given rise to a bona fide                argues, "which authorize the courts to consider the pro-
        controversy and created justiciable issues               spective actions of an individual expressly negates the
        which the Court has authority to deter-                  necessity of their (there) being a justiciable controversy
        mine."                                                   ripe for determination."
                                                                      We agree with the State that insofar as Section 15.12
                                                                 purports to empower courts to pass on prospective ac-
      At the trial no evidence was introduced and none was       tions, the statute contravenes the provisions of Section 1,
offered by appellees to prove any of the allegations set out     Article II, of our State Constitution prescribing separation
above. If the State had "indicated its intention to proceed      of powers. The courts of this State, because of this pro-
against the plaintiffs" and invoke the penalty provisions of     vision of the Constitution, are prohibited from rendering
the code, as appellees alleged in their petition, such in-       advisory opinions [**7] and the power may not be con-
tention is not reflected in the record. The State filed an       ferred by the Legislature. Morrow v. Corbin, 122 Tex.
answer to the petition, specially denying numerous alle-         553, 62 S.W.2d 641, 646 (1933).
gations, and generally denied each and every allegation in
the petition. The State by its answer did not seek penal-              Appellees argue in response to the State's contention,
ties, nor did the State pray for injunctive relief to restrain   that the State's "* * * argument is made * * * after ten
                                                                 continuous months of litigation before the trial court, both
appellees. The State's answer was in all respects purely
                                                                 in pretrial procedures and in trial and post trial proce-
defensive.
                                                                 dures, after a trial of approximately three and a half days,
     The State's general denial [**5] put appellees in the       filling approximately four hundred and forty-five pages of
position of having to prove every material fact of their         a statement of facts and after the preparation of a brief * *
cause of action. Boswell v. Handley, 397 S.W.2d 213              *" in this Court. "The justiciable [*699] controversy,"
(Tex. 1965). The burden was upon appellees to establish          appellees say, "between the appellant and the appellees is
that the trial court had authority to entertain the suit by      obvious from the record before this Court."
proving that a justiciable controversy existed. Reuter v.
                                                                      We do not agree with appellees that a justiciable
Cordes-Hendreks Coiffures, Inc., 422 S.W.2d 193
(Tex.Civ.App., 1967, Houston (14th Dist.), no writ).             controversy, required to be pleaded and proved, is obvi-
                                                                 ous from the record. As we have observed, appellees
     Section 15.12, in which it is provided that a person "*     alleged in their petition, as a basis for showing a justicia-
* * uncertain of whether or not his action or proposed           ble controversy, that the State "has indicated its intention
action violates or will violate * * *" Section 15.04 of the      to proceed against the Plaintiffs pursuant to said penalty
code is authorized to file suit against the state for declar-    provisions of said Code, which has given rise to a bona
atory judgment, cannot confer upon the courts power to           fide controversy and created justiciable issues which the
render an advisory opinion to the person who is "uncer-          Court has authority to determine."
tain" as to the legality of his actions or proposed actions.
                                                                      It is obvious from [**8] the record that appellees
Even in declaratory actions, the courts may render opin-
                                                                 filed their petition seeking advice from the courts because
ions only if there exists a justiciable controversy between
                                                                 they were "uncertain of whether or not (their) action or
the parties. California Products, Inc. v. Puretex Lemon
                                                                                                                      Page 3
                                  439 S.W.2d 695, *; 1969 Tex. App. LEXIS 2467, **;
                                           1969 Trade Cas. (CCH) P72,751

proposed action" in carrying on the Sundaco scheme                  The power of courts to pass upon the "uncertainty"
"violates or will violate" Section 15.04 prohibiting mo-       appellees have with regard to their actions will arise only
nopolies, trusts, and conspiracies in restraint of trade.      when the interest of appellees require the use of judicial
Even if all but the prospective aspects of Section 15.12 are   authority for their protection against actual interference.
valid, and we do not decide that question, the suit for        A threat that is only hypothetical is not enough. United
declaratory judgment will not lie unless proof is made of a    Public Workers v. Mitchell, 330 U.S. 75, 67 S. Ct. 556, 91
bona fide threat of interference by the State invoking the     L. Ed. 754 (1947). In Hitchcock v. Kloman, 196 Md. 351,
anti-trust laws.                                               76 A.2d 582 (Md. 1950) the Court of Appeals of Maryland
                                                               refused to entertain suit for declaratory judgment in the
     Discretion rests with the Attorney General as to
                                                               absence of a threat to interfere with activities of petitioner,
whether anti-trust suits will be brought by the State to
                                                               although the attorney general had delivered opinions that
interdict the Sundaco operations and invoke penalties.
                                                               similar activities came within the state statute petitioner
The record is devoid of any showing that appellees had
                                                               asked the court to construe. There it was held that mere
been ordered to discontinue their operations. There is no
                                                               existence of the statute did not pose such a threat as to
evidence of a threat to interfere with Sundaco activities as
                                                               present a justiciable controversy.
a violation of Section 15.04. No threat of interference by
the State with the rights of appellees appears beyond that         In the absence of proof that there existed a justiciable
implied by the existence of the statute and the State's        controversy, the courts are without jurisdiction. For the
answer defending against the petition for declaratory          reasons we have stated, this cause is dismissed for want of
judgment. Appellees may not compel the Attorney Gen-           [**10] jurisdiction.
eral to exercise his [**9] discretion by filing suit for
                                                                   Dismissed for want of jurisdiction.
declaratory judgment.
                                                                                                                  Page 1




                                       E. C. Stewart et ux v. James Marvin Basey

                                                         No. A-3346

                                                 Supreme Court of Texas

                                  150 Tex. 666; 245 S.W.2d 484; 1952 Tex. LEXIS 373


                                                January 16, 1952, Decided

PRIOR HISTORY:           [***1] Error to the Court of           to remand said case to the trial court to determine the
Civil Appeals for the Third District, in an appeal from         actual amount of damages suffered by lessors.
Travis County.
                                                                SYLLABUS
DISPOSITION:         The judgment of the Court of Civil
                                                                     This was a suit by E. C. Stewart and his wife to col-
Appeals is affirmed.
                                                                lect from James Marvin Basey rents for the unexpired
                                                                term of a lease of certain buildings which he had rented
                                                                under a five year contract claiming the right to enforce a
HEADNOTES
                                                                provision in their lease contract that should the lease be
        Damages -- Intention.                                   forfeitured, lessees should pay as liquidated damages the
                                                                sum of $ 150.00 per month for each and every month of
     Liquidated damages are unenforcible unless the
                                                                the unexpired term of the lease contract. They also sued,
amount therefor was uncertain in the contemplation of the
                                                                in the alternative, for actual damages. They actually
parties at the time the contract was executed, and the
                                                                occupied and paid rent for 11 months. The trial court
stipulation therefor must be reasonable.
                                                                awarded damages of $ 38.50 for the destruction of a door,
        Measure of Damages -- Contracts -- Leases.              but denied all other relief. The Court of Civil Appeals
                                                                reversed that judgment and remanded the cause to the trial
     Parties competent to contract, while having the right
                                                                court to determine the actual damages sustained by les-
to make their own bargain, should not be permitted to           sors, 241 S.W. 2d 353. The Stewarts have brought error to
have a court enforce a stipulation which would violate the      the Supreme Court.
rule that a breach of said contract should be the just
compensation for the loss or damage actually sustained,
                                                                COUNSEL: E. M. DeGeurin, of Austin, for petitioners.
and the damaged party should be awarded neither less nor
more than his actual damage.
                                                                 [***3] The Court of Civil Appeals erred in not ren-
        Damages -- Leases -- Appeal and Error -- Penal-         dering judgment in favor of petitioners in the amount of
ties.                                                           the unliquidated damages as agreed to in the lease con-
                                                                tract. Galveston, H. & S.A. Ry. Co. v. Johnson, 74 Texas
     The proviso in a lease contract that should lessees fail   256; Rio Bravo Oil Co. v. Weed, 121 Texas 427, 50 S.W.
to make their monthly payment of the rents, and lessors         2d 1080; Fidelity & Dep. Co. of Md. v. Walker, 75 Fed.
should exercise their option to terminate the contract for      2d 115-118.
that reason, or for some other breach of the contract, les-
see would become obligated to pay a lump sum at that            W. R. Smith, Jr., of Austin, for respondents.
time equal to the total for each and [***2] every month
of the unexpired term of the contract, was not a provision      JUDGES: Mr. Chief Justice Hickman delivered the
for stipulated damages, but was a penalty and was               opinion of the Court.
unenforcible. It was not error for the court of civil appeals
                                                                OPINION BY: HICKMAN
                                                                                                                     Page 2
                                            150 Tex. 666, *; 245 S.W.2d 484, **;
                                                 1952 Tex. LEXIS 373, ***

                                                                     It will be observed that liability for the payment of $
OPINION                                                         150.00 [*669] per month as liquidated damages is not
                                                                limited to the breach of any one particular covenant of the
      [*667] [**485] The controlling question in this
                                                                contract. The covenant to pay the rent when due is but
case is whether the language quoted below stipulating the
                                                                one of the covenants the breach of which would give rise
damages recoverable for [*668] the breach of a lease
                                                                to a claim by the lessors for $ 150.00 per month for each
contract is a provision for liquidated damages or for a
                                                                and every month of the unexpired term of the lease.
penalty. The trial court construed it as a provision for a
penalty and, finding that the lessor suffered no damages             Volumes have been written on the question of when a
by lessee's breach except $ 38.50 caused by the destruc-        stipulated damage provision of a contract should be en-
tion of a partition door in one of the leased buildings,        forced as liquidated damages and when [***6] en-
rendered judgment for that amount only. The Court of            forcement [**486] should be denied because it is a
Civil Appeals upheld the trial court in its refusal to award    penalty provision. One line of cases, of which Eakin v.
liquidated damages, but reversed that portion of the            Scott, 70 Texas 442, 7 S.W. 777, is typical, states that the
judgment awarding only $ 38.50 as damages and re-               intention of the parties governs and another line states that
manded the case to the trial court for the sole purpose         their intention is immaterial, but when the results are
[***4] of determining the amount of actual damages              examined there appears but little disparity between them.
sustained by the lessor. 241 S.W. 2d 353.                       All agree that to be enforceable as liquidated damages the
                                                                damages must be uncertain and the stipulation must be
     By a contract in writing petitioners, E. C. Stewart and
                                                                reasonable. There is a statement in the opinion in Eakin
wife, leased to respondent, James Marvin Basey, three
                                                                v. Scott, supra, which, standing alone, would lead to the
store buildings on South Congress Avenue in the city of
                                                                conclusion that the damages in that case were certain in
Austin. The lease stated that it was for a term of five
                                                                amount. But when the entire opinion is read, it becomes
years, beginning on January 1, 1949, and ending at mid-
                                                                obvious that the damages were very uncertain in the
night on December 31, 1954. The dates cover a period of
                                                                contemplation of the parties when the contract was exe-
six years, but for the purposes of this opinion it is imma-
                                                                cuted; and that is the true test of uncertainty. The true
terial whether the term was five years or six years. The
                                                                theory is well expressed in Williston on Contracts, Re-
lease provided for a monthly rental of $ 325.00, payable
                                                                vised Edition, Sec-779, p. 2192, in this language:
each month in advance. Respondent went into posses-
sion under the lease and paid the monthly rentals through            "But as has been seen, the chief, almost the only,
November, 1949, during which month he vacated the               means of determing whether the parties in good faith
buildings. On the following December 5th the keys were          endeavored to assess the damages is afforded by the
returned to petitioners upon their request, since which         amount of damages stipulated for, and the nature of the
time they have executed leases to other tenants. The            breach upon which the [***7] stipulation was agreed to
provision of the contract which we are called upon to           become operative. This is but saying in other words that
construe reads as follows:                                      the reasonableness or unreasonableness of the stipulation
                                                                is decisive."
     "The failure to pay any monthly installment of rental
when such installment is due shall terminate this lease at           The cases which hold that the intention of the parties
the option of Lessors. The failure of Lessee to make said       controls impute to the parties an intention to provide for a
payment or payments or the [***5] breach of this con-           penalty when it would be unreasonable and unjust to do
tract otherwise by him shall render him liable to Lessors,      otherwise, even though their language clearly expresses
as agreed liquidated damages, the sum of One Hundred            the contrary intention. They indulge in a presumption in
Fifty (150) Dollars per month for each and every month of       order to arrive at the justice of the case. The cases which
the unexpired term of this lease which shall become due         disregard the intention of the parties treat the question as
and payable when the option to terminate this lease is          one of the legality of the stipulation. The reasoning in
exercised or at the time of the breach of this contract         Langever v. R. G. Smith & Co., Comm. App., 278 S.W.
otherwise by Lessee if any, and the payment thereof be          178, 179, is typical of that employed in cases which an-
secured by lien on the property of Lessee in said Store         nounce that the intention of the parties controls. The
Buildings at said time."                                        statement in the opinion that "the real intention of the
                                                                parties when ascertained will control" is followed by the
    Another provision of the contract is:
                                                                statement that such intention "is not necessarily ascer-
    "That the violation of any term of this lease by either     tained by the words [*670] employed." Regardless of
party hereto shall terminate the same at the option of the      which line of cases is followed, the courts will not be
other."                                                         bound by the language of the parties.
                                                                                                                      Page 3
                                            150 Tex. 666, *; 245 S.W.2d 484, **;
                                                 1952 Tex. LEXIS 373, ***

     The right of competent parties to make their own            was followed in Palestine Ice, Gin & Fuel Co. v. Walter
bargains is not unlimited. The universal [***8] rule for         Connally & Co., 148 S.W. 1109, error refused, and in
measuring damages for the breach of a contract is just           Sanders Nursery Co. v. J.C. Engleman, Inc., - 109 S.W. 2d
compensation for the loss or damage actually sustained.          1131, error dismissed.
By the operation of that rule a party generally should be
                                                                      When that rule is applied to the provisions in the
awarded neither less nor more than his actual damages. A
                                                                 contract before us it seems clear that the stipulation should
party has no right to have a court enforce a stipulation
                                                                 be construed as a provision for a penalty and not for liq-
which violates the principle underlying that rule. In
                                                                 uidated damages. Obviously, the stipulation was not
those cases in which courts enforce stipulations of the
                                                                 carefully drawn. It provides that for the failure of lessee
parties as a measure of damages for the breach of cove-
                                                                 to pay any installment of rent when due or for his breach
nants, the principle of just compensation is not abandoned
                                                                 of any other obligation of the contract, the lessors could,
and another principle substituted therefor. What courts
                                                                 at their option, terminate the lease. Should they elect to
really do in those cases is to permit the parties to estimate
                                                                 terminate it, the lessee would be obligated to pay them at
in advance the amount of damages, provided they adhere
                                                                 that time a sum of money arrived at by multiplying $
to the principle of just compensation. Restatement of
                                                                 150.00 by the number of months of the unexpired term of
Contracts, Sec. 339, accurately expresses the rule as fol-
                                                                 the lease. Should they not elect to terminate the lease they
lows:
                                                                 could, nevertheless, demand that amount in a lump sum
     "(1) An agreement, made in advance of breach, fixing        on the date of the breach. The lease contains several
the damages therefor, is not enforceable as a contract and       covenants other than the covenant to [***11] pay rent
does not affect the damages recoverable for the breach,          when due. One is a covenant of indemnity in this lan-
unless.                                                          guage:
     "(a) the amount so fixed is a reasonable forecast of             "Lessee further covenants and agrees to keep Lessors
just compensation for the harm that is caused by the             free and harmless from any and every claim, demand, or
breach, and                                                      cause of action arising in or on the leased premises during
                                                                 the term of this lease."
     "(b) the harm that is caused by the breach is one that
is incapable or very difficult of accurate [***9] estima-             Another is a covenant that lessee will prudently use
tion."                                                           the premises and avoid injuries thereto, except usual wear
                                                                 and tear, and another that lessee will "make such repairs
    This comment on subsection (1) follows:
                                                                 as are not caused by Lessors or their agents and the usual
      "b. Contracts are frequently made in which per-            depletion of said property."
formance of very different degrees of importance and
                                                                      It is not necessary for us to decide whether petitioners
value are promised and one large sum of money is made
                                                                 would have been entitled to liquidated damages had the
payable as damages for any breach whatever. Since such
                                                                 lease contract contained no covenant except the covenant
a contract promises the same reparation for the breach of a
                                                                 to pay rent, and we therefore pass that question by without
trivial or comparatively unimportant stipulation as for the
                                                                 discussion. It is clear that petitioners should not be
breach of the most important one or of the whole contract,
                                                                 awarded a large sum for liquidated damages for the breach
it is obvious that the parties have not adhered to the rule of
                                                                 of the other covenants just mentioned. Take, for in-
just compensation. In this matter neither the intention of
                                                                 stance, the covenant for indemnity. Whatever amount
the parties nor their expression of intention is the gov-
                                                                 respondent might have been called upon to pay petitioners
erning consideration. The payment promised may be a
                                                                 as an indemnity would have been a [*672] definite
penalty, though described expressly as liquidated dam-
                                                                 amount measured by the liability theretofore adjudged
ages, and vice versa."
                                                                 against petitioners. An obligation to pay an indemnity is
      [**487] The rule as declared in that comment is in         [***12] nothing more than an obligation to pay a sum of
effect the same as that declared in Williston on Contracts,      money theretofore ascertained, and a provision that failure
Revised Edition, Vol. 3, Sec. 783, p. 2204; McCormick on         to pay a definite sum of money upon default of perfor-
Damages, Sec. 151; 15 Am. Jur., Damages, Sec. 253; and           mance of a covenant in a contract entitles the obligee to
25 C.J.S., damages, Sec. [*671] 111. Early in the                recover liquidated damages in excess of the interest rate
history of this court in Durst v. Swift, 11 Texas 273, 282,      will not be enforced. Langever v. R. G. Smith & Co.,
the rule was stated in this language: "* * * where the           Comm. App., 278 S.W. 178.
agreement contains several matters of different [***10]
                                                                      With respect to the other covenants above mentioned,
degrees of importance, and yet the sum named is payable
                                                                 it was found by the trial court that respondent breached
for the breach of any, even the least * * * the sum stipu-
                                                                 them, and damages of $ 38.50 were assessed against him
lated to be paid has been treated as a penalty." That rule
                                                                 therefor. A stipulation to pay several thousand dollars
                                                                                                               Page 4
                                           150 Tex. 666, *; 245 S.W.2d 484, **;
                                                1952 Tex. LEXIS 373, ***

for the breach of a covenant which might well result in            We approve the action of the Court of Civil Appeals
damages of $ 38.50 or even less would be so unreasonable       on rehearing in remanding the case for the purpose of
that no court would lend its power to enforce it.              determining the actual damages instead [***13] of
                                                               rendering it.
     Our conclusion is that, since the contract provided the
same reparation for the breach of each and every cove-             The judgment of the Court of Civil Appeals is af-
nant, and since it would be unreasonable and a violation of    firmed.
the principle of just compensation to enforce it as to some
                                                                   Opinion delivered January 16, 1952.
of them, the provision for stipulated damages should be
treated as a penalty.
                                                                                                              Page 1




              TEXAS ASSOCIATION OF BUSINESS, APPELLANT v. TEXAS AIR CONTROL
                     BOARD AND TEXAS WATER COMMISSION, APPELLEES

                                                   NO. C-9556

                                        SUPREME COURT OF TEXAS

                            852 S.W.2d 440; 1993 Tex. LEXIS 22; 36 Tex. Sup. J. 607


                                            March 3, 1993, Delivered

PRIOR HISTORY:      [**1] ON DIRECT AP-                   action seeking a ruling that statutes empowering two state
PEAL FROM THE 250TH DISTRICT COURT,                       administrative agencies to levy civil penalties for viola-
TRAVIS COUNTY, TEXAS.                                     tions of their regulations conflict with the open courts and
                                                          jury trial provisions of the Texas Constitution. The ad-
                                                          ministrative agencies denied TAB's claims, and along
COUNSEL: For APPELLANT: Golemon, Mr. R.                   with two Intervenors, 1 filed counterclaims seeking a
Kinnan, ATT 008108000, 512/472-5456, Checkley, Jr.,       declaration [*442] that the same statutes and regula-
Mr. James W., ATT 004170500, 512/479-9732, Axe, Jr.,      tions comport with those constitutional provisions.
Mr. Albert R., ATT 001415740, 512/472-5456, Alexan-
der, Mr. Douglas W., ATT 000992350, 512/472-5456,                1 The League of Women Voters and the Lone
Brown McCarroll & Oaks Hartline, 1400 Franklin Plaza,            Star Chapter of the Sierra Club intervened in the
111 Congress Avenue, Austin, TX 78701-4043.                      suit and were aligned as defendants with the Texas
                                                                 Air Control Board and the Texas Water Commis-
For APPELLEES: Caroom, Mr. Douglas G., ATT                       sion. Justice Doggett contends that the standing of
003832700, 512/472-8021, Dugat III, Mr. William D.,              the Intervenors should be addressed along with
ATT 006173600, 512/472-8021, Bickerstaff, Heath &                TAB's. We disagree. Standing concerns a party's
Smiley, San Jacinto Center, Suite 1800, 98 San Jacinto           faculty to invoke the court's subject matter juris-
Boulevard, Austin, TX 78701. Kelly, Ms. Mary E., ATT             diction. Once it has been invoked by a plaintiff, a
011235650, 512/479-8125, Henry, Kelly, Johnson &                 court's subject matter jurisdiction is not affected
Lowerre, 2103 Rio Grande, Austin, TX 78705. Lynch,               by the status of defendants or intervenors aligned
Ms. Nancy N., ATT 012731400, 512/463-2012, Office of             in interest with defendants.
the Attorney General of Texas, Dan Morales, A.G., P. O.
                                                                [**3] Following a bench trial, the trial court denied
Box 12548, Capitol Station, Austin, TX 78711. Johnson,
                                                          the relief sought by TAB, and as requested by the State
Ms. Amy R., ATT 010679550, 512/322-4143, Office of
                                                          and Intervenors, declared that section 4.041 of the Texas
Public Insurance Counsel, 816 Congress Avenue, Suite
                                                          Clean Air Act, sections 26.136 and 27.1015 of the Texas
1400, Austin, TX 78701-2430.
                                                          Water Code, and section 8b of the Texas Solid Waste
                                                          Disposal Act, as well as the rules and regulations prom-
JUDGES: Cornyn, Doggett, Gammage, Spector
                                                          ulgated under those statutes, are constitutional with regard
                                                          to the open courts and jury trial provisions. We affirm the
OPINION BY: JOHN CORNYN
                                                          trial court's judgment as it relates to TAB's jury trial
                                                          challenge and reverse its judgment as to TAB's open
OPINION
                                                          courts challenge.
     [*441] OPINION
                                                               An overview of the regulatory scheme enacted by the
    The Texas Association of Business (TAB), on behalf    legislature and these agencies is essential to an under-
[**2] of its members, brought this declaratory judgment   standing of this case. In 1967, the Texas Legislature en-
                                                                                                                      Page 2
                                         852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                    36 Tex. Sup. J. 607

acted the Clean Air Act of Texas. Clean Air Act of Texas,         WATER CODE § 26.123. This was the regulatory
60th Leg., R.S., ch. 727, 1967 Tex. Gen. Laws 1941. The           scheme in effect when the district court rendered judg-
Clean Air Act was designed to safeguard the state's air           ment in this case. 3
resources without compromising the economic develop-
ment of the state. Id. at § 1. The Act created the Texas Air             2 Act of June 14, 1985, 69th Leg., R.S., ch. 637,
Control Board and granted it the authority to promulgate                 § 33, 1985 Tex. Gen. Laws 2350, 2359 (amending
regulations to accomplish the Act's goals. Id. at §                      Texas Clean Air Act codified at TEX. REV. CIV.
4(A)(2)(a). In the event the Air Control Board determined                STAT. ANN. art. 4.041 (Vernon 1976), currently
that [**4] a violation of its regulations had occurred, it               codified as amended at TEX. HEALTH &
was authorized to enforce those regulations in district                  SAFETY CODE § 382.088; Act of June 15, 1985,
court. Upon a judicial determination that a violation of the             69th Leg., R.S., ch. 795, § 6.001, 1985 Tex. Gen.
Air Control Board's regulations had occurred, two cu-                    Laws 2719, 2813 (amending Solid Waste Disposal
mulative remedies were available, injunctive relief to                   Act codified at TEX. REV. CIV. STAT. ANN. art.
prohibit further violations and assessment of a fine rang-               4477-7 (Vernon 1976), currently codified as
ing from $ 50 to $ 1,000 for each day the violations per-                amended at TEX. HEALTH & SAFETY CODE §
sisted. Id. at § 12(B).                                                  361.252; Act of June 15, 1985, 69th Leg., R.S., ch.
                                                                         795, § 5.007, 1985 Tex. Gen. Laws 2719, 2806
     In 1969, the Texas Legislature enacted the Solid
                                                                         (amending TEX. WATER CODE § 26.136).
Waste Disposal Act. Solid Waste Disposal Act, 61st Leg.,
                                                                         3      Although some amendments have been
R.S., ch. 405, 1969 Tex. Gen. Laws 1320. The express
                                                                         adopted since, they are not relevant to the issue
purpose for this legislation was to protect public health
                                                                         presented in this case. See Diana C. Dutton, EN-
and welfare by regulating the "collection, handling, stor-
                                                                         VIRONMENTAL,          45      SW.     L.J.     389
age, and disposal of solid waste." Id. at § 1. The Texas
                                                                         (1991)(summarizing statutory developments).
Water Quality Board was designated the primary agency
to effectuate the Disposal Act's purpose. Id. at § 4(f). Like           [**7] After the Air Control Board or Water
the Air Control Board, the Water Quality Board was au-            Commission assesses a penalty, the offender must either
thorized to enforce its rules and regulations in state district   timely pay the penalty or file suit in district court. How-
court. The Solid Waste Disposal Act provided the same             ever, a supersedeas bond or cash deposit paid into an
remedies as the Clean Air Act. See id. at § 8(c).                 escrow account, in the full amount of the penalty, is a
                                                                  prerequisite to judicial review. TEX. HEALTH &
     In the last of the relevant statutory enactments, in
                                                                  SAFETY CODE §§ 382.089(a),(b), 361.252(k),(l); TEX.
1969, the Texas Legislature promulgated a revised [**5]
                                                                  WATER CODE § 26.136(j). A party who fails to make a
version of the Water Quality Act. Water Quality Act -
                                                                  cash deposit or file a bond forfeits all rights to judicial
Revision, 61st Leg., R.S., ch. 760, 1969 Tex. Gen. Laws
                                                                  review. TEX. HEALTH & SAFETY CODE §§
2229. By that Act, the Water Quality Board was given the
                                                                  361.252(m), 382.089(c); TEX. WATER CODE §
power to develop a statewide water quality plan, to per-
                                                                  26.136(k).
form research and investigations, and to adopt rules and
issue orders necessary to effectuate the Act's purposes. Id.           TAB alleges that it is a Texas not-for-profit corpora-
at § 3.01-3.10. The Water Quality Act provided the same           tion, that its members do business throughout Texas, and
remedies as the Solid Waste Management Act and the                that it is authorized to represent its members on any matter
Clean Air Act. See id. at § 4.02.                                 that may have an impact on their businesses.
      Originally, neither the Water Quality Board nor the              TAB filed this suit under the Declaratory Judgments
Air Control Board had the power to levy civil penalties           Act, TEX. CIV. PRAC. & REM. CODE §§ 37.001-37.011,
directly in the event it determined that its regulations or       alleging that some of its members had been subjected to
orders had been violated. Instead, each board was required        civil penalties assessed by either the Air Control Board or
first to file suit against the violator in district court. Only   the Water Commission. TAB further alleged that all of its
the district court had the power to assess civil penalties.       other members that operate their businesses pursuant to
                                                                  the pertinent provisions of the Texas Clean Air Act, the
     The legislature substantially changed this enforce-
                                                                  Texas Water Code, or the Texas [**8] Solid Waste
ment scheme in 1985. That year the Air Control Board
                                                                  Disposal Act or any rules or orders issued pursuant to
and the Water Commission (formerly the Water Control
                                                                  those provisions were put at "substantial risk (if not cer-
Board) were granted the power to assess civil penalties
                                                                  tainty)" of being assessed civil penalties by the Air Con-
directly of up to $ 10,000 per day per violation. 2 Both
                                                                  trol Board or the Water Commission. Thus this suit does
administrative bodies also retained the option to pursue
                                                                  not challenge specific instances of the Air Control Board's
civil penalties in district [**6] court. TEX. HEALTH
                                                                  or the Water Commission's exercise, or threatened exer-
[*443] & SAFETY CODE §§ 361.224, 382.081; TEX.
                                                                  cise, of the civil penalty power. Instead, TAB's suit is a
                                                                                                                      Page 3
                                        852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                   36 Tex. Sup. J. 607

facial challenge to the constitutionality of this adminis-       102 S. Ct. 752 (1982); Warth v. Seldin, 422 U.S. 490, 498,
trative enforcement scheme under the Texas Constitution.         45 L. Ed. 2d 343, 95 S. Ct. 2197 (1974); see also, Antonin
                                                                 Scalia, The Doctrine of Standing as an Essential Element
     The Defendants and Intervenors counterclaimed
                                                                 of the Separation of Powers, 18 SUFFOLK U. L. Rev
seeking a declaratory judgment that the statutes, rules, and
                                                                 881, 889 n.69 (1983)(noting that [**11] the dicta of
regulations challenged by TAB do not, on their face,
                                                                 Flast v. Cohen, 392 U.S. 83, 100, 20 L. Ed. 2d 947, 88 S.
conflict with the open courts and jury trial provisions of
                                                                 Ct. 1942 (1968), suggesting that standing is unrelated to
our constitution. The trial court granted the Defendants'
                                                                 the separation of powers doctrine has since been disa-
and Intervenors' requested declaratory judgment and de-
                                                                 vowed). Under this doctrine, governmental authority
nied TAB's request for a declaratory judgment. The court
                                                                 vested in one department of government cannot be exer-
also denied TAB's request for injunctive relief.
                                                                 cised by another department unless expressly permitted
     TAB appealed directly to this court. See TEX. GOV'T         by the constitution. Thus we have construed our separa-
CODE § 22.001(c); 4 TEX. R. APP. P. 140. In this court,          tion of powers article to prohibit courts from issuing ad-
TAB has limited its challenges to claims of unconstitu-          visory opinions because such is the function of the exec-
tional denial of a jury trial and violation of our constitu-     utive rather than the judicial department. 6 Firemen's Ins.
tion's open [**9] courts provision.                              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).
        4 "An appeal may be taken directly to the su-            Accordingly, we have interpreted the Uniform Declara-
        preme court from an order of a trial court granting      tory Judgments Act, TEX. CIV. PRAC. & REM. CODE §§
        or denying an interlocutory or permanent injunc-         37.001-.011, to be merely a procedural device for decid-
        tion on the ground of the constitutionality of a         ing cases already within a court's jurisdiction rather than a
        statute of this state." TEX. GOV'T CODE §                legislative enlargement of a court's power, permitting the
        22.001(c).                                               rendition of advisory opinions. Firemen's Ins. Co., 442
                                                                 S.W.2d at 333; United Serv. Life Ins. Co. v. Delaney, 396
I. Standing                                                      S.W.2d 855, 863 (Tex. 1965); California Prods., Inc. v.
                                                                 Puretex Lemon Juice, Inc., 160 Tex. 586, [**12] 334
     Before we reach the merits of this case, we first con-      S.W.2d 780 (1960).
sider the matter of the trial court's jurisdiction, as well as
our own; specifically we determine whether TAB has
                                                                        6 The analysis is the same under the federal
standing to challenge the statutes and regulations in
                                                                        constitution. See e.g. Correspondence of the Jus-
question. Because TAB's standing to bring this action is
                                                                        tices, Letter from Chief Justice John Jay and the
not readily apparent, and because our jurisdiction as well
                                                                        Associate Justices to President George Washing-
as that of the trial court depends on this issue, we re-                ton, August 8, 1793 in Laurence H. Tribe, Amer-
quested supplemental briefing on standing at the oral                   ican Constitutional Law 73 n.3 (2nd ed. 1988).
argument of this case. In response, the parties insist that
any question of standing has been waived in the trial court           The distinctive feature of an advisory opinion is that
and cannot be raised by the court for the first time on          it decides an abstract question of law without binding the
appeal. We disagree.                                             parties. Alabama State Fed'n of Labor v. McAdory, 325
                                                                 U.S. 450, 461, 89 L. Ed. 1725, 65 S. Ct. 1384 (1945);
     Subject matter jurisdiction is essential to the authority   Firemen's Ins. Co., 442 S.W.2d at 333; Puretex Lemon
of a court to decide a case. Standing [**10] is implicit in      Juice, Inc., 160 Tex. at 591, 334 S.W.2d at 783. An
the concept of subject matter jurisdiction. The standing
                                                                 opinion issued in a case brought by a party without
requirement stems from two limitations on subject matter
                                                                 standing is advisory because rather than remedying an
jurisdiction: the separation of powers doctrine and, in
                                                                 actual or imminent harm, the judgment addresses only a
Texas, the open courts provision. Subject matter jurisdic-       hypothetical injury. See Allen v. Wright, 468 U.S. 737,
tion [*444] is never presumed and cannot be waived. 5            751, 82 L. Ed. 2d 556, 104 S. Ct. 3315 (1984). Texas
                                                                 courts, like federal courts, have no jurisdiction to render
        5 Justice Doggett confuses subject matter ju-
                                                                 such opinions.
        risdiction with personal jurisdiction. Only the
        latter can be waived when uncontested. See TEX.               The separation [**13] of powers doctrine is not the
        R. CIV. P. 120a.                                         only constitutional basis for standing. Under federal law,
                                                                 standing is also an aspect of the Article III limitation of
      One limit on courts' jurisdiction under both the state     the judicial power to "cases" and "controversies." Sierra
and federal constitutions is the separation of powers doc-
                                                                 Club v. Morton, 405 U.S. 727, 731, 31 L. Ed. 2d 636, 92 S.
trine. See TEX. CONST. art. II, § 1; Valley Forge Chris-
                                                                 Ct. 1361 (1972). To comport with Article III, a federal
tian College v. Americans United for Separation of
                                                                 court may hear a case only when the litigant has been
Church and State, 454 U.S. 464, 471-74, 70 L. Ed. 2d 700,
                                                                                                                   Page 4
                                      852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                 36 Tex. Sup. J. 607

threatened with or has sustained an injury. Valley Forge             waivable. See ___ S.W.2d at ___. The other state
Christian College, 454 U.S. at 471. Under the Texas                  cases cited deal with the waiver of objections to
Constitution, standing is implicit in the open courts pro-           join a real party in interest or to a party's capacity
vision, which contemplates access to the courts only for             to sue rather than to jurisdictional standing. See
those litigants suffering an injury. Specifically, the open          International Depository, Inc. v. State, 603 A.2d
courts provision provides:                                           1119, 1122 (R.I. 1992)(addressing real party in
                                                                     interest objection); Princess Anne Hills Civ.
          All courts shall be open, and every                        League, Inc. v. Susan Constant Real Estate Trust,
       person for an injury done him, in his lands,                  413 S.W.2d 599, 603 n.1 (Va. 1992)(addressing
       goods, person or reputation, shall have                       real party in interest objection); Sanford v. Jack-
       remedy by due course of law.                                  son Mall Shopping Ctr. Co., 516 So.2d 227, 230
                                                                     (Miss. 1987)(addressing real party in interest ob-
                                                                     jection); Jackson v. Nangle, 677 P.2d 242, 250
TEX. CONST. art. I, § 13 (emphasis added). Because                   n.10 (Alaska 1984)(addressing real party in inter-
standing is a constitutional prerequisite to maintaining a           est objection); Poling v. Wisconsin Physicians
suit under both federal and Texas law, we look to the more           Serv., 120 Wis. 2d 603, 357 N.W.2d 293, 297-98
extensive jurisprudential experience of the federal courts           (Wisc. App. 1984)(addressing real party in interest
on this subject for any guidance it may yield.                       objection); Torrez v. State Farm Mut. Auto Ins.
                                                                     Co., 130 Ariz. 223, 635 P.2d 511, 513 n.2 (Ariz.
     Under federal law, a lack of standing deprives a court
                                                                     App. 1981)(addressing real party in interest ob-
of subject [**14] matter jurisdiction because standing is
                                                                     jection); Brown v. Robinson, 354 So.2d 272, 273
an element of such [*445] jurisdiction. Carr v. Alta
                                                                     (Ala. 1977); Cowart v. City of West Palm Beach,
Verde Indus., 931 F.2d 1055, 1061 (5th Cir. 1991);
                                                                     255 So.2d 673, 675 (Fla. 1971)(addressing ca-
Simmons v. Interstate Commerce Comm'n, 900 F.2d
                                                                     pacity objection).
1023, 1026 (7th Cir. 1990); M.A.I.N. v. Commissioner,
Maine Dept. of Human Serv., 876 F.2d 1051, 1053 (1st                [**16] Subject matter jurisdiction is an issue that
Cir. 1989); Haase v. Sessions, 266 U.S. App. D.C. 325,        may be raised for the first time on appeal; it may not be
835 F.2d 902, 908 (D.C. Cir. 1987); Page v. Schweiker,        waived by the parties. Texas Employment Comm'n v.
786 F.2d 150, 153 (3d Cir. 1986); see also Lujan v. De-       International Union of Elec., Radio and Mach. Workers,
fenders of Wildlife, 119 L. Ed. 2d 351, 112 S. Ct. 2130       Local Union No. 782, 163 Tex. 135, 352 S.W.2d 252, 253
(1992); Heckler v. Mathews, 465 U.S. 728, 737, 79 L. Ed.      (Tex. 1961); RESTATEMENT (SECOND) OF JUDG-
2d, 104 S. Ct. 1387 (1984); Warth, 422 U.S. at 511. Other     MENTS § 11, comment c (1982). This court recently re-
states have followed this analysis in construing their own    iterated that axiom in Gorman v. Life Insurance Co., 811
constitutions. 7 See e.g., Prudential-Bache Sec., Inc. v.     S.W.2d 542, 547 (Tex.), cert. denied, 116 L. Ed. 2d 60,
Commissioner of Revenue, 588 N.E.2d 639, 642 (Mass.           112 S. Ct. 88 (1991). Because we conclude that standing is
1992); Bennett v. Board of Trustees for Univ. of N. Col-      a component of subject matter jurisdiction, it cannot be
orado, 782 P.2d 1214, 1216 (Colo. App.), cert. denied,        waived and may be raised for the first time on appeal. 8
797 P.2d 748 (Colo. 1989); Pace Constr. Co. v. Missouri
Highway and Transp. Comm'n, 759 S.W.2d 272, 274 (Mo.                 8 Justice Doggett disagrees that standing is a
App. 1988); Terracor v. Utah Bd. of State Lands Forestry,            component of subject matter jurisdiction, yet he
716 P.2d 796, 798-99 (Utah 1986); State by McClure                   declines to explain what role standing plays in our
[**15] v. Sports and Health Club, Inc., 370 N.W.2d                   jurisprudence. From his harsh critique of the doc-
844, 850 (Minn. 1985), appeal dism'd, 478 U.S. 1015                  trine, it seems that he not only objects to the con-
(1986); Smith v. Allstate Ins. Co., 483 A.2d 344, 346 (Me.           clusion that standing cannot be waived but also to
1984); Ardmare Constr. Co. v. Freedman, 191 Conn. 497,               the conclusion that standing is a requirement to
467 A.2d 674, 675 n.4, 676-77 (Conn. 1983); Horn v.                  initiate a lawsuit.
County of Ventura, 24 Cal. 3d 605, 596 P.2d 1134, 1142
                                                                    [**17] If we were to conclude that standing is un-
(Cal. 1979); Stewart v. Board of County Comm'rs of Big
                                                              reviewable on appeal at least three undesirable conse-
Horn County, 175 Mont. 197, 573 P.2d 184, 186, 188
                                                              quences could result. First and foremost, appellate courts
(Mont. 1977); Albritton v. Moore, 238 La. 728, 116 So.2d
                                                              would be impotent to prevent lower courts from exceed-
502, 504 (La. 1959).
                                                              ing their constitutional and statutory limits of authority.
                                                              Second, appellate courts could not arrest collusive suits.
       7 Of the states listed by Justice Doggett, only
                                                              Third, by operation of the doctrines of res judicata and
       Illinois, Iowa, Kentucky, New York, South Da-
                                                              collateral estoppel, judgments rendered in suits address-
       kota, and perhaps Ohio, Pennsylvania and Wash-
                                                              ing only hypothetical injuries could bar relitigation of
       ington actually treat jurisdictional standing as
                                                                                                                       Page 5
                                       852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                  36 Tex. Sup. J. 607

issues by a litigant who eventually suffers an actual in-            Because standing is a component of subject matter
jury. We therefore hold that standing, as a component of        jurisdiction, we consider TAB's standing under the same
subject matter [*446] jurisdiction, cannot be waived in         standard by which we review subject matter jurisdiction
this or any other case and may be raised for the first time     generally. That standard requires the pleader to allege
on appeal by the parties or by the court.                       facts that affirmatively demonstrate the court's jurisdic-
                                                                tion to hear the cause. Richardson v. First [**20]
     We are aware that this holding conflicts with Texas
                                                                Nat'l Life Ins. Co., 419 S.W.2d 836, 839 (Tex. 1967).
Industrial Traffic League v. Railroad Commission, 633
                                                                When reviewing a trial court order dismissing a cause for
S.W.2d 821, 823 (Tex. 1982) (per curiam). 9 The analysis
                                                                want of jurisdiction, Texas appellate courts "construe the
that leads us to the conclusion we reach here, however,
                                                                pleadings in favor of the plaintiff and look to the pleader's
compels us to overrule Texas Industrial Traffic League
                                                                intent." Huston v. Federal Deposit Ins. Corp., 663 S.W.2d
and disapprove of all cases relying on it to the extent that
                                                                126, 129 (Tex. App.--Eastland 1983, writ ref'd n.r.e.
they conflict with this opinion. 10 Although our concern
                                                                1984); see also W. Wendell Hall, Standards of Appellate
for the rule of stare [**18] decisis makes us hesitant to
                                                                Review in Civil Appeals, 21 ST. MARY'S L.J. 865, 870
overrule any case, when constitutional principles are at
                                                                (1990).
issue this court as a practical matter is the only govern-
ment institution with the power and duty to correct such             Here, however, we are not reviewing a trial court
errors. See Payne v. Tennessee, 115 L. Ed. 2d 720, 111          order of dismissal for want of jurisdiction, we are con-
S.Ct. 2597, 2609-11 (1991) (observing that reexamination        sidering standing for the first time on appeal. A review of
of constitutional decisions is appropriate when "correc-        only the pleadings to determine subject matter jurisdiction
tion through legislative action is practically impossible").    is sufficient in the trial court because a litigant has a right
                                                                to amend to attempt to cure pleading defects if jurisdic-
       9 Texas Industrial Traffic League relied on two          tional facts are not alleged. See TEX. R. CIV. P. 80. Fail-
       cases to support its holding that standing cannot be     ing that, the suit is dismissed. When an appellate court
       raised for the first time on appeal: Coffee v. Rice      questions jurisdiction on appeal for the first time, how-
       University, 403 S.W.2d 340, 341 (Tex. 1966), and         ever, there is no opportunity to cure the defect. Therefore,
       Sabine River Authority v. Willis, 369 S.W.2d 348,        when a Texas appellate court reviews the standing of a
       350 (Tex. 1963). We need not overrule these two          party sua sponte, it must construe the petition in favor of
       cases, however, because unlike Texas Industrial          the party, and if necessary, [**21] review the entire
       Traffic League, we believe that standing was             record to determine if any evidence supports standing.
       present in the trial court in these cases. Our con-
                                                                     TAB asserts standing on behalf of its members. The
       cern is with a party's right to initiate a lawsuit and
                                                                general test for standing in Texas requires that there "(a)
       the trial court's corresponding power to hear the
                                                                shall be a real controversy between the parties, which (b)
       case ab initio. Standing is determined at the time
                                                                will be actually determined by the judicial declaration
       suit is filed in the trial court, and subsequent
                                                                sought." Board of Water Engineers v. City of San Antonio,
       events do not deprive the court of subject matter
                                                                155 Tex. 111, 114, 283 S.W.2d 722, 724 (1955). Texas,
       jurisdiction. Carr, 931 F.2d at 1061.
                                                                however, has no particular test for determining the
 [**19]
                                                                standing of an organization, such as TAB. See e.g.,
       10
                                                                Touchy v. [*447] Houston Legal Found., 432 S.W.2d
            Justice Doggett claims that we overrule three       690, 694 (Tex. 1968); Texas Highway Comm'n v. Texas
       additional decisions of this court. See Central          Ass'n of Steel Importers, Inc., 372 S.W.2d 525, 530-31
       Educ. Agency v. Burke, 711 S.W.2d 7 (Tex.                (Tex. 1963). While we agree with the statement of the
       1986)(per curiam); American Gen. Fire & Casu-            general test for standing set out in Board of Water Engi-
       alty Co. v. Weinberg, 639 S.W.2d 688 (Tex. 1982);        neers, we foresee difficulties in relying on it alone to
       Cox v. Johnson, 638 S.W.2d 867 (Tex. 1982)(per           determine the standing of an organization like TAB. For
       curiam). We disagree. These cases hold that mat-         instance, when members of an organization have indi-
       ters not raised in the trial court are waived. One       vidual standing, but the organization was not established
       exception noted by these decisions, however, is a        for the purpose of protecting the particular interest at
       lack of jurisdiction which may be raised by a            issue, it is not necessarily in the members' best interest to
       party, or the court, for the first time on appeal.       allow such a disinterested organization to sue [**22] on
       Justice Doggett does not believe that standing falls     their behalf. Furthermore, an organization should not be
       within that exception because he contends that           allowed to sue on behalf of its members when the claim
       standing is not jurisdictional.                          asserted requires the participation of the members indi-
                                                                vidually rather than as an association, such as when the
   Consequently, we proceed to determine here, on our
own motion, whether TAB has standing to bring this suit.
                                                                                                                      Page 6
                                       852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                  36 Tex. Sup. J. 607

members seek to recover money damages and the amount            purpose. TAB was chartered to "represent the interests of
of damages varies with each member.                             its members on issues which may impact upon its mem-
                                                                bers' businesses." Considering a very similar question in
     The United States Supreme Court has articulated a
                                                                New York State Club Association, the United States Su-
standard for associational standing that lends itself to our
                                                                preme Court held that: "The associational interests that
use. We adopt that test today. In Hunt v. Washington State
                                                                the consortium seeks to protect are germane to its pur-
Apple Advertising Commission, the Court held that an
                                                                pose: appellant's certificate of incorporation states that its
association has standing to sue on behalf of its members
                                                                purpose is 'to promote the common business interests of
when "(a) its members would otherwise have standing to
                                                                its [*448] [member clubs].'" [**25] 487 U.S. at 10
sue in their own right; (b) the interests it seeks to protect
                                                                n.4. (bracketed language in original). Likewise, the in-
are germane to the organization's purpose; and (c) neither
                                                                terests TAB desires to protect are germane to the organi-
the claim asserted nor the relief requested requires the
                                                                zation's purpose, and thus the second prong is met.
participation of individual members in the lawsuit." 432
U.S. 333, 343 (1977); see also New York State Club Ass'n.            Under the third and final prong of the Hunt test,
v. City of New York, 487 U.S. 1, 9, 101 L. Ed. 2d 1, 108 S.     TAB's pleadings and the record must demonstrate that
Ct. 2225 (1988); International Union, United Auto.,             neither the claim asserted nor the relief requested require
Aerospace and Agric. Implement Workers of Am. v.                the participation of individual members in the lawsuit.
Brock, 477 U.S. 274, 282, 91 L. Ed. 2d 228, 106 S. Ct.          The Supreme Court has interpreted this prong as follows:
2523 (1986). This standard [**23] incorporates the
standing analysis we adopted in Board of Water Engi-                        Whether an association has standing to
neers, yet addresses the additional concerns we have                    invoke the court's remedial powers on
noted.                                                                  behalf of its members depends in substan-
                                                                        tial measure on the nature of the relief
     We now apply the Hunt standard to the case before
                                                                        sought. If in a proper case the association
us. Reviewing the record in its entirety for evidence
                                                                        seeks a declaration, injunction, or some
supporting subject matter jurisdiction, and resolving any
                                                                        other form of prospective relief, it can
doubt in TAB's favor, we conclude that TAB has standing
                                                                        reasonably be supposed that the remedy, if
to pursue the relief it seeks in this case.
                                                                        granted, will inure to the benefit of those
     The first prong of the Hunt test requires that TAB's               members of the association actually in-
pleadings and the rest of the record demonstrate that                   jured.
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       Hunt, 432 U.S. at 343, (quoting Warth, 422 U.S. at 515).
this regard the United States Supreme Court stated that "
                                                                     By seeking damages on behalf of its members, ne-
the purpose of the first part of the Hunt test is simply to
                                                                cessitating that each individual prove lost profits partic-
weed out plaintiffs who try to bring cases, which could not
                                                                ular to its operations, the organization in Warth lacked
otherwise be brought, by manufacturing allegations of
                                                                standing to sue; rather, each individual member had to be
standing that lack any real foundation." New York State
                                                                a party to the [**26] suit. These facts are distinguishable
Club Ass'n, 487 U.S. at 9. We are satisfied that TAB has
                                                                from Brock, in which the union challenged an adminis-
not manufactured this lawsuit. A comparison of the asso-
                                                                trative interpretation of statutory provisions relating to
ciation's membership roster with the list of businesses
                                                                unemployment compensation. 477 U.S. 274. Recogniz-
subjected to state penalties indicates individual TAB
                                                                ing that the suit raised "a pure question of law," and that
members [**24] have been assessed administrative
                                                                "the individual circumstances" of any aggrieved member
penalties pursuant to the challenged enactments. Addi-
                                                                were not in issue, the Court held that the UAW had
tionally, TAB has alleged that other of its members re-
                                                                standing to challenge the government's actions. Id. at
main at substantial risk of penalty. A substantial risk of
                                                                287-88, 290; see also Pennell, 485 U.S. at 7 n.3 (facial
injury is sufficient under Hunt. See e.g., Pennell v. City of
                                                                challenge to rent ordinance does not require participation
San Jose, 485 U.S. 1, 7, 99 L. Ed. 2d 1, 108 S. Ct. 849 n.3
                                                                of individual landlords). Here, TAB seeks only prospec-
(1988)(concluding that association of landlords had
                                                                tive relief, raises only issues of law, and need not prove
standing based on pleadings that individual members
                                                                the individual circumstances of its members to obtain that
would likely be harmed by rent ordinance). Thus TAB
                                                                relief, thus meeting the third prong of Hunt.
satisfies the first prong of the Hunt test.
                                                                     Having found that TAB meets all three prongs of the
The second prong of Hunt requires that TAB's pleadings          Hunt test, we conclude that TAB has standing to pursue
and the rest of the record demonstrate that the interests       the relief it seeks in this case.
TAB seeks to protect are germane to the organization's
                                                                                                                   Page 7
                                      852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                 36 Tex. Sup. J. 607

II. Open Courts                                               requirement is an unreasonable financial barrier to access
                                                              to the courts in light of the state interest involved.
     TAB contends that the prepayment requirements of
the statutes and regulations in question violate the open
                                                                     12 Thus, contrary to Justice Doggett's reading
courts provision of the Texas Constitution by unreasona-
                                                                     of our opinion, the Sax test is inapplicable.
bly restricting access to the courts. After the agency has
found a party to be in violation of any [**27] of these             The stated purpose of the regulatory statutes at issue
statutes and regulations, the offender must either tender a   here is to protect our state's natural resources. 13 There is
cash deposit or post a supersedeas bond in the full amount    no question that this is an important state interest. 14 The
of the penalties assessed, or forfeit the right to judicial   state argues that the prepayment provisions further this
review. 11                                                    interest by increasing the deterrent effect of the penalties
                                                              and by aiding in their collection. The state maintains that a
       11 In most other jurisdictions, such prepayment        violator will be less deterred by an administrative penalty
       provisions are required only to stay execution of      if it can delay payment without bond while appealing the
       judgments and are not prerequisites to the right to    case in the courts. The state also argues that delay may
       appeal itself. See Gary Stein, Expanding the Due       render the penalty uncollectible, as the violator may be-
       Process Rights of Indigent Litigants: Will Texaco      come insolvent. [**30]
       Trickle Down?, 61 N.Y.U. L. REV. 463, 469
       (1986).                                                       13      The Clean Air Act was implemented to
                                                                     "safeguard the state's air resources from pollution
     Historically, we have recognized at least three sepa-
                                                                     by controlling or abating air pollution and emis-
rate constitutional guarantees emanating from our open
                                                                     sions of air contaminants . . . ." TEX. HEALTH &
courts provision. First, courts must actually be open and
                                                                     SAFETY CODE § 382.002(a). The Texas Water
operating, so that, for example, the legislature must place
                                                                     Code was implemented to "maintain the quality of
every county within a judicial district. Runge & Co. v.
                                                                     water in the state consistent with the public health
Wyatt, 25 Tex. Supp. 294 (1860). Second, citizens must
                                                                     and enjoyment . . ." TEX. WATER CODE §
have access to those courts unimpeded by unreasonable
                                                                     26.003.
financial barriers, so that the legislature cannot impose a
                                                                     14 The importance is evidenced by article XVI,
litigation tax in the form of increased filing fees to en-
                                                                     section 59(a) of our constitution, which provides
hance [**28] the state's general revenue, LeCroy v.
                                                                     in relevant part that: "The conservation and de-
Hanlon, 713 S.W.2d 335, 342 (Tex. 1986). Finally,
                                                                     velopment of all the natural resources of this State
meaningful legal remedies must be afforded to our citi-
                                                                     . . . and the preservation and conservation of all
zens, so that the legislature may not abrogate the right to
                                                                     such natural resources . . . are each and all . . .
assert a well-established common law cause of action
                                                                     public rights and duties." TEX. CONST. art. XVI, §
unless the reason for its action outweighs the litigants'
                                                                     59(a).
constitutional right of redress. Sax v. Votteler, 648
S.W.2d 661, 665-66 (Tex. 1983).                                     In considering these rationales, we note that the
                                                              prepayment provisions actually consist of two elements.
     Here the second guarantee is applicable. This is not a
                                                              First, the assessed penalty must be paid, or financial se-
question of the abrogation of any well-established com-
                                                              curity provided, within thirty days; enforcement is not
mon law cause [*449] of action, 12 just as it is not a
                                                              stayed pending any period of judicial review. 15 Second,
question of the physical absence of a court to which a
                                                              [**31] if payment is not made or financial security pro-
complaint may be brought. The issue before us is access to
                                                              vided within the thirty-day period, the right to judicial
the courts. In previous cases involving this issue, we did
                                                              review is forfeited. We agree that the rationales advanced
not predicate our decision on whether the party whose
                                                              by the state justify the first of these elements. Requiring
access had been restricted was attempting to assert a
                                                              expeditious payment of the administrative penalties in-
common law cause of action. In LeCroy, for example, the
                                                              creases their effectiveness. The legislature, however,
court did not permit increased filing fees for statutory
                                                              could have imposed the first element without the second.
causes of action while denying them for common law
                                                              It could have provided the agency with the right to col-
claims. 713 S.W.2d 335. Likewise in Dillingham v.
                                                              lection of assessed penalties unless a supersedeas bond is
Putnam, when the court struck down a statute requiring a
                                                              posted, yet provided for judicial review. The requirement
supersedeas bond as a condition of appeal, the court did
                                                              of immediate payment, without the corresponding for-
not [**29] concern itself with whether the particular
                                                              feiture provision, would not have implicated the open
appeal being restricted involved a common law or statu-
                                                              courts provision, as the charged party could have obtained
tory claim. 14 S.W. 303 (Tex. 1890). Similarly, in the
                                                              judicial review regardless of payment. This approach
present case, the issue is simply whether the prepayment
                                                              would have been in accordance with the usual procedure
                                                                                                                        Page 8
                                       852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                  36 Tex. Sup. J. 607

governing appeals of trial court judgments. See TEX. R.          [**34] III. Jury Trial
APP. P. 40. Any litigant may appeal without superseding
                                                                      TAB also claims that the statutes empowering these
the trial court's judgment, but the mere pendency of an
                                                                agencies to assess civil penalties violate the right to a jury
appeal does not stay enforcement of the judgment. 16
                                                                trial guaranteed by the Texas Constitution. 19 We disagree.
[*450] Our specific focus for purposes of our open
courts analysis, therefore, is not whether the requirement
                                                                        19 TAB claims that the lack of a jury trial be-
of immediate payment is [**32] reasonable, but whether
                                                                        fore the agency as well as the lack of a trial de
the forfeiture of the right of judicial review, if the penal-
                                                                        novo violate article I, section 15. We limit our
ties are not superseded, is reasonable.
                                                                        inquiry to the absence of a trial de novo because,
                                                                        as this court has said: "Trial by jury cannot be
       15 If the person charged does not make pay-
                                                                        claimed in an inquiry that is non-judicial in its
       ment or post bond within thirty days, the agency
                                                                        character, or with respect to proceedings before an
       may forward the matter to the attorney general for
                                                                        administrative board." Middleton v. Texas Power
       enforcement.      TEX. HEALTH & SAFETY
                                                                        & Light Co., 108 Tex. 96, 185 S.W. 556, 561-62
       CODE § 382.089(c), § 361.252(m); TEX. WATER
                                                                        (Tex. 1916). Even if the right to a jury is denied
       CODE § 26.136(k).
                                                                        before an administrative agency, the dispositive
       16 It has been argued that our procedure of al-
                                                                        question is whether a trial de novo and the corre-
       lowing immediate enforcement of trial court
                                                                        sponding right to a jury trial is constitutionally
       judgments violates federal due process when the
                                                                        required upon judicial review of the agency's de-
       judgment debtor is financially unable to post a
                                                                        cision. See Cockrill v. Cox, 65 Tex. 669, 674
       supersedeas bond and immediate enforcement will
                                                                        (1886)("The right of jury trial remains inviolate,
       cause irreparable injury. Texaco, Inc. v. Pennzoil
                                                                        though denied in the court of first instance [in civil
       Co., 784 F.2d 1133 (2d Cir. 1986), rev'd on other
                                                                        cases], if the right to appeal and the jury trial on
       grounds, 481 U.S. 1, 95 L. Ed. 2d 1, 107 S. Ct.
                                                                        appeal are secured.")(bracketed language in orig-
       1519 (1987). A similar argument could be fash-
                                                                        inal).
       ioned under the Texas open courts provision, but
       TAB does not assert that argument here. TAB's                  [**35] Article I, section 15 of our constitution 20
       open courts challenge centers not on the require-        preserves a right to trial by jury for those actions, or
       ment of immediate payment, but on the forfeiture         analogous actions, tried to a jury at the time the constitu-
       of judicial review if payment is not made.               tion of 1876 was adopted. E.g., State v. Credit Bureau of
                                                                Laredo, 530 S.W.2d 288, 291 (Tex. 1975); White v. White,
      [**33] We conclude that the forfeiture provision is
                                                                108 Tex. 570, 196 S.W. 508 (1917); Hatten v. City of
an unreasonable restriction on access to the courts. While
                                                                Houston, 373 S.W.2d 525 (Tex. Civ. App.--Houston 1963,
the requirement of prepayment or the posting of a bond to
                                                                writ ref'd n.r.e.); Hickman v. Smith, 238 S.W.2d 838 (Tex.
stay enforcement furthers the state's important environ-
                                                                Civ. App.--Austin 1951, writ ref'd). A jury trial is not
mental interests by creating a strong incentive for timely
                                                                mandated by this provision for any other judicial pro-
payment of the assessed penalties, the forfeiture provision
                                                                ceeding. Id.
serves no additional interest. 17 The state may accomplish
its goals by enforcing the prepayment requirements
                                                                        20 Article I, section 15, provides, in pertinent
without infringing on a party's right to its day in court.
                                                                        part:
Accordingly, we hold that the statutes and regulations at
issue facially violate our open courts provision. 18
                                                                                   The right of trial by jury shall
                                                                                remain inviolate. The Legislature
       17 Thus, contrary to Justice Doggett's assertion,
                                                                                shall pass such laws as may be
       we do not strike down the penalties themselves.
                                                                                needed to regulate the same, and to
       Nothing in this opinion prohibits the state's col-
                                                                                maintain its purity and efficiency. *
       lection 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 re-
                                                                        TAB has not presented in this court, as it did be-
       quires that penalties already paid be refunded.
                                                                        low, its complaint that the statutes and regulations
       18 That the affected parties may be able to af-
                                                                        also violate of the right to jury trial under article V,
       ford prepayment is irrelevant. The guarantee of
                                                                        section 10 of the Texas Constitution.
       constitutional rights should not depend on the
       balance in one's bank account.                                 [**36] In Credit Bureau, we concluded that a suit
                                                                for civil penalties for violation of an injunction issued
                                                                                                                       Page 9
                                       852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                  36 Tex. Sup. J. 607

pursuant to the Texas Deceptive Trade Practices Act was         by delegating duties to an administrative agency. Here,
analogous to the common law action for debt, tried to a         we simply reaffirm what this court held almost a half
jury at the time our constitution was adopted. 530              century ago, in Corzelius v. Harrell 143 Tex. 509, 186
S.W.2d at 293. Thus, we held that the right to a jury trial     S.W.2d 961 (1945). In Corzelius, we concluded that cer-
for that action remained inviolate. Id. We observed in          tain judicial functions, including fact finding, may be
Credit Bureau, however, that in certain types of adversary      delegated constitutionally by the legislature to adminis-
proceedings the constitutional right to a jury trial does not   trative agencies in furtherance of the preservation and
attach. Among the proceedings we referred to are appeals        conservation of the state's natural resources. The decision
from administrative decisions. 21 Id. (citing State v. De       in Corzelius was based on article XVI, section 59(a) of
Silva, 105 Tex. 95, 145 S.W. 330 (1912), and Texas              our constitution, which provides in relevant part: "The
[*451] Liquor Control Bd. v. Jones, 112 S.W.2d 227              conservation and development of all the natural resources
(Tex. Civ. App.--Houston 1963, writ ref'd n.r.e.)). Con-        of this State . . . and the preservation and conservation
sistent with this noted exception in Credit Bureau, we          [**39] of all such natural resources . . . are each and all .
conclude that these agencies' assessments of environ-           . . public rights and duties; and the Legislature shall pass
mental penalties are not actions, or analogous actions, to      all such laws as may be appropriate thereto." TEX.
those tried to a jury at the time the constitution of 1876      CONST. art. XVI, § 59(a). "By the use of the broad lan-
was adopted. To hold that these environmental statutes          guage used in Article XVI, Section 59(a)," the court
and regulations promulgated in the late 1960s merely            stated, "the Legislature is authorized to enact such laws as
parrot common law and statutory rights triable to a [**37]      are necessary to carry out the purposes for which such
jury in 1876 would turn a blind eye to the emergence of         constitutional amendment was adopted." Corzelius, 186
the modern administrative state and its profound impact         S.W.2d at 964. 24
on our legal and social order. In the late 19th century, ours
was primarily a sparsely-populated agrarian society. See               24 Justice Doggett contends that the basis for
generally, T.R. Fehrenbach, Lone Star: A History of                    our jury trial holding is overbroad. Instead, he
Texas and the Texans, 279-324 (1983). By contrast,                     would have us adopt the "imperfectly employed"
concentrated industrial activity and its by-products, in-              federal test first enunciated in Atlas Roofing Co. v.
cluding the wide-spread emission of pollutants, with their             Occupational Safety & Health Review Comm'n,
resulting potential for significant damage to our natural              430 U.S. 442 (1977). infra, ___ S.W.2d at ____.
resources are phenomena of relatively recent origin. In                The basis for our decision is more limited, arising
response to such phenomena, regulatory schemes, such as                as it does out of TEX. CONST. article XVI, section
those challenged here, were designed to balance mounting               59(a) and our decision in Corzelius.
environmental concerns with our state's economic vitality.
                                                                     There is no doubt that the legislature delegated the
In 1876 no governmental schemes akin to these existed. 22
                                                                power to assess these civil penalties to the Air Control
Thus, we conclude that the contested proceedings are not
                                                                [**40] Board and the Water Commission as a manifes-
analogous to any action tried to a jury in 1876. Accord-
                                                                tation of the public's interest in preserving and conserving
ingly, we hold that no right to a jury trial attaches to ap-
                                                                the state's air and water resources. That intent is apparent
peals from administrative adjudications under the envi-
                                                                from the policy statements of the relevant statutes. 25
ronmental statutes and regulations at issue here. 23
                                                                [*452] We conclude, therefore, that the delegation of the
                                                                fact-finding function by the legislature to the Air Control
       21 While the Credit Bureau court specifically
                                                                Board and the Water Commission under this statutory
       referred to the broader jury trial provision in arti-
                                                                scheme was within the legislature's constitutional author-
       cle V, section 10 when it discussed the adminis-
                                                                ity.
       trative proceeding exception, that exception nec-
       essarily also applies to the narrower provision
                                                                       25    The Clean Air Act proclaims:
       found in article I, section 15.
 [**38]
       22      We do not consider nineteenth century
       criminal nuisance laws comparable to modern
                                                                                       The policy of this state and
       environmental regulations. See ___ S.W.2d ___.
       23 Despite Justice Doggett's trumpeting of our                          the purpose of this chapter to
       constitution's guarantee of trial by jury, he agrees                    safeguard the air resources of the
                                                                               state from pollution by controlling
       that the right does not attach under the circum-
                                                                               or abating air pollution and emis-
       stances of this case.
                                                                               sions of air contaminants, con-
     We should not be misunderstood to say that the leg-                       sistent with the protection of public
islature may abrogate the right to trial by jury in any case                   health, general welfare, and phys-
                                                                                                                   Page 10
                                      852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                 36 Tex. Sup. J. 607

               ical property of the people, in-                       rule, which directs a reviewing court to reverse
               cluding the aesthetic enjoyment of                     and remand the agency adjudication if the agency
               air resources by the public and the                    decision is:
               maintenance of adequate visibility.
                                                                                 1) in violation of constitutional
                                                                              or statutory provisions;
                 TEX. HEALTH & SAFETY
               CODE § 382.002.
                                                                                 2) in excess of the statutory
                                                                              authority of the agency;
                  The Texas Water Code pro-
               claims in relevant part:
                                                                                 3) made upon unlawful proce-
                                                                              dure;
                  It is the policy of this state and
               the purpose of the subchapter to
               maintain the quality of water in the                               4) affected by other error of law;
               state consistent with the public
               health and enjoyment
                                                                                  5) not reasonably supported by
                                                                              substantial evidence in view of the
                  ...                                                         reliable and probative evidence in
                                                                              the record as a whole; or

                   TEX. WATER CODE § 26.003.
                                                                                 6) arbitrary and capricious or
                                                                              characterized by abuse of discre-
                                                                              tion or clearly unwarranted exer-
     [**41] Of course, the fact that no jury trial is pro-
                                                                              cise of discretion.
vided by the legislature to an alleged violator of these
environmental protection laws does not mean that the
agencies' power to assess
                                                                      Id.
    penalties is unbridled. 26 The Air Control Board and
                                                                          We have held that judicial review under
the Water Commission may act only within constitutional
                                                                      APTRA based on the record developed before the
and statutory parameters.
                                                                      agency "furnishes more assurance of due process
                                                                      and a surer means of determining whether an
       26
                                                                      agency acted arbitrarily, capriciously and without
            The actions of the agencies involved in this              due regard for the evidence." Imperial Am. Re-
       proceeding are subject to the Administrative                   sources Fund, Inc. v. Railroad Comm'n of Tex.,
       Procedure and Texas Register Act (APTRA),                      557 S.W.2d 280, 285 (Tex. 1977); see also,
       which specifically affords a "full panoply of pro-             Southwestern Bell Tel. Co., 571 S.W.2d at 509.
       cedural safeguards" to a party to contested case
                                                                     [**42] For the reasons set out above, we reverse
       before those agencies. Southwestern Bell Tel.
                                                               that portion of the trial court's judgment declaring that
       Co. v. Public Util. Comm'n of Tex., 571 S.W.2d
                                                               section 4.041 of the Texas Clean Air Act, sections 26.136
       503, 507 (Tex. 1978). These procedural safeguards
                                                               and 27.1015 of the Texas Water Code, and section 8b of
       include the right to notice, the making of a full
                                                               the Texas Solid Waste Disposal Act and the rules and
       record of the proceeding before the agency, the
                                                               regulations promulgated under those statutes comport
       taking of depositions, the right to subpoena wit-
                                                               with the open courts provision of our constitution, article
       nesses, the application of the rules of evidence, the
                                                               I, section 13. We declare that the requirement of a
       preparation of proposal for decision and the filing
                                                               supersedeas bond or cash deposit paid into an escrow
       of exceptions and briefs, as well as separately
                                                               account as a prerequisite to judicial review under TEX.
       stated findings of fact and conclusions of law.
                                                               HEALTH & SAFETY CODE §§ 382.089(a),(b),
       TEX. CIV. STAT. ANN. art. 6252-13a § 19
                                                               361.252(k),(l), and TEX. WATER CODE § 26.136(j) is
       (Vernon Supp. 1993). Judicial review is provided
                                                               unconstitutional. We affirm that portion of the trial court's
       by section 19(e) under the substantial evidence
                                                                                                                      Page 11
                                         852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                    36 Tex. Sup. J. 607

judgment declaring that the listed statutes, rules, and          imposed. Dillingham v. Putnam, 109 Tex. 1, 5-6, 14 S.W.
regulations do not violate the jury trial provision of our       303, 304 (1890). This is true even if that "judgment" takes
constitution, article I, section 15.                             the form of an administrative agency decision. Adminis-
                                                                 trative agency decisions, for the most part, entitle an ap-
        John Cornyn
                                                                 pellant to only "substantial evidence" as opposed to de
        Justice                                                  novo review. To further burden those regulated with
                                                                 prepayment of the "judgment" as the only alternative to
        Concurring and Dissenting Opinion by Justice Dog-
                                                                 total loss of even substantial evidence review violates the
gett.
                                                                 basic concept of our constitutional open courts in Texas.
   Concurring and Dissenting Opinion by Justice                        As to the issue (or non-issue) of standing, the major-
Gammage.                                                         ity in effect adopts the position of federal courts that
    Concurring and Dissenting Opinion by Justice                 standing is a jurisdictional question. Otherwise it cannot
Spector.                                                         be fundamental error to be addressed when no party raises
                                                                 it. Standing was not raised and should not be addressed in
        Justice Hightower not sitting.                           this cause.
        OPINION DELIVERED: March 3, 1993                              Even assuming [**45] standing is an element of
                                                                 subject matter jurisdiction, the court should not write on
CONCUR BY: BOB GAMMAGE (In Part); LLOYD                          the issue in this case. Even though a judgment is void and
DOGGETT (In Part); ROSE SPECTOR (In Part) [**43]                 subject to collateral attack at any point if there is an ab-
                                                                 sence of subject matter jurisdiction, see Mercer v. Phillips
DISSENT BY: BOB GAMMAGE (In Part); LLOYD                         Natural Gas Co., [*477] 746 S.W.2d 933, 936 (Tex.
DOGGETT (In Part); ROSE SPECTOR (In Part)                        App. -- Austin 1988, writ denied), unassigned error of
                                                                 lack of jurisdiction should be addressed only if jurisdic-
DISSENT                                                          tion is in fact lacking. Since the majority concludes there
        CONCURRING AND DISSENTING OPINION                        was standing in this case, and since no party raised its
                                                                 existence as an issue, there is no reason to address it at all,
        BOB GAMMAGE                                              even if it would be fundamental error if lacking.
     Though I would prefer not to write separately, I find I          The basis for the majority's discussion is its sudden
am unable to agree entirely with any single opinion of the       revelation that "standing is implicit in the concept of
court's other members. I must write this concurring and          subject matter jurisdiction." __ S.W.2d at __. Their
dissenting opinion because, while I agree with the dispo-        opinion then claims this implication comes from the sep-
sition of this cause, I disagree with substantial portions of    aration of powers doctrine and the open courts provision
the reasoning and language in the majority's opinion and I       of the Texas Constitution. It is a curiosity of legal schol-
agree with part of Justice Doggett's concurring and dis-         arship, however, that in the 156 prior years of its exist-
senting opinion.                                                 ence, this court never before found standing "implicit" in
    I agree with the preliminary portion of Justice              those constitutional provisions, but in fact wrote that
Cornyn's majority opinion, which correctly sets forth the        standing could be [**46] waived and hence was not
regulatory scheme and basic dispute.                             fundamental error. Texas Indus. Traffic League v. Rail-
                                                                 road Comm'n, 633 S.W.2d 821, 823 (Tex.1982). Justice
      I agree substantially with Part II of Justice Doggett's    Doggett's opinion adequately addresses why there is no
opinion and his jury trial discussion. In my view, whether       implication from those provisions that standing is juris-
or not a suit is a "cause" for purposes of the right to a jury   dictional.
trial is not controlled by whether it was first determined
by an administrative agency. I also agree with Part III of            The majority's struggle to put standing in issue when
Justice Doggett's opinion relating to standing, which I will     it is not prompts me to address two statements in its
further address below. I agree with Part II of Justice           opinion which strike me as either misleading or just plain
Cornyn's majority opinion. The statutes may not condition        wrong. The majority asserts, without citation to authority,
access to the courts on prepayment [**44] of a penalty.          that "subject matter jurisdiction is never presumed," __
The principle here is the same as for a supersedeas bond.        S.W.2d at __, and in a footnote repeats that assertion in
The statute may condition the right to restrain the pre-         urging that "Justice Doggett confuses subject matter ju-
vailing party (the State) from executing (enforcing) its         risdiction with personal jurisdiction. Only the latter can be
judgment (administrative order) on the posting of a bond         waived when uncontested. See TEX. R. CIV. P. 120a." __
for the full amount. It may not, however, condition the          S.W.2d at __n.5. The majority's claim that subject matter
right to appeal the judgment on posting of the full penalty
                                                                                                                     Page 12
                                        852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                   36 Tex. Sup. J. 607

jurisdiction is never presumed is at its very best mis-          of cases the court is empowered to adjudicate under the
leading.                                                         applicable constitutional and statutory provisions. See
                                                                 Pope v. Ferguson, [*478] 445 S.W.2d 950, 952 (Tex.
     Connected with this discussion is the implicit asser-
                                                                 1969), cert. denied, 397 U.S. 997, 25 L. Ed. 2d 405, 90 S.
tion in another footnote that there is a "jurisdictional
                                                                 Ct. 1138 (1970); Bullock v. Briggs, 623 S.W.2d 508, 511
standing" that is different from "objections to join a real
                                                                 (Tex. App. -- Austin 1981, writ ref'd n.r.e.), cert. denied,
party in interest or to a party's capacity to sue rather than
                                                                 452 U.S. 1135 (1982). In this sense, there is no presump-
jurisdictional standing." __ S.W.2d at __n.7. These re-
                                                                 tion because if the case is not one over which the court had
marks are made [**47] in an attempt to distinguish the
                                                                 constitutional and statutory authority to act one does not
cases cited by Justice Doggett from those of other states
                                                                 "presume" subject matter jurisdiction to make it valid. If a
holding that standing is not jurisdictional. I suppose we
                                                                 justice of the peace grants a divorce, the judgment is void
should be encouraged to find out that there are some types
                                                                 because that is not the type of case the constitution and
of "standing" that will not be jurisdictional, but it occurs
                                                                 legislature entrusts to that court, and appellate courts will
to me that by using the term "jurisdictional standing" the
                                                                 [**49] not "presume" the justice court had jurisdiction in
court is begging the question -- if it is jurisdictional, then
                                                                 order to make the judgment valid.
it must be fundamental. The problem is that the Texas
cases, at least as I read them, define "standing" in terms of         But what the majority addresses here under the rubric
"the party's capacity to sue," 1 which is one example we         of "standing" is not a court assuming jurisdiction over a
are given of non-jurisdictional standing. The majority           type of dispute for which the statutes do not grant it
opinion is calculated -- no, guaranteed -- to cause confu-       power. The district court undoubtedly had jurisdiction
sion because apparently this court will henceforth tell          over the declaratory judgment and injunction action
litigants on a case-by-case basis whether the standing           brought there, since district courts may entertain declar-
problems in their cases are "jurisdictional" or merely           atory judgment and injunction actions. The question of
formal.                                                          standing the majority gratuitously addresses here is re-
                                                                 lated to an incidental party issue.
        1 Before it adopts a federal test and federal
                                                                      This court has expressly held that some facts or sim-
        gloss, the majority asserts the "general test for
                                                                 ilar matters relating to party issues are presumed. For
        standing in Texas" is what it quotes from Board of
                                                                 example, for many years the subject matter jurisdiction
        Water Engineers v. City of San Antonio, 155 Tex.
                                                                 for certain trial courts as set by the statutes has included a
        111, 114, 283 S.W.2d 722, 724 (1955). The ma-
                                                                 jurisdictional amount, sometimes as a minimum amount
        jority overrules the Texas Industrial Traffic
                                                                 in controversy and sometimes as both a maximum and
        League case, which addressed standing in the
                                                                 minimum. Womble v. Atkins, 160 Tex. 363, 370, 331
        context of "justiciable interest" discussed in the
                                                                 S.W.2d 294, 299 (1960). This court has held that juris-
        more recent cases of Coffee v. Rice University,
                                                                 diction, so far as the amount in controversy is concerned,
        403 S.W.2d 340 (Tex. 1966), and Sabine River
                                                                 is determined by the pleadings unless facts disclose that a
        Authority v. Willis, 369 S.W.2d 348 (Tex. 1963).
                                                                 party fraudulently or in bad faith pleaded claims to make
        The context of the cases differed from Board of
                                                                 it disclose [**50] there was jurisdiction over the case
        Water Engineers, of course. The precise meaning
                                                                 where there was not. Brown v. Peters, 127 Tex. 300, 94
        of "standing" in fact depends on the context. The
                                                                 S.W.2d 129, 130 (Tex. Comm'n App. B 1936). Despite the
        majority adopts a federal gloss, and the federal
                                                                 supposed requirement that the pleadings demonstrate
        courts have stated, "Generalizations about stand-
                                                                 jurisdiction, we have also held that unless the pleadings
        ing to sue are largely worthless as such." Associ-
                                                                 affirmatively show there is no jurisdiction, the court will
        ation of Data Proc. Serv. Orgs. v. Camp, 397 U.S.
                                                                 presume the existence of jurisdiction in the trial court.
        150, 151 (1970). Using "standing" to mean a
                                                                 Peek v. Equipment Serv. Co., 779 S.W.2d 802, 804 (Tex.
        party's legal capacity to sue is my best description
                                                                 1989). 2 This is not the only sense in which subject matter
        of the labyrinth of different cases the majority uses
                                                                 jurisdiction is "presumed" as to collateral matters. If a
        interchangeably.
                                                                 defendant contests jurisdiction and alleges in a verified
      [**48] There is no need to create this confusion.          pleading that plaintiff's fraudulent pleading amount was
The majority's fomenting it, however, requires that I ad-        for the purpose of conferring jurisdiction on the trial
dress it to some extent. I will discuss the "subject matter      court, but the trial judge still renders judgment in the case,
never presumed" proposition first, then weave into the           on appeal the fact issue of jurisdiction is presumed de-
"jurisdictional standing" language.                              cided against the defendant. Ellis v. Heidrick, 154
                                                                 S.W.2d 293, 294 (Tex. Civ. App. -- San Antonio 1941,
   I agree that subject matter jurisdiction is never pre-
                                                                 writ ref'd); see also Maddux v. Booth, 108 S.W.2d 329,
sumed in one respect. Subject matter jurisdiction exists
                                                                 331 (Tex. Civ. App. -- Amarillo 1937, no writ)(appeal
when the nature of the case falls within a general category
                                                                                                                    Page 13
                                       852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                  36 Tex. Sup. J. 607

bond from county court to district court did not show           S.W.2d 927, 928 (Tex. 1965). Lack of personal jurisdic-
filemark making the appeal timely, held "the absence of         tion can be waived by the party, and personal jurisdiction
such a [**51] question being made in the trial court the        is presumed in a collateral attack on the judgment,
presumption is that the court had jurisdiction"). Further, if   whereas error in assuming constitutional or statutory
the very power of the judge who sits is in question, that       jurisdiction not conferred upon the court in question can
authority too may be presumed. It is presumed that the          be neither waived nor ignored. See Crawford v. McDon-
assignment of a retired judge was properly made pursuant        ald, 88 Tex. 626, 631-32, 33 S.W. 325, 328 (1895). This
to all statutory requirements absent an express showing to      court has long recognized that there may be party issues,
the contrary in the record. Texaco, Inc. v. Pennzoil Co.,       i.e., the matter is "a mere matter of procedure" as opposed
729 S.W.2d 768, 855 (Tex. App. -- Houston [1st Dist.]           to the constitutional or statutory power of a court to render
1987, writ ref'd n.r.e.).                                       judgment, that may be presumed as to either type of ju-
                                                                risdiction. Id. at 630, 33 S.W. at 327.
       2 Richardson v. First Nat'l Life Ins. Co., 419
                                                                     The majority should not adopt the federal courts' po-
       S.W.2d 836 (Tex. 1967), relied upon by the ma-
                                                                sition that "standing" is jurisdictional. There is a funda-
       jority for the proposition that pleadings must "af-
                                                                mental [**54] difference between federal law and state
       firmatively show that the court has jurisdiction to
                                                                law that controls here. Federal courts are courts of limited
       hear the cause," ___ S.W.2d at ___, was expressly
                                                                jurisdiction. Marbury v. Madison, 5 U.S.(1 Cranch) 137,
       distinguished in Peek. This unanimous opinion
                                                                178-79, 2 L. Ed. 60 (1803). The parties asserting a claim
       written for the Court by Chief Justice Phillips ex-
                                                                must plead and prove (when not obvious) that jurisdiction
       plained that Richardson really meant that if the
                                                                exists. FED. R. CIV. P. 8(a). A party suing under a statute
       pleadings affirmatively showed there was no ju-
                                                                must establish his right to claim under that statute - his
       risdiction, then the case should be dismissed, but
                                                                standing - in order to establish jurisdiction. General
       otherwise there was a presumption that the amount
                                                                Comm., Brotherhood of Locomotive Eng'rs v. Mis-
       omitted from the pleading would support juris-
                                                                souri-Kansas-Texas Ry. Co., 320 U.S. 323, 337-38
       diction. Peek, 779 S.W.2d at 804.
                                                                (1943). Consequently, standing is a part of jurisdiction
      [**52] There is a type of lack of standing that this      under federal procedure, related to the "case" or "con-
court formerly held to be fundamental error. When there         troversy" requirement of the federal constitution. Asso-
was a joint interest in property involved in the litigation,    ciation of Data Proc. Serv. Orgs. v. Camp, 397 U.S. 150,
and the joint owner was not joined as a party, this court       151 (1970). But there is no "case" or "controversy" limi-
earlier held that the party defect was jurisdictional fun-      tation language in the Texas Constitution. In state courts
damental error that could be raised for the first time on       of general jurisdiction, the power to entertain any suit not
appeal. The injustice which that rule caused prompted           prohibited by either the federal constitution or federal law
[*479] this court to reduce those "indispensable" nec-          is presumed. Cincinnati v. Louisville & N. Ry. Co., 223
essary parties to near nonexistence. Petroleum Anchor           U.S. 390, 56 L. Ed. 481, 32 S. Ct. 267 (1912). State courts
Equip., Inc. v. Tyra, 406 S.W.2d 891, 893-94 (Tex. 1966);       have all residual jurisdiction that federal courts [**55]
see also Cooper v. Texas Gulf Indus., Inc., 513 S.W.2d          lack. Id.; see generally 2 CHESTER J. ANTIEAU,
200, 203 (Tex. 1974). It was no accident that this court        MODERN CONSTITUTIONAL LAW § 10:1 at 4-5
listed the case which the majority today overrules, Texas       (1969). We should continue to recognize that "standing,"
Indus. Traffic League v. Railroad Comm'n, 633 S.W.2d            like other procedural issues, may be waived. There is no
821 (Tex. 1982), as one of the cases showing that "fun-         reason to overrule the Texas Industrial Traffic League
damental or unassigned error is a discredited doctrine" as      case, or its related progeny.
applied to these collateral defect-in-party type claims.
                                                                    BOB GAMMAGE
Cox v. Johnson, 638 S.W.2d 867, 868 (Tex. 1982). After
more than a hundred years of trying to narrow funda-                JUSTICE
mental error exceptions, the majority today takes a
                                                                    Opinion Delivered: March 3, 1993.
quantum leap backward.
                                                                    CONCURRING AND DISSENTING OPINION
      In an appeal of or other direct [**53] attack on a
trial court default judgment, it is service on the defendant        Lloyd Doggett
and related due process requirements which must affirm-
atively appear on the record. In such cases personal ju-            "Don't Mess With Texas"
risdiction cannot be presumed. Capitol Brick, Inc. v.
Fleming Mfg. Co., 722 S.W.2d 399, 401 (Tex. 1986);                           -- A motto that captures the Texas spir-
Uvalde Country Club v. Martin Linen Supply Co., 690                    it.
S.W.2d 884, 885 (Tex. 1985); McKanna v. Edgar, 388
                                                                                                                   Page 14
                                       852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                  36 Tex. Sup. J. 607

Texans understand the directive "Don't Mess With Tex-           laws, the majority has also created significant new un-
as"; the majority does not. If the mess is big enough, if the   certainties for a wide range of state governmental activity
stench is strong enough, no matter how great the danger to      -- tax collection is imperiled, laws to protect nursing home
public health and safety, an industrial litterer can "mess"     residents are effectively voided, and even a leading
with Texas without fear of immediate punishment or              weapon in the war on drugs is threatened. At a time of
legally effective citizen action.                               budgetary crisis exacerbated by the majority's great mis-
                                                                adventure in public school finance, 2 today's opinion raises
      And what an occasion for permitting polluters to
                                                                a substantial question of whether the State will be required
"mess" with Texas air and water. Our state tops the nation
                                                                [**58] to return to those who despoil Texas millions of
in total toxic emissions and ranks dead last among the
                                                                dollars in administrative penalties collected during the
fifty states in important measures of environmental qual-
                                                                almost eight years this case has wandered through the
ity. 1 Although last in air [*453] and water cleanliness,
                                                                judicial system.
Texas today becomes the first state to strike down the
imposition of penalties by administrative [**56] agen-
                                                                       2 See Carrollton-Farmers Branch Indep. Sch.
cies to enforce statutes protecting the environment. I
                                                                       Dist. v. Edgewood Indep. Sch. Dist., 826 S.W.2d
dissent from today's manipulation of the law to paralyze
                                                                       489, 537 (Tex. 1992) (Doggett, J., dissenting).
anti-pollution efforts, tragically announced at a time when
protecting the quality of the air we breathe and the water           This major blow to our environment is matched only
we drink is so critical.                                        by the threat to our system of justice lurking in the arcane
                                                                language of today's opinion. Hidden within its lengthy
       1 Statistics compiled from data sent by compa-           legal mumbo-jumbo is an unprecedented blow to our jury
       nies to the Environmental Protection Agency              system. The constitutional right of trial by jury, already
       show that in 1990 535.7 million pounds of toxic          suffering at the hands of this majority, is no longer invi-
       chemicals were released into the Texas environ-          olate; it may be abrogated at any time. Instead of walking
       ment, more than in any other state. Texas also           into a courthouse, where a jury is guaranteed, citizens may
       ranked first in the release of chemicals known to        be detoured to an administrative agency, to explain their
       cause both cancer and birth defects. See Texas           problems to bureaucrats not directly answerable to the
       Citizen Action, Poisons in Our Neighborhoods,            community.
       Toxic Pollution in Texas, Sept. 1992, at 1; see also
                                                                     Today precedent and tradition have been trampled as
       John Sharp, Texas Comptroller of Public Ac-
                                                                the majority's long-standing fear of ordinary people in our
       counts, Texas at Risk: Environmental Hazards
                                                                legal [**59] system has taken firm hold. The drafters of
       Threaten State's Air, Land, and Water, Fiscal
                                                                our Texas Constitution realized something that the ma-
       Notes Aug. 1991 (noting the release of about 800
                                                                jority has long ceased to appreciate -- ordinary Texans can
       million pounds of toxic substances in 1989). Ad-
                                                                make an extraordinary contribution to our system of jus-
       ditionally, only two states ranked below Texas in
                                                                tice. The more their collective voice expressed in a jury
       the American Public Health Association's Pollu-
                                                                verdict is disregarded, the more new barriers are contrived
       tion Standard Index, based on data gathered be-
                                                                to shut them out of our system of justice, the less justice
       tween 1989 and 1991. See American Public Health
                                                                that system will offer.
       Ass'n, America's Public Health Report Card: A
       State-by-State Report on the Health of the Public
                                                                I. Open Courts
       59 (1992).
                                                                     The ability of state agencies to enforce environmental
      [**57] Today's opinion delivers a double whammy
                                                                laws through the assessment of administrative penalties is
to protection of our natural resources. Polluters are first
                                                                declared unconstitutional by the majority as contradicting
shielded from swift punishment for harming our envi-
                                                                our state guarantee of open courts. While concluding that
ronment, and then the courthouse door is slammed shut in
                                                                TAB certainly has a right to judicial review on behalf of
the face of Texans who organize to object. Incredibly, this
                                                                its members, I disagree that the statutory restrictions it
second punch was not even sought by the corporate or-
                                                                challenges unreasonably restrict access to the courts.
ganization that brought this challenge; it was wholly de-
signed by the majority during the three years that this              Access to the courts is unquestionably a fundamental
cause has lingered in this court. Announced today is an         constitutional and common law right. Article I, section 13
easily manipulable "friends in, foes out" rule to prevent       of the Texas Constitution forms the nucleus of this pro-
further actions by those who organize to protect taxpay-        tection:
ers, consumers or the environment.
                                                                           [*454] The open courts provision
   Through its broad writing designed to eviscerate
                                                                       specifically guarantees all litigants the
administrative enforcement of our state's environmental
                                                                                                                  Page 15
                                      852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                 36 Tex. Sup. J. 607

       right to redress their grievances -- to use a                 how its analysis today differs from that employed
       popular and correct phrase, the right to                      in Sax and LeCroy.
       their day [**60] in court. This right is a
       substantial state constitutional right.
                                                                             Because a substantial right is in-
                                                                     volved, the legislature cannot arbitrarily or
 LeCroy v. Hanlon, 713 S.W.2d 335, 341 (Tex. 1986)                   unreasonably interfere with a litigant's
(citations omitted). This court has a long history of as-            right of access to the courts. Thus, the
suring that the right of access remains guaranteed to Texas          general open courts provision test balances
citizens. 3                                                          the legislature's actual purpose in enacting
                                                                     the law against that law's interference with
       3 See, e.g., H. Runge & Co. v. Wyatt, 25 Tex.                 the individual's right of access to the
       Supp. 291 (1860) (placement of counties within                courts. The government has the burden to
       judicial districts); Dillingham v. Putnam, 109 Tex.           show that the legislative purpose out-
       1, 14 S.W. 303 (Tex. 1890) (striking requirement              weighs the interference with the individu-
       of supersedeas bond as a prerequisite to appeal);             al's right of access.
       Hanks v. City of Port Arthur, 121 Tex. 202, 48
       S.W.2d 944 (1932) (requirement that city be noti-
       fied of street defect within twenty-four hours of       713 S.W.2d at 341 (citations omitted; emphasis sup-
       accident unreasonable restriction on right of ac-      plied).
       cess to courts); Sax v. Votteler, 648 S.W.2d 661
       (Tex. 1983) (striking statute of limitations barring        Applying this test, we have permitted certain re-
       action of minor); LeCroy, 713 S.W.2d 335 (Tex.         strictions on access to the courts, while disallowing
                                                              [**63] others. Compare LeCroy, 713 S.W.2d at 341
       1986) (holding unconstitutional increased filing
                                                              (court filing fee unreasonably restricts access to judicial
       fees designed to generate state revenues).
                                                              system), and Dillingham v. Putnam, 109 Tex. 1, 14 S.W.
      In Sax v. Votteler, 648 S.W.2d 661 (Tex. 1983), we      303 (1890) (supersedeas bond as prerequisite to appeal,
[**61] required a litigant alleging an unconstitutional       without regard to ability to pay, unconstitutional), with
denial of access to the courts to show that: (1) a cogniza-   Clanton v. Clark, 639 S.W.2d 929 (Tex. 1982) (court may
ble common law cause of action is being restricted and (2)    constitutionally dismiss suit for failure to timely file cost
the limitation is unreasonable or arbitrary when balanced     bond), and Federal Crude Oil Co. v. Yount-Lee Oil Co.,
against the purpose and basis of the statute. The majority    122 Tex. 21, 52 S.W.2d 56 (1932) (requirement that
today appropriately eliminates the first showing in certain   franchise taxes be paid prior to filing suit upheld under
cases. In some circumstances the distinction between          article I, § 13); compare Lucas v. United States, 757
common law and statutory causes of action clearly does        S.W.2d 687 (Tex. 1988) (limitations on damages for
not affect whether access to the courts has been denied.      medical malpractice unconstitutional), with Rose v. Doc-
                                                              tors Hosp., 801 S.W.2d 841 (Tex. 1990) (same limitations
     The second part of the Sax test, however, continues to
                                                              upheld under open courts provision in wrongful death
be applied in all open courts cases. 4 Thus, in determining
                                                              cases). I favor a more complete and predictable open
whether the open courts provision of the Texas Constitu-
                                                              courts analysis designed to discourage such anomalous
tion is violated by the requirement that administrative
                                                              results.
penalties be paid as a prerequisite to judicial review, we
must balance two competing interests: the right of TAB's            [*455] Today's implementation of the second
members to access to the courts and the state's concern       prong of the Sax test demonstrates its malleability. After
with effective and timely enforcement of its laws pro-        perfunctorily reciting the purpose of administrative pen-
tecting the environment. The majority today restates in       alties, the majority, without any further analysis, con-
rather vague terms this second prong: "whether the pre-       cludes [**64] that: "the forfeiture provision is an un-
payment requirement is an unreasonable financial barrier      reasonable restriction on access to the courts," S.W.2d at,
to access to the courts in light of the state interest in-    and "the forfeiture provision serves no additional [state]
volved." S.W.2d [**62] at . As we held in LeCroy:             interest." Id. at . Enacted by the Legislature as an im-
                                                              portant means of enforcing our state's environmental
       4 Oddly, the majority asserts that "the Sax test is    laws, these penalties are today judicially extinguished.
       inapplicable" to today's open courts decision,         The majority determines that these laudable legislative
       S.W.2d at n.12, even as it explicitly relies on the    objectives are not sufficiently "important" to justify the
       analysis used in LeCroy, which in turn applied the     possibility that the use of penalties may perhaps someday
       Sax test. Nor does the majority attempt to explain
                                                                                                                    Page 16
                                        852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                   36 Tex. Sup. J. 607

impose some slight financial strain on some hypothetical         This very mandate of the people, as well as protection of
polluter.                                                        the public health and safety was effectuated in the Clean
                                                                 Air Act, 6 the Texas Water Code, 7 and the Solid Waste
     Whether examined under either the vague test em-
                                                                 Disposal Act, 8 including the right to assess administrative
ployed today or my more exacting formulation, the ma-
                                                                 penalties. Protection of Texas' air, water and land is un-
jority's conclusory analysis suffers from at least three
                                                                 deniably a compelling interest.
major flaws: (1) a failure to recognize the compelling
interest, grounded in our state constitution, served by
                                                                        6 Tex. Health & Safety Code § 382.002, pro-
administrative penalties, including prepayment provi-
                                                                        vides that:
sions; (2) a disregard of the extensive statutory constraints
on penalty usage which represents the least restrictive
                                                                                   It is the policy of this state and
means to achieve this purpose; and (3) an assumption that
                                                                                the purpose of this Act to safeguard
the prepayment provision interferes with individual ac-
                                                                                the air resources of the state from
cess to the courts unsupported by even a single specific
                                                                                pollution by controlling or abating
instance of such a restrictive [**65] effect.
                                                                                air pollution and emissions of air
     The balancing required by Sax mandates careful                             contaminants, consistent with the
consideration of the rights being affected. The more sig-                       protection of health, general wel-
nificant the right the litigant asserts, the more onerous the                   fare, and physical property of the
government's burden becomes. TAB has asserted a right                           people, including the aesthetic en-
to judicial review of penalties imposed against its mem-                        joyment of the air resources by the
bers. This interest is encompassed within the right of                          people and the maintenance of
access to the courts, which we declared a "substantial state                    adequate visibility.
constitutional right." LeCroy, 713 S.W.2d at 341.
     The State has met its burden by demonstrating a
compelling interest in employing administrative penalties
                                                                        7    Tex. Water Code § 26.003, provides that:
reflected in constitutionally-guaranteed protection of our
state's natural resources. Although not critical in over-                          It is the policy of this state and
coming an open courts challenge, a constitutional predi-
                                                                                the purpose of this subchapter to
cate for the state's interest is a highly persuasive factor in
                                                                                maintain the quality of water in this
the balancing process. As declared in article XVI, section
                                                                                state consistent with the public
59(a) 5 :
                                                                                health and enjoyment, the propa-
                                                                                gation and protection of terrestrial
        5      This natural resources provision receives                        and aquatic life, the operation of
        conflicting treatment in today's opinion, amply
                                                                                existing industries, and the eco-
        demonstrating both the malleability of the Sax test
                                                                                nomic development of the state . . ..
        as applied by the majority and the majority's dis-
        dain for the right to trial by jury. While declaring
        that article XVI, § 59(a) will not permit payment         [**67]
        of even the most modest penalties under our open                8 Tex. Health & Safety Code § 361.002, de-
        courts provision, the majority inexplicably finds
                                                                        clares that:
        that it forms an insurmountable barrier to the right
        to jury trial. The majority makes no attempt to
                                                                                   It is the policy of this state and
        reconcile its inconsistent analysis of these consti-                    the purpose of this Act to safeguard
        tutional guarantees.                                                    the health, welfare, and physical
     [**66]                                                                     property of the people, and to pro-
                                                                                tect the environment, through con-
            The preservation and conservation of                                trolling the management of haz-
        all . . . natural resources of the State are                            ardous wastes, including the ac-
        each and all declared public rights and                                 counting for hazardous wastes
        duties; and the Legislature shall pass all                              generated.
        laws as may be appropriate thereto.

                                                                      [*456] The form of these particular administrative
                                                                 penalties has certainly been fashioned to serve this im-
                                                                                                                     Page 17
                                        852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                   36 Tex. Sup. J. 607

portant state interest through the least restrictive means.      ability to bring [**70] an enforcement action in state
Penalty usage is substantially limited and can in no way         court. See Tex. Water Code § 26.123; Tex. Health &
be said to be arbitrarily imposed. All three statutes at issue   Safety Code § 382.081; id. § 361.224. The effort of the
require that, once a violation is established, the agency        Texas Legislature to improve the effectiveness of en-
assessing a penalty must consider such factors as the            forcement through the use of administrative penalties is
seriousness of the violation, including but not limited to       today rendered a nullity.
the nature, circumstance, extent, and gravity of the pro-
                                                                      Given the time and expense that must be devoted to
hibited acts; the hazard or potential hazard created to the
                                                                 pursuing an enforcement action in court, the State will
public health or safety of the public; the history of pre-
                                                                 have the capability to proceed against only the most
vious violation; the amount necessary to deter future
                                                                 egregious wrongs. The vast majority of administrative
violations; and efforts to correct the violation. 9 There is
                                                                 penalties to date have been relatively small, reflecting
thus statutory [**68] assurance that the amount of any
                                                                 technical yet important statutory violations. 10 In the ab-
resulting penalties will be directly related to the conduct.
                                                                 sence of an administrative penalty power, most of these
                                                                 would have gone unpunished, even though collectively
        9 Tex. Health & Safety Code § 382.088(c)(1-5)
                                                                 the environmental impact of small violations could be
        (Clean Air Act), § 361.251(c)(1-5) (Solid Waste
                                                                 more profound than a major catastrophe. Relieving pol-
        Disposal Act); Tex. Water Code § 26.136(c). The
                                                                 luters from immediate sanctions dismantles the effec-
        Texas Water Code imposes additional considera-
                                                                 tiveness of our laws protecting natural resources; no lesser
        tions, including "the impact of the violation on a
                                                                 means has been identified that provides for prompt en-
        receiving stream or underground water reservoir,
                                                                 forcement. I would hold that the state has demonstrated a
        on the property owners . . . and on water users," as
                                                                 compelling interest in environmental protection that has
        well as the extent of previous violations, the de-
                                                                 been implemented by the least restrictive means, thus
        gree of culpability involved, any good faith effort
                                                                 overriding any modest impediment [**71] that the pre-
        to correct the violation and any economic benefit
                                                                 payment of penalties may impose on access to the courts.
        gained as a result of the illegal conduct. Tex.
        Water Code § 26.136(c).
                                                                        10 See Appendices to Brief of Appellees Texas
     Requiring that assessed penalties be paid, or a bond in            Air Control Board and Texas Water Commission.
the same amount be posted, prior to challenging the
                                                                       [*457] Not even the slightest evidence has been
agency action in court is not unreasonable under these
                                                                 provided to this court to suggest any actual restrictive
circumstances. Unlike the filing fee held violative of the
                                                                 effect. No affidavit of any member of the Texas Associa-
open courts provision in LeCroy, the legislative purpose is
                                                                 tion of Business appears in the record stating that an ina-
not to raise money by making it more expensive for citi-
                                                                 bility to pay an administrative penalty has barred judicial
zens to enforce their [**69] legal rights. Instead, the
                                                                 review. As to most of the penalties assessed, $ 5,000 or
legislative objective is to deter and punish violations of
                                                                 less in amount, it is doubtful that such a contention could
the law that pose an environmental threat.
                                                                 be made. The majority necessarily concludes that im-
     The wheels of justice grind slowly, with final reso-        posing fines of $ 2,000 against Exxon Chemical Com-
lution often years in reaching. Indeed, in this court they       pany, Shell Oil Company and Union Carbide Corporation
sometimes hardly grind at all. Clearly those willing to          has left those entities financially unable to pursue an
profit from polluting our natural resources will not hesi-       appeal. 11 While the enormity of some future penalty could
tate to employ the delays in the judicial system to their        in fact unconstitutionally bar judicial access, that is cer-
advantage. A declaration of bankruptcy by a perhaps              tainly not the case here. See Jensen v. State Tax Comm'n,
deliberately undercapitalized corporation during the             835 P.2d 965, 969 (Utah 1992) (payment of assessed
pendency of a suit is likely to relieve the polluter of any      taxes, penalties [**72] and interest as precondition to
responsibility to remedy the damage it has caused.               suit "not unconstitutional in all cases," but only those in
                                                                 which taxpayer financially barred from prosecuting ap-
     Showing no awareness of the purpose of and need for
                                                                 peal); see also Morrison v. Chan, 699 S.W.2d 205, 207
administrative penalties, the majority finds that "expedi-
                                                                 (Tex. 1985) (medical malpractice statute of limitations not
tious payment" is adequately guaranteed by the ability of
                                                                 unconstitutional as applied to facts of case).
the agency, through the attorney general, to initiate an
enforcement action to collect the amount assessed.
                                                                        11 See Appendices to Brief of Appellees Texas
S.W.2d at & n.15. In other words, the purpose of imme-
                                                                        Air Control Board and Texas Water Commission
diate deterrence of violation of environmental laws is
                                                                        at 27, 44, 55.
ensured by the filing of a lawsuit that may take as many
years to resolve as this case has. These agencies charged            Eliminating the need to prove actual restrictive effect,
with protecting our natural resources have long had the          the majority declares "irrelevant" that "the affected parties
                                                                                                                     Page 18
                                        852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                   36 Tex. Sup. J. 607

may be able to afford prepayment." S.W.2d n.18. Unex-                   14 Tex. Health & Safety Code §§ 773.065-.067
plained is how this statement can be reconciled with Dil-               (administrative penalties to enforce Emergency
lingham, in which this court found of critical importance               Medical Services Act).
the failure to accommodate those financially unable to            [**75]
post a supersedeas bond as a prerequisite to judicial re-               15 Tex. Rev. Civ. Stat. Ann. art. 4582b, § 6G
view. Opining that "the guarantee of constitutional rights              (Vernon Supp. 1992) (administrative penalties for
should not depend on the balance in one's bank account,"                violation of statutes governing funeral directing
id., the majority would accord our state's largest busi-                and embalming).
nesses the same treatment as [**73] indigents in avoid-                 16 Tex. Health & Safety Code §§ 431.054-.056
ing financial responsibility for court and other litigation             (Texas Food, Drug & Cosmetic Act); id. §
costs.                                                                  466.043 (regulation of narcotic drug treatment
                                                                        programs).
     Nor is the majority restrained by Texas decisional
                                                                        17 Tex. Health & Safety Code §§ 433.094-.096
law validating similar requirements. We long ago upheld
                                                                        (Texas Meat & Poultry Inspection Act); id. §§
against this same type of challenge the condition that a
                                                                        144. 081-.083 (Texas Renderers' Licensing Act).
corporation pay its franchise taxes in order to file a court
                                                                        18     See also Tex. Rev. Civ. Stat. Ann. art.
action. Federal Crude Oil Co. v. Yount-Lee Oil Co., 122
                                                                        5069-51.17 (Vernon 1987 & Supp. 1992) (ad-
Tex. 21, 52 S.W.2d 56 (Tex. 1932); accord Rimco Enter-
                                                                        ministrative penalties for violation of the Texas
prises, Inc. v. Texas Elec. Svc. Co., 599 S.W.2d 362 (Tex.
                                                                        Pawnshop Act).
Civ. App.--Fort Worth 1980, writ ref'd n.r.e.). Various
statutory requirements that taxes, penalties and interest be          The most widespread damage, however, from today's
paid prior to contesting them in court have likewise sus-        decision will be in the enforcement of laws protecting our
tained an open courts challenge. See Filmstrips and              environment, where the Legislature has determined again
Slides, Inc. v. Dallas Central Appraisal Dist., 806 S.W.2d       and again that such penalties are the most effective means
289 (Tex. App.--Dallas 1991, no writ) (property taxes);          of assuring compliance and preventing pollution of our
Robinson v. Bullock, 553 S.W.2d 196 (Tex. Civ.                   air, water and land. 19 The majority ensures that those who
App.--Austin 1977, writ ref'd n.r.e.), cert. denied, 436         pollute will be brought to justice very slowly or not at all.
U.S. 918, 56 L. Ed. 2d 759, 98 S. Ct. 2264 (1978) (sales
taxes).                                                                 19 Tex. Rev. Civ. Stat. Ann. art. 1446c, § 73A
                                                                        (Vernon Supp. 1992) (permitting assessment of
     The majority also ignores the certainty that far more
                                                                        civil penalty for violation of Public Utility Regu-
than three statutes are impacted by today's decision. A
                                                                        latory Act "resulting in pollution of the air or wa-
broad range of regulatory enforcement programs vital to
                                                                        ter of this state or posing a threat to the public
protection of the public [**74] health and safety will be
                                                                        safety"); Tex. Rev. Civ. Stat. Ann. art. 4477-3a, §
stripped of their most timely and effective sanctions to
                                                                        16 (Vernon Supp. 1992) (Texas Asbestos Health
deter harmful conduct. Laws designed to protect the old --
                                                                        Protection Act); Tex. Rev. Civ. Stat. Ann. art.
residents in nursing homes 12 -- the young -- our children
                                                                        5920-11, § 30 (Vernon Supp. 1992) (Texas Coal
away at camp 13 -- the sick and the injured, 14 and those we
                                                                        Mining and Surface Reclamation Act); Tex. Rev.
have lost 15 will be substantially weakened. Others, en-
                                                                        Civ. Stat. Ann. art. 6053-2 (Vernon Supp. 1992)
suring the sanitariness of food, drugs and cosmetics, 16 as
                                                                        (safety standards for transportation of gas and for
well as the slaughter and [*458] disposition of dead
                                                                        gas pipeline facilities); Tex. Rev. Civ. Stat. Ann.
animals, 17 will be similarly rendered less effective. 18 Even
                                                                        art. 8905, § 9 (Vernon Supp. 1992) (Water Well
where such penalties have not been frequently enforced,
                                                                        Pump Installers Act); Tex. Nat. Res. Code §
their potential use may promote law enforcement.
                                                                        40.254 (Oil Spill Prevention and Response Act);
                                                                        id. § 81.0531-.0533 (assessment of penalties for
        12 See Tex. Health & Safety Code § 242.066
                                                                        violation of Railroad Commisssion statutes and
        (administrative penalty for statutory violations
                                                                        rules "which pertain to safety or the prevention or
        "threatening the health and safety of a resident" of
                                                                        control of pollution"); id. § 116.143-.145 (viola-
        a convalescent or nursing home); id. § 242.069
                                                                        tion of laws relating to compressed natural gas
        (penalty must be prepaid or a bond posted prior to
                                                                        "resulting in pollution of the air or water of this
        judicial review).
                                                                        state or posing a threat to the public safety"); id. §
        13         Tex. Health & Safety Code §§
                                                                        131.2661-.2663 (violations of Uranium Surface
        141.016-141.018 (providing for administrative
                                                                        Mining and Reclamation Act "resulting in pollu-
        penalties for violation of laws regulating youth
                                                                        tion of the air or water of this state or posing a
        camps and requiring their payment or the posting
                                                                        threat to the public safety"); id. § 141.013-.015
        of a bond prior to judicial review).
                                                                        (violation of geothermal resources regulations
                                                                                                                     Page 19
                                         852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                    36 Tex. Sup. J. 607

        "pertaining to safety or the prevention or control             Procedures within our judicial system are also
        of pollution"); id. Tex. Water Code 13.4151 (reg-         threatened. Why is not the requirement [**78] that
        ulation of water and sewer utilities); id. §              corporations and other organizations appear in court only
        27.1013-.1015 (Injection Well Act); id. § 28.067          through counsel a violation of the open courts provision,
        (regulation of water wells and mine shafts); id. §        since the cost of retaining an attorney in most cases ex-
        29.047 (Salt Water Haulers Act); id. § 33.009             ceeds the average administrative penalty considered here?
        (regulation of water well pump installers); Tex.
                                                                       Inadequately considered by the majority's opinion is
        Rev. Civ. Stat. Ann. art. 7621e, § 8A; Tex. Health
                                                                  its effect on the millions of dollars in administrative pen-
        & Safety Code § 372.004 (water saving perfor-
                                                                  alties that have already been paid under the statutes now
        mance standards); id. § 401.389 (Texas Radiation
                                                                  declared unconstitutional. Yet, under the general rule that
        Control Act).
                                                                  our decisions apply retroactively, past violators of envi-
      [**76] Other statutes that impose administrative            ronmental laws may stand to reap a substantial windfall. 21
penalties permit the filing of an affidavit of inability to       In the firm grasp of this majority, "open courts" may have
pay in lieu of prepayment or the posting of a bond. 20            been rewritten to mean open coffers. While claiming that
Because the majority's reasoning strikes down adminis-            nothing in today's writing suggests that a refund is re-
trative penalties without reference to financial ability,         quired, the majority apparently once again concludes that
S.W.2d at n., these statutes similarly cannot be enforced.        monies extracted by the state under the coercion of an
                                                                  unconstitutional system may be retained. See Carroll-
        20 Tex. Ag. Code § 12.020 (L) (violation of ag-           ton-Farmers Indep. Sch. Dist., 826 S.W.2d at 515-23
        ricultural statutes); id. § 76.1555 (failure to com-      (holding tax unconstitutional, but requiring taxpayers to
        ply with pesticide regulations); Tex. Water Code §        continue payment for two years).
        34.011 (irrigation regulation); Tex. Rev. Civ. Stat.
        Ann. art. 41a-1, § 21D(f) (Vernon Supp. 1992)                     21 Under recent and highly erratic writings de-
        (public accounting); Tex. Rev. Civ. Stat. Ann. art.               termining retroactivity, of course, anything can
        135b-6, § 10B(k) (Vernon Supp. 1992) (Structural                  happen. See, e.g., Carrollton-Farmers Indep. Sch.
        Pest Control Act); Tex. Rev. Civ. Stat. Ann. art.                 Dist., 826 S.W.2d at 515-23; Elbaor v. Smith,
        5155, § 5(h) (Vernon Supp. 1992) (labor wage                      S.W.2d (Tex. 1992) (creating uncertainty by dis-
        laws); Tex. Rev. Civ. Stat. Ann. art. 5282c, §                    approval of a type of pre-trial agreements previ-
        23A(k) (Vernon Supp. 1992) (Professional Land                     ously upheld by this court).
        Surveying Practices Act); Tex. Rev. Civ. Stat.
                                                                         [**79] The majority today throws a large wrench
        Ann. art. 6573a, § 19A(k) (Vernon Supp. 1992)
                                                                  into the workings of the important administrative mech-
        (Real Estate License Act); Tex. Rev. Civ. Stat.
                                                                  anism of our Texas government. By severely limiting
        Ann. art. 9100, § 17(m) (Vernon Supp. 1992)
                                                                  enforcement powers, the majority leaves law enforcers
        (Texas Department of Licensing and Regulation).
                                                                  little choice but to forego prosecution of law violators.
      [**77] Today's writing poses a potentially crip-            Our laws designed to protect and conserve our natural
pling effect for collection of taxes. All of our state statutes   resources are substantially weakened at the time their
in this area require that assessed taxes, penalty and inter-      strength is most needed.
est be prepaid before a suit challenging them may be filed.
See generally Tex. Tax Code §§ 112.051, 112.101. If such          II. Trial by Jury
requirements are unconstitutionally void even to fulfill a
                                                                       The harm caused to our environment by today's
constitutional mandate of environmental protection, their
                                                                  writing is equalled only by the severe blow struck against
validity for tax collection is certainly subject to question.
                                                                  our fundamental right of trial by jury. In holding that TAB
See R Communications, Inc. v. Sharp, 839 S.W.2d 947
                                                                  and its members have no right to a jury trial, the majority
(Tex. App.--Austin 1992, writ granted).
                                                                  employs an analysis that has far-reaching ramifications.
     Nor has the majority sought to consider the conse-           While I recognize the need to accommodate the evolution
quences of its decision for a major weapon in the war             of the administrative state, the history of this important
against drugs, forfeiting prior to judicial review money,         guarantee mandates that only the narrowest of exceptions
vehicles and other property alleged to have been used in          be permitted.
violating our criminal laws. Tex. Crim. Proc. Code art.
                                                                       The ability of each individual to have a case heard by
59.02-.011. Most frequently invoked to seize assets from
                                                                  other members of the community is a vital part of our
drug dealers, such as money and cars that could finance
                                                                  heritage and law. Long ago, Texans emphasized the
their defense, this statute provides for the return of prop-
                                                                  paramount importance of this guarantee, stating in their
erty prior to trial only [*459] on the posting of a bond
                                                                  grievances against the Mexican government:
for the full value. Id. art. 59.02(b).
                                                                                                                   Page 20
                                        852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                   36 Tex. Sup. J. 607


          It has failed and refused to secure, on a             Bailey v. Haddy, Dallam 35, 40-41 (Tex. 1841). 25
       firm [**80] basis, the right of trial by
       jury, that palladium of civil liberty, and                      25 In our time this great constitutional principle
       only safe guarantee for the life, liberty, and                  continues to be reaffirmed:
       property of the citizen.
                                                                                  It is fundamental to our system
                                                                               of justice and the intention and
The Declaration of Independence of the Republic of                             policy of the law to permit all
Texas (1836), reprinted in Tex. Const. app. 519, 520                           persons to have a trial by jury of
(Vernon 1955). A strong guarantee of this right had been                       disputed fact issues essential for a
unsuccessfully sought in an 1833 draft constitution, 22                        determination of [their rights]. The
which was submitted to Mexico by Stephen F. Austin 23                          right of trial by jury is a valuable
and was later incorporated in the 1836 Texas Independ-                         right which should be guarded
ence Constitution. 24                                                          jealously by all state courts.

       22 "The right of trial by jury, and the privilege
       of the Writ of Habeas Corpus shall be established                Steenland v. Texas Commerce Bank Nat'l Ass'n,
       by law, and shall remain inviolable." Proposed                  648 S.W.2d 387, 391 (Tex. App.--Tyler 1983, writ
       Constitution for the State of Texas art. 4 (1833),              ref'd n.r.e.); see also Lopez v. Lopez, 691 S.W.2d
       reprinted in Documents of Texas History, 80                     95, 97 (Tex. App.--Austin 1985, no writ) ("trial by
       (Ernest Wallace ed., 1963).                                     jury should be granted zealously by all the courts
       23 See Eugene C. Barker, Stephen F. Austin, in                  of this state").
       The Handbook of Texas 84 (Walter Prescott Webb
                                                                      [**82] In 1845, expanding the scope of this right
       ed., 1952).
                                                               was the subject of spirited debate in the deliberations over
       24 Constitution of the Republic of Texas, Dec-
                                                               the new constitution for statehood. In addition to the pre-
       laration of Rights, Section 9 (1836), reprinted in
                                                               vious guarantee, which was carried forward in a new Bill
       Tex. Const. app. 523, 536 (Vernon 1955), pro-
                                                               of Rights, 26 further protection was included in the Judi-
       vided that "the right of trial by jury shall remain
                                                               ciary Article. Tex. Const. art. IV, § 16 (1845). While
       inviolate."
                                                               under our national Constitution and those of almost all of
      [**81] The central role of the jury as a democratic      our sister states trial by jury is available only for those
institution was firmly recognized, indeed celebrated, in       actions that could have been brought at common law, the
our early jurisprudence by the Supreme Court of the Re-        Texas Constitution since 1845 has also preserved that
public of Texas:                                               right in cases that historically would have been brought in
                                                               equity. Thus, even when a private party seeks injunctive
           The institution of jury trial has, perhaps,         relief that will inure to the public's benefit, any derogation
       seldom or never been fully appreciated. It              of the right to a jury nonetheless violates the Texas Con-
       has been often eulogized in sounding                    stitution.
       [*460] phrase, and often decried and de-
       rided. An occasional corrupt, or biased, or                     26 Tex. Const. art. I, § 12 (1845) (retaining
       silly verdict is not enough for condemna-                       identical language from 1836 provision).
       tion; and when it is said the institution in-
                                                                   Urging support of the additional Judiciary Article
       terposes chances of justice and checks
                                                               guarantee, Convention President Thomas Rusk declared:
       against venality and oppression, the
       measure of just praise is not filled. Its
                                                                          It is a dangerous [**83] principle to
       immeasurable benefits, like the perennial
                                                                       trust too much power in the hands of one
       springs of the earth, flow from the fact that
                                                                       man. Would it not be better to trust a
       considerable portions of the communities
                                                                       power of this nature in the hands of twelve
       at stated periods are called into the courts
                                                                       men, than to confide it to the breast of one?
       to sit as judges of contested facts, and
       under the ministry of the courts to apply
       the laws . . . . Let us then preserve and
                                                               William F. Weeks, Debates of the Texas Convention 268
       transmit this mode of trial not only invio-
                                                               (1846). He was opposed by John Hemphill, later the first
       late, but if possible purified and perfected.
                                                               Chief Justice of this court, who actually "preferred the
                                                                                                                    Page 21
                                        852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                   36 Tex. Sup. J. 607

civil law" system, id. at 271-73, and Jefferson County                  senting); Boyles v. Kerr, ___ S.W.2d ___, ___
delegate James Armstrong, who insisted the new section                  (Tex. 1992) (Doggett, J., dissenting); Leleaux v.
would "operate very injuriously." Id. at 270. He declared:              Hamshire-Fannett Indep. Sch. Dist., 835 S.W.2d
           It would be better, in my opinion, to                        49, 55-56 (Tex. 1992) (Doggett, J., dissenting);
        leave it to the legislature to apply these                      Reagan v. Vaughn, 804 S.W.2d 463, 491 (Tex.
        things; it is enough for us to say in the                       1991) (Doggett, J., concurring and dissenting);
        constitution that the trial by jury shall be                    Greater Houston Transp. Co. v. Phillips, 801
        preserved inviolate. If we intend the jury to                   S.W.2d 523, 527 (Tex. 1990) (Doggett, J., dis-
        determine every thing, it would be better to                    senting).
        dispense with the judge altogether, as a
                                                                      Today's opinion accurately describes one element of
        useless appendage of the court.
                                                                 the dual constitutional protection for this fundamental
                                                                 liberty:
Id. Today it is this same fear of juries, fortunately rejected
                                                                            Article I, section 15 of our constitution
in 1845, that now unfortunately prevails.
                                                                        preserves a right to trial by jury for those
     The original language providing for trial by jury in               actions, or analogous actions, tried to a
the Judiciary Article of 1845 was retained in later con-                jury at the time the constitution of 1876
stitutions, Tex. Const. art. IV, § 16 (1861), Tex. Const. art.          was adopted.
IV, § 20 (1866), but was thereafter [**84] extended to
"all cases of law or equity." Tex. Const. art. V, § 16
(1869). It took its final form in our present Constitution of    S.W.2d at (footnote omitted). Then the majority grossly
1876, which continues to afford not one but two assur-           [**86] misconstrues this standard while making selec-
ances on this vital subject:                                     tive and misleading use of jurisprudence developed under
                                                                 the further guarantee of article V.
           In the trial of all causes in the District
                                                                      With its hangnail sketch of Texas history limited to
        Courts, the plaintiff or defendant shall,
                                                                 one historian's very generalized description of Texas in
        upon application made in open court, have
                                                                 the era "between 1835 and 1861", 28 S.W.2d at, the ma-
        the right to trial by jury . . . .
                                                                 jority ignores our longstanding concerns regarding threats
                                                                 to our natural resources. As early as 1860, the Legislature
                                                                 acted to penalize polluters, providing that:
Tex. Const. art. V, § 10.
          The right of trial by jury shall remain
                                                                        28 T.R. Fehrenbach, Lone Star: A History of
       inviolate.
                                                                        Texas and the Texans 279 (1983).

Tex. Const. art. I, § 15. Rather than keeping it "inviolate,"
                                                                                If any person . . . shall in anywise
the majority today severely violates this right.
                                                                        pollute, or obstruct any water course, lake,
      [*461] Our heritage is now rejected by the majority               pond, marsh or common sewer, or con-
in favor of a deliberately overbroad writing that treats trial          tinue such obstruction or pollution so as to
by jury as a mere anachronism. This is consistent with the              render the same unwholesome or offensive
majority's increasing disfavor of decisionmaking by or-                 to the county, city, town or neighborhood
dinary citizens composed as a jury. 27 Today's opinion                  thereabouts, or shall do any act or thing
insists that our constitutional assurance of trial by jury              that would be deemed and held to be a
does not offer protection against legislative delegation of             nuisance at common law, shall be . . . fined
factfinding to an administrative bureaucracy. In essence,               in any sum not exceeding five hundred
the majority engages in a massive redistribution of power               dollars . . . . 29
from the people to the bureaucratic arm of state govern-
ment. This extreme position [**85] is totally unjustified
in view of the staunch legal and historical underpinnings
of our constitutional commitment to afford Texans a jury
of their peers.                                                         29 Act of Feb. 11, 1860, Tex. Gen Laws 97, a
                                                                        later version of which was referenced by this court
        27    See, e.g., May v. United Services, ___                    in Gulf, Colo. & Santa Fe Ry. v. Reed, 80 Tex. 362,
        S.W.2d ___, ___ (Tex. 1992) (Doggett, J., dis-                  15 S.W. 1105, 1107 (1891).
                                                                                                                     Page 22
                                      852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                 36 Tex. Sup. J. 607


 [**87]                                                                     his home was rendered almost unin-
                                                                         habitable; his family and himself were kept
In an early decision considering whether a criminal nui-                 in bad health; and he was, in the language
sance was posed by a tallow factory near Galveston at                    of a witness, "a walking skeleton."
which cattle were slaughtered and their carcasses and
offal were allowed to accumulate, this court stated:
                                                               This court further observed that
           It requires no aid of the common law to                       The stench was so offensive that he had
       convince any one accustomed to pure air,                       to shut the doors to eat and sleep. . . . The
       and who has been brought by accident or                        testimony shows that the filth on this place
       necessity within the sickening and                             of deposit was so indescribable, and was so
       malarious influence of one of our modern                       offensive as to make persons sick, and
       tallow and beef factories, that it is a dis-                   could be perceived a mile away.
       gusting and nauseous nuisance, even for
       miles around it . . . [those] so offending
       should be indicted and punished to the                  Id. Affirming the judgment declaring the dump a common
       extent of the law.                                      law nuisance, this court declared:

                                                                            There is also no doubt that every person
 Allen v. State, 34 Tex. 230, 233-34 (1871). How signif-                 has a right to have the air diffused over his
icantly has this court's once vigorous enforcement of                    premises free from noxious vapors and
anti-pollution laws waned.                                               noisome smells . . . .
     Defilement of the environment was not only made
punishable as a crime, but also subject to a common law
                                                               Id. 31
action for nuisance. See generally Horace Wood, Wood's
Law of Nuisances 501-21, 576-692 (2d ed. 1883) (dis-
                                                                         31 See also Rhodes v. Whitehead, 27 Tex. 304,
cussing nuisance recovery at common law for various
                                                                         316 (1863)(remanding for trial a complaint against
forms of air and water pollution). Such actions were reg-
                                                                         a dam across the San Antonio river, recognizing
ularly brought in Texas before 1876 to halt activities
                                                                         that the creation "of pools of stagnant and putrid
harmful to our air and water. In 1856, this court recog-
                                                                         water" or the "tendency to cause sickness in [the
nized [**88] that "what constitutes a nuisance is well
                                                                         plaintiff's] family or immediate neighborhood,"
defined." 30 [*462] Burditt v. Swenson, 17 Tex. 489
                                                                         was sufficient to constitute a nuisance); Jung v.
(1856). Considering an action to enjoin operation of a
                                                                         Neraz, 71 Tex. 396, 9 S.W. 344, 344-45 (1888)
livery stable on Congress Avenue in Austin because
                                                                         (nuisance properly alleged by claim that "inter-
"manure and filth has already accumulated to such an
                                                                         ment of dead bodies in [proposed cemetery] would
extent, that it now causes an unhealthy and disagreeable
                                                                         infect, poison, and injure [plaintiffs'] wells, and
effluvia, exceedingly offensive and prejudicial," id. at
                                                                         the use of low grounds, and further injure plain-
492, this court concluded such "noisome smells" consti-
                                                                         tiffs' health by the foul odors from the decompo-
tuted a nuisance. Id. at 502-03. In City of Fort Worth v.
                                                                         sition of said bodies.").
Crawford, 74 Tex. 404, 12 S.W. 52, 54 (Tex. 1889), an
individual asserted that, because of the dumping of gar-                [**90]
bage, filth and bodies of dead animals on city land,
                                                                    The majority's suggestion that "pollutants . . . are
                                                               phenomena of relatively recent origin," S.W.2d at, is
       30 The court further stated: "The word means,
                                                               contradicted by the nineteenth century legislative re-
       literally, annoyance; in law, it signifies, according
                                                               sponse of criminalizing pollution and the common use of
       to Blackstone, 'anything that worketh hurt, in-
                                                               the common law of nuisance to fight soiling of the air and
       convenience, or damage.' . . . . 'So closely (says
                                                               water. With the ongoing construction of the railroads, the
       Blackstone) does the law of England enforce that
                                                               mining of coal and sulphur, the emergence of industry and
       excellent rule of Gospel morality, of doing to
                                                               the nascence of our oil and gas industry, our state's natural
       others as we would they should do unto our-
                                                               resources were by no means pure and unthreatened in
       selves.'" Id. at 492. Accord Miller v. Burch, 32
                                                               1876. See James C. Cobb, Industrialization and Southern
       Tex. 208, 210 (1869).
                                                               Society 1877-1984, 128 (1984) (describing pollution
     [**89]                                                    relating to increased rail usage, lumbering and urban
                                                                                                                   Page 23
                                        852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                   36 Tex. Sup. J. 607

sewage); see also Robert A. Calvert & Arnoldo De Leon,          article is thus decreed as dependent on form, not sub-
The History of Texas 186-191 (1990) (discussing the             stance; not analogy, but exactitude. Under the majority's
development of Texas industry in the late 1800's, in-           analysis, Credit Bureau was wrongly decided since a
cluding lumbering, beef processing and mining); Louis J.        regulatory prohibition against deceptive non-disclosure or
Wortham, 5 A History of Texas (1924) (examining in-             ambiguous language with the capacity to deceive was
dustrial development in the nineteenth century). Only the       beyond the "deceptive acts" of common law fraud or
scope and depth of the problem has changed. But even if         deceit as it existed in 1876.
the fouling of the environment were a recent technological
                                                                     Seizing upon the rather obvious proposition that the
"innovation" of the past century, that would be irrelevant.
                                                                administrative state had not yet been created in [**93]
As I recently wrote [**91] in another context,
                                                                1876, the majority concludes that there is no right to trial
                                                                by jury in judicial review of an administrative proceeding.
          The law is not irretrievably locked in
                                                                But under article I it is the nature of the cause of action
       the days before televisions and
                                                                that controls, not the procedures under which it is en-
       videocameras, nor limited to operators of
                                                                forced. Each of the three statutes considered today defines
       telegraphs and horse-drawn carriages.
                                                                "pollution" of air, water or land to incorporate early nui-
                                                                sance concepts.        Tex. Health & Safety Code §
                                                                382.003(3)(contaminants that "are or may tend to be in-
Boyles v. Kerr, ___ S.W.2d ___, ___ (Tex. 1992) (Dog-
                                                                jurious to or to adversely affect human health or welfare,
gett, J., dissenting). There is nothing about technological
                                                                animal life, vegetation or property [or] interferes with the
change that has made trial by jury any less vital. 32
                                                                normal use and enjoyment of animal life, vegetation, or
                                                                property"); id. § 361.003(44) ("contamination of any land
       32 Although some critics allege that juries are
                                                                land or surface or subsurface water in the state that ren-
       not competent to deal with complex scientific and
                                                                ders the land or water harmful, detrimental, or injurious to
       technological issues, empirical data demonstrates
                                                                humans, animal life, vegetation"); Tex. Water Code §
       otherwise.
                                                                26.001(13)(contamination that "renders the water harm-
                                                                ful, deterimental, or injurious to humans, animal life,
                  Research shows . . . that the
                                                                vegetation, or property"). The majority fails to examine
               opportunity exists for meaningful
                                                                these provisions and makes no attempt to distinguish their
               [juror] participation in a wide
                                                                substance from nuisance actions at the time the constitu-
               range of adjudicatory and regula-
                                                                tion was adopted. The focus must be on the nature of civil
               tory proceedings. . . . To the extent
                                                                [**94] and criminal nuisance actions as they existed in
               that juries encounter difficulties,
                                                                1876, not on whether administrative agencies existed then
               these difficulties often vex judges
                                                                to bring such actions. That the creation of some adminis-
               as well. . . . The full potential of lay
                                                                trative agency was not contemplated in 1876 does not
               participation in adjudication has
                                                                mean that any type of factfinding transferred to that
               not been realized.
                                                                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
       Joe Cecil, Valerie Hans, and Elizabeth Wiggins,
                                                                decisionmaking by bureaucracy at the expense of trial by
       Citizen Comprehension of Difficult Issues: Les-
                                                                jury.
       sons From Civil Jury Trials, 40 Am. U. L. Rev.
       727, 773-74 (1991).                                           Concluding that no common law action analogous to
                                                                the assessment of administrative penalties existed in 1876,
      [**92] But because there was no modern bureau-
                                                                the majority professes a superficial limit on its holding
cracy in 1876, the majority insists: "no governmental
                                                                tied to article XVI, § 59(a) of the Texas Constitution, as
schemes akin to these existed." Id. at . While our laws and
                                                                interpreted in Corzelius v. Harrell, 143 Tex. 509, 186
society have grown more complicated, the mandate
                                                                S.W.2d 961 (1945). S.W.2d at n.24. Nothing in this pro-
[*463] of our constitution has not. As we concluded in
                                                                vision affects the determination of whether a nuisance
State v. Credit Bureau of Laredo, Inc., 530 S.W.2d 288,
                                                                action for pollution is analogous to an enforcement action
292 (Tex. 1975): "The right to a trial by jury is not limited
                                                                for the same conduct. Clearly, the majority's reasoning
to the precise form of action . . . at common law." If there
                                                                rests solely on the fact that no administrative agency was
was an analogous cause of action with a right to jury trial
                                                                charged in 1876 with protecting the state's resources. Nor
in 1876, then our article I jury trial guarantee requires it
                                                                does Corzelius in any way address the right to jury trial.
today. Yet the majority ignores the fact that even the
                                                                Under the [**95] majority's asserted "narrow" holding,
earliest of pollution statutes was designed to deter and
                                                                the right to trial by jury can be immediately abrogated in
punish those who harm our environment. Our jury trial
                                                                                                                   Page 24
                                      852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                 36 Tex. Sup. J. 607

any case in which natural resources are even remotely                was added to authorize the Legislature to regulate
involved, including private disputes that this court has             railroads after the people had issued strong com-
held are subject to jury trial, such as those involving              plaints against them).
mineral ownership, contract rights, or mineral lease terms.
                                                                   To preserve the workings of modern government,
See, e.g., Amarillo Oil Co. v. Energy-Agri Prod., Inc., 794
                                                              some exception for administrative proceedings may be
S.W.2d 20, 26 (Tex. 1990).
                                                              necessary, but it should be drawn narrowly so as not to
     The constitutional limitation on legislative power to    encompass every conceivable action that could arguably
delegate away the people's right to trial by jury was amply   be assigned to some existing or future administrative
demonstrated by the writing of this court in White v.         body. And that is precisely what, until today, our Texas
White, 108 Tex. 570, 196 S.W. 508 (Tex. 1917). There a        courts have usually done. In two decisions concerning
husband had his wife, who apparently did not contest that     administrative cancellation of a permit to sell liquor,
she was a "lunatic," committed to a state asylum. Com-        courts narrowly recognized that no "cause of action" was
mitment proceedings had been statutorily transferred to a     involved. The court in Bradley v. Texas Liquor Control
"commission" appointed by a county judge and comprised        Bd., 108 S.W.2d 300 (Tex. Civ. App.--Austin 1937, writ
of six members, "as many of [whom] shall be physicians        ref'd n.r.e.), specifically excluded from its ruling cases
as may be possible." Act of [*464] April 8, 1913, 33rd        "based upon a civil right of [an individual] to compensa-
Leg., ch. 163, art. 152, 1913 Tex. Gen. Laws 342. Alt-        tion." Relying on Bradley, 34 the court in Texas Liquor
hough a review of decisions of other states and of federal    [**98] Control Bd. v. Jones, 112 S.W.2d 227, 229-30
practice indicated substantial support for what appeared to   (Tex. Civ. App.--Texarkana 1937, no writ), noted that
be a quite reasonable legislative attempt [**96] to en-       unlike other administrative proceedings that might in-
trust the determination of mental competency to the ex-       volve rights of the same character as a "cause of action,"
pertise of the medical profession, 196 S.W. at 514-15, this   the cancellation of a liquor license is a proceeding brought
Court rightly concluded there that                            by the state pursuant to its police power to protect the
                                                              "welfare, health, peace . . . and safety of the people of
          trial by jury means something more                  Texas."
       than a hearing before a commission. . . .
                                                                     34 See also State v. De Silva, 105 Tex. 95, 145
                                                                     S.W. 330 (Tex. 1912) (also holding that cancella-
Id. at 511. Such "a hearing before a commission, in lieu of          tion of liquor license is not a "cause").
the time-honored trial by jury, is invalid." Id. at 515.
                                                                   This concern for "the safety of the people of Texas" --
Moreover,
                                                              the rights and needs of the public, id., is not dissimilar
            [contrary] reasoning [in other jurisdic-
                                                              from the doctrine of "public rights" rather imperfectly
        tions] as to the right of the legislature to
                                                              employed by the federal courts. State cancellation of a
        dispense with jury trials is not applicable
                                                              liquor license essentially represents a "public right." In
        to our judicial system and laws, and it is
                                                              Atlas Roofing Co. v. Occupational Safety & Health Re-
        obnoxious to our [Texas] Constitution . . .
                                                              view Comm'n, 430 U.S. 442 (1977), the court distin-
        ."
                                                              guished between cases involving governmental action to
                                                              protect the public health and [**99] safety and those
                                                              involving only private rights:
Id. I maintain that the wholesale transfer of authority for
factfinding from juries to the bureaucracy announced here
                                                                         At least in cases in which "public
is no less offensive to the rights our Constitution guaran-
                                                                     rights" are being litigated -- e.g., cases in
tees.
                                                                     which the government sues in its sovereign
     Beginning with the constitutional amendment that led            capacity to enforce public rights created by
to the creation of the Railroad Commission, 33 the use of            statutes . . . [the constitutional right to a
administrative agencies in Texas has steadily increased.             jury trial] does not prohibit . . . assign[ment
Today this arm of government implements broad legisla-               of] the factfinding function to an adminis-
tive plans regulating many areas of public concern, in-              trative forum with which the jury would be
cluding the conduct of public utilities, the development             incompatible.
and conservation of energy resources, and the protection
[**97] of the environment.
                                                               Id. at 450.
       33 See Tex. Const. art. X, § 2 and interp. com-
                                                                  Bradley and Jones are also consistent with writings in
       mentary (Vernon 1955) (noting that the provision
                                                              other jurisdictions strictly excluding from any adminis-
                                                                                                                   Page 25
                                       852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                  36 Tex. Sup. J. 607

trative public rights exception actions invoking private
[*465] rights for which the Constitution mandates a right
to trial by jury:                                                      See Texas Constitutional Revision Commission, A
                                                                       New Constitution for Texas: Text, Explanation,
           Although the award of general com-                          Commentary 120-21 (1973).
       pensatory damages may have substantive
                                                                     [**101]
       effect, in that it deters violation of the
       regulatory scheme . . . when the damages
                                                                          as identical in meaning, that is, as pro-
       awarded advance a substantial private in-
                                                                       tecting the right of trial by jury only as it
       terest in remuneration that is dispropor-
                                                                       existed at common law or by statutes in
       tionate to the concept of public relief, the
                                                                       effect at the time of the adoption of the
       right to a jury trial is implicated and a jury
                                                                       Constitution.
       is required.

                                                                 530 S.W.2d at 292 (citing Hickman v. Smith, 238 S.W.2d
 McHugh v. Santa Monica Rent Control Bd., 49 Cal. 3d
                                                                838 (Tex. Civ. App.--Austin 1951, writ ref'd), as im-
348, 777 P.2d 91, 117 (Cal. 1989) (Panelli, J., concur-
                                                                properly assigning the two provisions equivalent mean-
ring); Bishop Coal [**100] Co. v. Salyers, 380 S.E.2d
                                                                ing). We held that the Judiciary Article affords a unique
238, 246 (W.Va. 1989) (subjective determinations of
                                                                right to trial by jury even for causes of action unknown at
damages are constitutionally entrusted to juries); Broward
                                                                the time of the Constitution's adoption. Id. 36
County v. La Rosa, 505 So.2d 422, 424 (Fla. 1987) (con-
stitutional right to jury precludes administrative awards of
                                                                       36 The Credit Bureau opinion was authored for
unliquidated damages).
                                                                       the court by now former Chief Justice Jack Pope,
     Fortunately the rights of Texans are not constrained              who had written previously, "the struggle for sur-
by whether the right to a jury trial was preserved in                  vival by the institution we call the jury is truly the
analogous actions in 1876. We have written quite clearly               epic of our law." Jack Pope, The Jury, 39 Tex. L.
that an even broader right to trial by jury is afforded under          Rev. 426 (1961). That struggle continues today.
article V, section 10 than under article I, section 15. 35
                                                                     Instead of heeding this holding, the majority seizes
State v. Credit Bureau of Laredo, Inc., 530 S.W.2d 288,
                                                                upon a citation to a commentary in that writing as an
292 (Tex. 1975). Relying on Walsh v. Spencer, 275
                                                                excuse to rewrite the Constitution. In the discussion of the
S.W.2d 220, 223 (Tex. Civ. App.--San Antonio 1954, no
                                                                article V jury [**102] trial guarantee in Credit Bureau,
writ), which described the "much broader guarantee" of
                                                                which involved no administrative action, we noted a few
the Judiciary Article, and Tolle v. Tolle, 104 S.W.2d 1049,
                                                                "isolated" proceedings that do not constitute a "cause" that
1050 (Tex. 1907), which said of the provision, "language
                                                                have been identified on a "case-by-case determination."
cannot be more comprehensive than this," we expressly
                                                                Id. at 293. We made shorthand reference to a commen-
disapproved of earlier cases "mistakenly" treating the two
                                                                tator's brief list of exceptions carved from the otherwise
provisions
                                                                inviolate right to trial by jury. Id. (citing Whitney R.
                                                                Harris, Jury Trial in Civil Cases -- A Problem in Consti-
       35 In the commentary for recommended article
                                                                tutional Interpretation, 7 Sw. L.J. 1, 8 (1953) (listing
       V, section 14(e) of the proposed 1974 Constitu-
                                                                child custody by habeas corpus and adoption proceedings,
       tion, the significance of holdings regarding this
                                                                election contests, and contempt proceedings)). Addition-
       more expansive language was also noted:
                                                                ally, Harris relied upon Jones for the broader proposition
                                                                that proceedings originally brought before administrative
                  The right of trial by jury guar-
                                                                agencies are excepted from constitutional jury rights. 7
               anteed in Article V, Section 10 of
                                                                Sw. L.J. at 12-13. 37
               the 1876 Constitution is not de-
               pendent on the existence of the
                                                                       37 Though he wrote in unnecessarily global
               right at the time the Constitution
                                                                       terms regarding this exception, even Harris rec-
               was adopted in 1876. The guaran-
                                                                       ognized that
               tee extends to any "cause" insti-
               tuted in the district court. A
                                                                                   the plain language of the Judi-
               "cause" is defined as a suit or ac-
                                                                               ciary section conferring the right of
               tion concerning any question, civil
                                                                               trial by jury in all causes in the
               or criminal, contested before a
                                                                               district courts would seem to enti-
               court of justice.
                                                                                                                      Page 26
                                         852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                    36 Tex. Sup. J. 607

                tle parties to jury trials irrespective          limited circumstance, I would define proceedings in-
                of whether that right existed at the             volving "public rights" as those in which the government,
                time of the adoption of the Con-                 as a real party in interest, enforces a regulatory or statu-
                stitution.                                       tory scheme. Contrary to the majority, I do not suggest
                                                                 that we follow its standard preference [**105] for cop-
                                                                 ying a "federal test," S.W.2d at n.24. Rather, I recommend
        Harris, supra, at 6-7.                                   a narrow and clear Texas standard that looks to Texas law
                                                                 predating Atlas Roofing, and which learns from the mis-
      [**103] [*466] Today the majority overexpands
                                                                 application of this doctrine in the federal courts.
this exception before considering the rule it prefers that
exception to swallow. In Credit Bureau we attributed
                                                                         39 To some extent every action legislatively
"broad meaning [to] the word 'cause.'" 530 S.W.2d at 292.
                                                                         entrusted to an administrative agency involves a
In defining it, we did not limit its meaning in the past, but
                                                                         public right. At the same time even actions by
turned to a relatively contemporary dictionary as well as
                                                                         private parties may have incidental regulatory ef-
older authority. Id. Clearly this term must adapt to
                                                                         fects and are unquestionably invested with a pub-
modern developments; our understanding of a "cause" is
                                                                         lic interest. See The Dallas Morning News, Inc. v.
not frozen in 1876. See Davenport v. Garcia, 834 S.W.2d
                                                                         Fifth Court of Appeals, ___ S.W.2d ___, ___ (Tex.
4, 19 (Tex. 1992). Both the text of our Constitution and its
                                                                         1992, orig. proceeding) (Doggett, J., dissenting
historical backdrop demand that the right to trial by jury
                                                                         from overruling of motion for leave to file petition
remain "inviolate." When, as here, however, changing
                                                                         for writ of mandamus).
circumstances require reexamination of the scope of this
                                                                         40 The "public rights" concept has been re-
right in order to preserve the evolved workings of gov-
                                                                         cently muddled by the federal courts. In
ernment, we must ensure that any exception does not
                                                                         Granfinanciera, S.A. v. Nordberg, 492 U.S. 33,
destroy the guarantee. 38 We should instead follow the
                                                                         106 L. Ed. 2d 26, 109 S. Ct. 2782 (1989), the court,
command of our Constitution in light of our contemporary
                                                                         although upholding the right to a jury trial for
situation, by limiting any exception in the most narrow
                                                                         defendants sued for fraudulent conveyance by a
way possible without completely undermining the ad-
                                                                         trustee in bankruptcy, broadened the scope of its
ministrative state.
                                                                         "public rights" exception to include all cases "in-
                                                                         volving statutory rights that are integral parts of a
        38 The majority notes the existence of other
                                                                         public regulatory scheme and whose adjudication
        statutory procedural protections, such as those
                                                                         Congress has assigned to an administrative
        contained in the Administrative Procedure and
                                                                         agency." Id. at 55 n.10. See also Thomas v. Union
        Texas Register Act, Tex. Rev. Civ. Stat. art.
                                                                         Carbide Agric. Prod. Co., 473 U.S. 568, 586
        6252-13a, § 19(e). S.W.2d at n.26. While im-
                                                                         (1985) (rejecting the view that the government
        portant, these measures certainly do not constitute
                                                                         must bring suit in order for litigation to involve
        a complete substitute for a jury trial. If the Texas
                                                                         "public rights"). I believe that such an expansive
        Constitution guarantees a right to trial by jury, no
                                                                         reading of "public rights" would not be consistent
        lesser protection will suffice.
                                                                         with the broad state constitutional protection of
     [**104]                                                             the right to trial by jury in Texas.
     I would accordingly clarify any existing exception for            [**106] Here TAB's members are not entitled to a
administrative proceedings to preserve the right to trial by     jury trial because the state is enforcing public regulations
jury in all suits except those in which the state is enforcing   by imposing administrative penalties. Although this ac-
a regulation or statute protecting the public. If construed      tion is analogous to a common law nuisance claim, here
too broadly, however, even this exception limited to             the state is protecting the public's right to a clean envi-
"public rights" could destroy our traditional reliance on        ronment rather than an [*467] individual's use and
the jury system. 39 Indeed, despite the writing in Atlas         enjoyment of private property.
Roofing, such erosion has already begun at the federal
                                                                      The right to trial by jury is a critical state constitu-
level. 40 Properly limited, however, a "public rights" ad-
                                                                 tional guarantee. Denigrating my concern with protecting
ministrative exception to the right to trial by jury is both
                                                                 this liberty, the majority dismisses my writing as "trum-
constitutionally sound and easy to apply. While perhaps
                                                                 peting." S.W.2d at n.23. The trumpet call has sounded
far-reaching in other contexts, "public rights" that conflict
                                                                 from the very earliest days of our Republic, heralding our
with the right of each member of the public to have factual
                                                                 right to trial by jury, a clarion to our citizens to shout out
disputes resolved by a public jury must be narrowly con-
                                                                 to preserve their heritage against attack. It demands that
strued. I would not permit the concept of "public rights" to
                                                                 any intrusion on this right be narrow in scope, clear-
be perverted to deny such a fundamental right. In this
                                                                                                                     Page 27
                                       852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                  36 Tex. Sup. J. 607

ly-announced and thoughtfully considered. The majority's        ternatively, that the record adequately demonstrated the
refusal to define with certainty its erosion of the right to    right of the Texas Association of Business under Texas
trial by jury sounds a weak and shaky chord, reflecting a       law to initiate this litigation. Why then does the majority
lack of commitment to this fundamental guarantee. At-           insist on writing? Because it dare not pass up the oppor-
tempting to let the strong note drown the weak, the ma-         tunity to close access to our courts to those citizens who
jority seeks to hide its equivocation by reference to my        choose to challenge environmental [**109] degradation,
conclusion that a jury trial is not required under [**107]      neighborhood destruction and consumer abuse. Through a
these anti-pollution statutes, id., and by criticizing the      narrowly crafted test, the majority extends an invitation to
narrow, clear and thoughtful exception I have drawn             TAB to come into the courts while telling other public
today. Id.                                                      interest groups to stay out.
      The inviolate nature of the right to trial by jury de-
                                                                       42 As the majority recognizes, "the parties in-
mands that this vital guarantee be circumscribed in only
                                                                       sist that any question of standing has been waived
the most extraordinary circumstances and that any ex-
                                                                       in the trial court and cannot be raised by the court
ception to it be clearly and narrowly construed. Although
                                                                       for the first time on appeal." S.W.2d at .
I do not disagree with the result announced by the major-
ity, the analysis employed is designed to destroy one of             While devoting over half of today's opinion to a
our most precious freedoms as Texans. The alternative I         nonissue in this litigation, the majority oddly limits its
offer would permit our administrative bodies to imple-          inquiry to only one of the three organizations asserting
ment efficiently their regulations, while ensuring that         standing here. Nothing is said as to the League of Women
efficiency concerns do not envelop a fundamental civil          Voters and the Sierra Club, both of which intervened in
liberty. 41                                                     the trial court and were aligned as defendants with the
                                                                State. Asserting the interests of its members in water and
       41 In view of recent attacks nationwide on the           air quality, as well as its involvement in protecting the
       jury system, a recent study determined that              state's natural resources, the League of Women Voters
                                                                claimed standing to defend the challenged regulations.
                  Our central conclusion is that                Similarly, the Sierra Club [*468] based its standing
               the civil jury system is valuable                [**110] on its purpose of environmental enhancement
               and works well. . . . It is [not]                and conservation of natural resources. By completely
               "broken," and therefore it need not              ignoring whether these groups were proper parties and by
               be "fixed." The jury system is a                 embracing a federal standing test hostile to their partici-
               proven, effective, an important                  pation, the majority erects new barriers to deny Texans
               means of resolving civil disputes.               access to Texas courts.
                                                                     To achieve this result, the majority must overcome
                                                                what, until recently, was viewed as a considerable obsta-
       The Brookings Institution, Charting a Future for
                                                                cle -- Texas law. This court has repeatedly held that the
       the Civil Jury System 2 (1992).
                                                                issue of standing may not be raised for the first time on
                                                                appeal, either by the parties or by the court. In Texas
 [**108] III. Standing
                                                                Industrial Traffic League v. Railroad Comm'n of Texas,
      The issue of standing is a stranger to this litigation.   633 S.W.2d 821, 822-23 (Tex. 1982), we concluded:
No party before this court has ever asserted that the Texas
Association of Business lacked capacity to challenge the                  A party's lack of justiciable interest
actions of state government. How rare the occasion when                must be pointed out to the trial court . . . in
all litigants agree                                                    a written plea in abatement, and a ruling
                                                                       thereon must be obtained or the matter is
     on the proper resolution of an issue, but how truly
                                                                       waived.
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
                                                                          No plea challenging the standing of [the
parties have urged the court not to decide this matter in the
                                                                       party] was filed in the district court. The
manner adopted. Addressing the question of standing
                                                                       issue of standing was therefore waived,
solely at the belated insistence of the majority, all parties
                                                                       and the court of appeals erred in writing on
asserted that this issue was not in dispute; that, under
                                                                       the issue at all.
recent precedent, standing had been waived; 42 and, al-
                                                                                                                    Page 28
                                         852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                    36 Tex. Sup. J. 607

                                                                          Paso 1988, writ denied); City of Fort Worth v.
                                                                          Groves, 746 S.W.2d 907, 913 (Tex. App.--Fort
(Emphasis supplied). The sole issue presented in Coffee v.                Worth 1988, no writ); Barron v. State, 746 S.W.2d
William Marsh Rice University, 403 S.W.2d 340 (Tex.                       528, 530 (Tex. App.--Austin 1988, no writ);
1966), [**111] was whether the court of appeals erred in                  Reynolds v. Charbeneau, 744 S.W.2d 365, 367
dismissing a case, on its own motion, for want of standing.               (Tex. App.--Beaumont 1988, writ denied);
This court held that, because standing had not been chal-                 Champion v. Wright, 740 S.W.2d 848, 851 (Tex.
lenged in the trial court, that issue could not deprive the               App.--San Antonio 1987, writ denied); Texas
court of appeals of subject matter jurisdiction. Id. at                   Low-Level Radioactive Waste Disposal Authority
347-48. Assuming that standing was lacking in Sabine                      v. El Paso County, 740 S.W.2d 7, 8 (Tex. App.--El
River Authority of Texas v. Willis, 369 S.W.2d 348,                       Paso 1987, writ dism'd w.o.j.); S.I. Property
349-50 (Tex. 1963), 43 this court nonetheless held that                   Owners' Ass'n v. Pabst Corp., 714 S.W.2d 358,
dismissal was erroneous, because the absence of a justi-                  360 (Tex. App.--Corpus Christi 1986, writ ref'd
ciable interest was not first raised in the trial court. We               n.r.e.); Gonzales v. City of Lancaster, 675 S.W.2d
have repeatedly cited these decisions with approval. See                  293, 294-95 (Tex. App.--Dallas 1984, no writ);
Central Educ. Agency v. Burke, 711 S.W.2d 7, 8 (Tex.                      Mabe v. City of Galveston, 687 S.W.2d 769, 771
1986) (per curiam); American General Fire & Casualty                      (Tex. App.--Houston [1st Dist.] 1985, writ
Co. v. Weinberg, 639 S.W.2d 688 (Tex. 1982); Cox v.                       dism'd); Develo-cepts, Inc. v. City of Galveston,
Johnson, 638 S.W.2d 867, 868 (Tex. 1982) (per curiam).                    668 S.W.2d 790, 793 (Tex. App.--Houston [14th
                                                                          Dist.] 1984, no writ); Griffith v. Pecan Plantation
        43 Despite the clear statement in Sabine River                    Owners Ass'n, Inc., 667 S.W.2d 626, 628 (Tex.
        that "we assume without deciding that Sabine has                  App.--Fort Worth 1984, no writ); City of Houston
        no justiciable interest," 369 S.W.2d at 349, the                  v. Public Utility Comm'n of Texas, 656 S.W.2d
        majority today asserts that "standing was present"                107, 110 n.1 (Tex. App.--Austin 1983, writ ref'd
        in the trial court in that case. S.W.2d at n.9.                   n.r.e.); Public Utility Comm'n v. J.M. Huber
                                                                          Corp., 650 S.W.2d 951, 955-56 (Tex.
       [**112] Time and time again, the courts of appeals
                                                                          App.--Austin 1983, writ ref'd n.r.e.); Vaughn
have also refused to consider challenges to standing not
                                                                          Bldg. Corp. v. Austin Co., 620 S.W.2d 678 (Tex.
first raised in the trial court. 44 Until today, the only criti-
                                                                          App.--Dallas 1981), aff'd, 643 S.W.2d 113 (Tex.
cism of our prior holdings to this effect has [*469]
                                                                          1982); War-Pak, Inc. v. Rice, 604 S.W.2d 498
consisted primarily of writings authored by one appellate
                                                                          (Tex. App.--Waco 1980, writ ref'd n.r.e.).
judge. 45
                                                                    [**113]
                                                                          45 Texas Dep't of Mental Health v. Petty, 778
        44 See, e.g., Espiricueta v. Vargas, 820 S.W.2d
                                                                          S.W.2d 156, 166 (Tex. App.--1989, writ dism'd
        17, 20 (Tex. App.--Austin 1991, writ denied); In-
                                                                          w.o.j.) (opinion by Powers, J.); Public Utility
        tegrated Title Data Systems v. Dulaney, 800
                                                                          Comm'n v. J.M. Huber Corp., 650 S.W.2d 951,
        S.W.2d 336 (Tex. App.--El Paso 1990, no writ);
                                                                          954-56 (Tex. App.--Austin 1983, writ ref'd
        State v. Euresti, 797 S.W.2d 296, 299 (Tex.
                                                                          n.r.e.)(opinion by Powers, J.); Hooks v. Texas
        App.--Corpus Christi 1990, no writ); Cissne v.
                                                                          Dep't of Water Resources, 645 S.W.2d 874 (Tex.
        Robertson, 782 S.W.2d 912, 917 (Tex.
                                                                          App.--Austin 1983, writ ref'd n.r.e.) (opinion by
        App.--Dallas 1989, writ denied); Broyles v. Ash-
                                                                          Powers, J.); see also Kircus v. London, 660 S.W.2d
        worth, 782 S.W.2d 31, 34 (Tex. App.--Fort Worth
                                                                          869, 872 n.3 (Tex. App.--Austin 1983, no writ)
        1989, no writ); Horton v. Robinson, 776 S.W.2d
                                                                          (opinion by Phillips, C.J.).
        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           The majority has a simple way to deal with this venerable
        America, 774 S.W.2d 760, 764 (Tex.                         body of law -- overrule only one case, making today's
        App.--Corpus Christi 1989, no writ); Smiley v.             abrupt change in the law appear less drastic, while ig-
        Johnson, 763 S.W.2d 1, 4 (Tex. App.--Dallas                noring the rest. In fact, six Texas Supreme Court cases
        1988, writ denied); Ex Parte McClain, 762 S.W.2d           must be overruled and no less than twenty-five decisions
        238, 242 (Tex. App.--Beaumont 1988, no writ);              of the courts of appeals must be disapproved to reach
        Goeke v. Houston Lighting & Power Co., 761                 today's result. The concept of reliance on the prior deci-
        S.W.2d 835, 837 n.1 (Tex. App.--Austin 1988),              sions of Texas courts has long since ceased to offer the
        rev'd on other grounds, 797 S.W.2d 12 (Tex.                slightest restraint on this majority. 46
        1990); Group Medical and Surgical Service, Inc.
        v. Leong, 750 S.W.2d 791, 794-95 (Tex. App.--El
                                                                                                                    Page 29
                                       852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                  36 Tex. Sup. J. 607

       46      See, e.g., Boyles v. Kerr, S.W.2d, (Tex.         type of writing within the last year. See Edgewood Indep.
       1992) (Doggett, J., dissenting) (objecting to ma-        Sch. Dist. v. Kirby, 804 S.W.2d 491, 501 (Tex. 1991)
       jority's overruling of landmark Texas Supreme            (Doggett, J., concurring); Carrollton-Farmers Branch
       Court decision permitting recovery for negligence        Indep. Sch. Dist. v. Edgewood Indep. Sch. Dist., 826
       resulting in emotional distress); Walker v. Packer,      S.W.2d 489, 537 (Tex. 1992) (Doggett, J., dissenting)
       827 S.W.2d 833, 835 (Tex. 1992, orig. proceeding)        (advisory opinions issued and retracted as necessary to
       (Doggett, J., dissenting) (noting majority's "mass       thwart efforts to satisfy the constitutional command of
       execution of precedent," encompassing "a dozen           equity and efficiency in our public schools). Writing on an
       or more Texas Supreme Court cases and countless          issue not raised by any party, as the majority reaches out
       decisions of the courts of appeals"); Carroll-           to revise the law of standing today, seems to me the very
       ton-Farmers Branch Indep. Sch. Dist., S.W.2d at          essence of an "advisory" opinion.
       (Tex. 1992) (Doggett, J., dissenting) (discussing
                                                                     The second newly-announced constitutional basis is
       rejection by majority of its own decision issued
                                                                equally ironic -- our state's vital guarantee that "all courts
       less than one year previously); Stewart Title Guar.
                                                                shall be open," Tex. Const. art. I, § 13, in some inexpli-
       Co. v. Sterling, 822 S.W.2d 1, 12 (Tex. 1991)
                                                                cable way, mandates that they be closed to some and
       (Doggett, J., dissenting) (majority disregards its
                                                                requires continual judicial monitoring of all who attempt
       own recent precedent, looking instead to overruled
                                                                to enter. No authority of any type is cited [**116] for
       case); Rose v. Doctors Hosp., 801 S.W.2d 841, 852
                                                                this [*470] proposition that "open" courts really means
       (Tex. 1990) (Doggett, J., dissenting) (disapproving
                                                                "closed" courts. Nothing in the history or text of the pro-
       of rejection of recent controlling precedent).
                                                                vision justifies this reading nor has any Texas court pre-
       [**114] Bulldozing a new path through this juris-        viously attempted such converse interpretation. This
prudential forest, the majority vaults standing to a new        constitutional guarantee is used today as a two-edged
and remarkable prominence by suddenly discovering that          sword: the majority invokes the open courts provision to
it has not just one but two constitutional bases. And what      bar environmental groups from seeking judicial assistance
unusual constitutional pillars each of these new finds          in enforcing the laws, while in the very same opinion
represents. First, the proscription of the separation of        misinterpreting this provision to allow continued violation
powers doctrine against issuance of advisory judicial           of statutes protecting our precious natural resources. 48
opinions allegedly requires rigorous enforcement of
standing even when no party debates its existence. This                 48    See section I, supra.
link between standing and separation of powers is not
                                                                     Then, with a final flourish, standing is conveniently
predicated on any directly relevant prior court decision, 47
                                                                classified as a nonwaivable component of subject matter
but instead is entirely premised on an article openly an-
                                                                jurisdiction. Until today, Texas followed the rule, adopted
tagonistic to standing for environmental groups. S.W.2d
                                                                by many of our sister states considering the issue, that
at, citing Atonin Scalia, The Doctrine of Standing as an
                                                                objections to a party's standing are waived if not first
Essential Element of the Separation of Powers, 17 Suffolk
                                                                raised in the trial court. 49 No Texas case is cited for the
U. L. Rev. 881 (1983). The current majority may be the
                                                                proposition that standing is part of nonwaivable subject
first in the nation to anchor standing on this constitutional
                                                                matter jurisdiction [**117] because, until today, this
theory.
                                                                court had repeatedly stated precisely the very opposite --
                                                                that standing is not jurisdictional. 50
       47 The United States Supreme Court has clearly
       stated that standing does not implicate separation
                                                                        49 See, e.g., Brown v. Robinson, 354 So. 2d 272,
       of powers concerns. See Flast v. Cohen, 392 U.S.
                                                                        273 (Ala. 1977); Jackson v. Nangle, 677 P.2d 242,
       83, 100, 20 L. Ed. 2d 947, 88 S. Ct. 1942 (1968)
                                                                        250 n.10 (Alaska 1984); Torrez v. State Farm Mut.
       ("The question whether a particular person is a
                                                                        Auto Ins. Co., 130 Ariz. 223, 635 P.2d 511, 513
       proper party to maintain the action does not, by its
                                                                        n.2 (Ariz. App. 1981); Cowart v. City of West Palm
       own force, raise separation of powers problems
                                                                        Beach, 255 So. 2d 673, 675 (Fla. 1971); Lyons v.
       related to improper judicial interference in areas
                                                                        King, 397 So.2d 964 (Fla. App. 1981); Greer v.
       committed to other branches of . . . Govern-
                                                                        Illinois Housing Development Auth., 524 N.E.2d
       ment.").
                                                                        561, 582 (1988); Matter of Trust of Rothrock, 452
     [**115] The authorities addressing the prohibition                 N.W.2d 403, 405 (Iowa 1990); Tabor v. Council
on advisory opinions cited in support of this proposition,              for Burley Tobacco, Inc., 599 S.W.2d 466, 468
of course, in no way implicate the question of standing.                (Ky. App. 1980); Sanford v. Jackson Mall Shop-
This precedent-setting concern with advisory opinions                   ping Ctr. Co., 516 So. 2d 227, 230 (Miss. 1987);
contrasts markedly with the eagerness to issue this very                Fossella v. Dinkins, 66 N.Y.2d 162, 495 N.Y.S.2d
                                                                                                                    Page 30
                                        852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                   36 Tex. Sup. J. 607

       352, 485 N.E.2d 1017, 1019 (1985); Public                        permitted to waive, consent to, or neglect
       Square Tower One v. Cuyahoga County Bd. of                       to complain about an error at trial and then
       Revision, 516 N.E.2d 1280, 1281 n.2 (Ohio App.                   surprise his opponent on appeal by stating
       1986); Federman v. Pozsonyi, 365 Pa. Super. 324,                 his complaint for the first time.
       529 A.2d 530, 532 (Pa. Super. 1987); McMullen v.
       Zoning Board of Harris Township, 494 A.2d 502
       (Pa. Commw. Ct. 1985); International Depository,           Pirtle v. Gregory, 629 S.W.2d 919, 920 (Tex. 1982).
       Inc. v. State, 603 A.2d 1119, 1122 (R.I. 1992);           While this court has condemned "trial by ambush,"
       State v. Miller, 248 N.W.2d 377, 380 (S.D. 1976);         Gutierrez v. Dallas indep. School Dist, 729 S.W.2d 691,
       Princess Anne Hills Civ. League, Inc. v. Susan            693 [*471] (Tex. 1987), today the majority promotes
       Constant Real Estate Trust, 243 Va. 53, 413               "ambush on appeal."
       S.E.2d 599, 603 n.1 (Va. 1992); Tyler Pile Indus-
                                                                      Three purported policy justifications for the majori-
       tries, Inc. v. State Dep't of Revenue, 714 P.2d 123,
                                                                 ty's actions are offered, with not a single supporting au-
       128 (Wash. 1986); Poling v. Wisconsin Physicians
                                                                 thority. The first concern is that a strict standing rule is
       Serv., 120 Wis. 2d 603, 357 N.W.2d 293, 297-98
                                                                 necessary to prevent collusive litigation. Under Texas
       (Wisc. App. 1984). The majority's odd attempt to
                                                                 law, the filing of a fictitious suit constitutes contempt by
       distinguish some of these cases, all of which are
                                                                 counsel, Tex. R. Civ. P. 13, and may serve as the basis
       predicated in terms of standing, as involving
                                                                 for a host of sanctions, including dismissal with prejudice.
       solely the question of whether the litigant was a
                                                                 Tex. R. Civ. P. 215-2b(5). Nor [**120] does our Texas
       proper "real party in interest" has never been
                                                                 judiciary lack the ability to reject collusive litigation.
       drawn previously in the published decisions of any
                                                                 Felderhoff v. Felderhoff, 473 S.W.2d 928, 932 ("We be-
       Texas court addressing the question of standing.
                                                                 lieve that our laws and judicial system are adequate to
       See cases cited at notes 44, supra, and 50, infra.
                                                                 ferret out and prevent collusion. . . ."); cf. Whitworth v.
 [**118]
                                                                 Bynum, 699 S.W.2d 194, 197 (Tex. 1985) (refusing to
       50 See Texas Industrial Traffic League, 633
                                                                 uphold Texas Guest Statute because of danger of collu-
       S.W.2d at 822-23; Central Educ. Agency v. Burke,
                                                                 sion). Adhering to precedent today would in no way un-
       711 S.W.2d at 8; American General Fire & Cas-
                                                                 dermine the power to dismiss fraudulent suits.
       ualty Co. v. Weinberg, 639 S.W.2d 688; Cox v.
       Johnson, 638 S.W.2d at 868. To avoid overruling                The second virtue proclaimed for today's holding is
       these, the majority claims all three recognized that      the guarantee that the lower courts will be restrained from
       lack of subject matter jurisdiction can initially be      exceeding their jurisdictional powers. S.W.2d at . This
       raised on appeal. True, but ignored is the conclu-        concern is derived solely from the federal law mandate
       sion of each that subject matter jurisdiction cannot      that a federal appellate court is duty-bound to verify not
       be waived while standing can be.                          only its own jurisdiction but that of the lower courts as
                                                                 well. Federal courts, however, have limited jurisdiction;
     Texas has with good reason determined that standing
                                                                 Texas courts do not. Our Texas Constitution creates
is not excepted from traditional rules of appellate proce-
                                                                 courts of general jurisdiction, investing them with all of
dure. Our appellate system is predicated on the require-
                                                                 the "judicial power of this State." Tex. Const. art. V, § 1.
ment of presentation of complaints to the lower court
                                                                 The differences are evident in our procedural rules. While
coupled with preservation and briefing in the reviewing
                                                                 a federal court must affirmatively ascertain jurisdiction
court. See Tex. R. App. P. 52; 74(d), 131(e). Appellate
                                                                 over parties appearing before it, a Texas court's jurisdic-
courts face considerable difficulties in deciding an issue
                                                                 tion [**121] is presumed until proven lacking by a
not presented to the trial court; ordinarily, the necessary
                                                                 contesting party. See Tex. R. Civ. P. 120a.
facts will not be fully developed. The unstated effect of
today's opinion is to require trial courts to develop facts as        Lastly, the majority expresses concern as to the res
to undisputed issues or risk subsequent appellate [**119]        judicata effect on other potential litigants of a judgment
reversal. This is not an effective use of our limited judicial   rendered in the absence of genuine standing. S.W.2d at .
resources.                                                       Aware of this concern, the very federal judiciary that this
                                                                 majority is so eager to emulate has failed to perceive it as
     The requirement that issues first be presented to the
                                                                 a problem of significance. International Union, United
trial court serves another function -- preventing parties
                                                                 Automobile, Aerospace and Agricultural Implement
from "laying behind the log":
                                                                 Workers of America v. Brock, 477 U.S. 274, 290, 91 L. Ed.
                                                                 2d 228, 106 S. Ct. 2523 (1986). If representation is in-
            The reason for the requirement that a
                                                                 adequate, or a conflict of interest between members exists,
        litigant preserve a trial predicate for com-
                                                                 any judgment will have minimal preclusive effect. Id.
        plaint on appeal is that one should not be
                                                                 Instead of completely barring access to the courts, pro-
                                                                                                                    Page 31
                                        852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                   36 Tex. Sup. J. 607

cedural safeguards can ameliorate any potentially over-           LeCroy v. Hanlon, 713 S.W.2d 335, 339 (Tex. 1986).
broad effects. See generally Charles A. Wright, Arthur R.
                                                                      This constitutional mandate is reflected in decisions
Miller & Edward H. Cooper, 18 Federal Practice & Pro-
                                                                 of this court adopting an "open courts" approach to
cedure § 4456 at 490-94 (1981 & Supp. 1991).
                                                                 standing in general and associational standing in particu-
     The manufactured nature of the majority's concerns          lar. On several occasions, we have recognized the power
becomes all the more evident when the real world expe-           of the [**124] Legislature to exempt litigants from proof
rience of Texas is considered. The majority is unable to         of "special injury." Scott v. Board of Adjustment, 405
point to a single example of collusion during the three          S.W.2d 55, 56 (Tex. 1966) (standing may be shown even
[**122] decades our Texas rule, which allows the issue           in the absence of particular damage); Spence v. Fenchler,
of standing to be waived, has been in place. During this         107 Tex. 443, 180 S.W.597 (1915) (under statute, "any
period there have likewise been no examples of lower             citizen" able to seek injunction, without showing partic-
courts making a grab for extrajurisdictional power, nor of       ular interest or personal damage). 51 In enacting the Uni-
oppressed litigants shackled by the res judicata effect of       form Declaratory Judgments Act, the Texas Legislature
contrived litigation.                                            has granted a broad right of standing: any person "whose
                                                                 rights, status or other legal relations are affected by a
     In defining state requirements for standing, we are in
                                                                 statute" may seek a declaration of those rights. Tex. Civ.
no way bound by federal jurisprudence founded upon
                                                                 Prac. & Rem. Code § 37.004 (emphasis supplied).
converse jurisdictional principles from our own. Texas
courts can afford their citizens access to justice in cir-
                                                                        51 Our past acknowledgement of the legislative
cumstances where they would have been unable to estab-
                                                                        power to expand access to Texas courts is incon-
lish standing in the federal courts. See City of Los Angeles
                                                                        sistent with today's conclusion that we must nar-
v. Lyons, 461 U.S. 95, 113, 75 L. Ed. 2d 675, 103 S. Ct.
                                                                        rowly limit access. See Mark V. Tushnet, The New
1660 (1983) ("state courts need not impose the same
                                                                        Law of Standing: A Plea for Abandonment, 62
standing . . . requirements that govern federal-court pro-
                                                                        Corn. L. Rev. 663 (1977) (because court decisions
ceedings"); Doremus v. Board of Education, 342 U.S.
                                                                        do not question legislative power to confer
429, 434, 96 L. Ed. 475, 72 S. Ct. 394 (1952) (state courts
                                                                        standing by statute, they suggest that standing
not restrained by "case or controversy" limitations of
                                                                        rules are not constitutionally grounded).
Federal Constitution); Greer v. Illinois Housing Devel-
opment Auth., 122 Ill.2d 462, 524 N.E.2d 561, 120 Ill.                 [**125] This court has previously extended its
Dec. 531 (1988) ("We are not, of course, required to fol-        "open courts" approach to groups representing the inter-
low the Federal law on issues of justiciability and stand-       ests of their members. 52 In Texas Highway Comm'n v.
ing."). [**123]                                                  Texas Ass'n of Steel Importers, 372 S.W.2d 525, 530-31
                                                                 (Tex. 1963), we permitted a business association to chal-
     The differences between our Texas Constitution and
                                                                 lenge an administrative order. Although the order ad-
the Federal Constitution not only justify, but also require,
                                                                 dressed only the import of foreign products for highway
that citizen groups be accorded a broader right of access
                                                                 construction, this court recognized standing of an organ-
[*472] to our state courts. The Texas Constitution con-
                                                                 ization whose interest in foreign imports was not so lim-
tains no express limitation of courts' jurisdiction to "cas-
                                                                 ited:
es" or "controversies," as provided by the federal charter.
U.S. Const. art. III, § 2. Instead, it affirmatively protects
                                                                        52     Despite the participation of associational
the rights of litigants to gain access to our judicial system:
                                                                        litigants before this court, we have never before
                                                                        questioned standing on our own motion. See, e.g.,
           All courts shall be open, and every
                                                                        Austin Indep. Sch. Dist. v. Sierra Club, 495 S.W.2d
        person for an injury done him, in his lands,
                                                                        878 (Tex. 1973).
        goods, person or reputation, shall have
        remedy by due course of law.
                                                                                Some of [the respondents] are
                                                                        owners of imported foreign manufactured
Tex. Const. art. 1, § 13. As this court has recognized,
                                                                        products suitable for highway construction
          The provision's wording and history
                                                                        purposes. All of them are actively engaged
       demonstrate the importance of the right of
                                                                        in the sale and use of imported manufac-
       access to the courts. . . . The right of access
                                                                        tured products. . . .Such parties clearly
       to the courts has been at the foundation of
                                                                        have the right and litigable interest to have
       the American democratic experiment.
                                                                        the challenged . . [**126] . Order de-
                                                                        clared null and void.
                                                                                                                   Page 32
                                       852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                  36 Tex. Sup. J. 607

                                                               ceived but as yet totally unrealized woes, the majority
                                                               imposes a difficult to meet, easy to manipulate standard
Id. at 531. Similarly, in Touchy v. Houston Legal Foun-        drawn from federal law "that lends itself to our use." Id. at
dation, 432 S.W.2d 690 (Tex. 1968), the court considered       . Never needing an invitation to impose more federal
whether an organization of attorneys had standing to           requirements on Texas citizens, the majority writes into
maintain a suit against a charitable corporation to restrain   our Texas law books the confused and troubling federal
violations of ethical canons governing the practice of law.    standing limitations. Not surprisingly, that law has taken a
Based solely on "the special interest attorneys have in        regressive turn, denying standing to public interest asso-
their profession," the court held standing was established.    ciations, including those seeking to protect the environ-
                                                               ment. See Gene R. Nichol, Jr., Abusing Standing: A
     The "open courts" approach 53 of Touchy and Texas
                                                               Comment on Allen v. Wright, 133 U. Pa. L. Rev. 635, 659
Highway Commission is quite sufficient to allow TAB
                                                               (1985) ("One could perhaps be forgiven for confusing
access to the Texas [*473] courts. 54 These two associ-
                                                               standing's agenda with that of the New Right.").
ational standing cases are all but ignored today, brushed
aside as setting forth "no particular test." S.W.2d at .            The benefits of permitting an association to represent
                                                               the concerns of its members are manifest. As recognized
       53 See Safe Water Foundation of Texas v. City           in United Auto Workers, 477 U.S. at 290, "The primary
       of Houston, 661 S.W.2d 190, 193 (Tex.                   reason people join an organization is often to create an
       App.--Houston [1st Dist.] 1983, writ ref'd n.r.e.)      effective [**129] vehicle for vindicating interests that
       (recognizing precedent of this court as according       they share with others." Judicial economy is promoted
       broad right of standing), app. dism'd, 469 U.S. 801     when one litigant can, in a single lawsuit, adequately
       (1983); Texas Industrial Traffic League v. Rail-        represent many members with similar interests, thus
       road Comm'n of Texas, 628 S.W.2d 187 (Tex.              avoiding repetitive and costly actions. The wider range of
       App.--Austin) (discussing Supreme Court's ex-           resources often available for associations enhances their
       pansive approach to standing to allow access to         effectiveness in litigation:
       Texas courts), rev'd, 633 S.W.2d 821 (Tex. 1982)
       (per curiam), overruled by Tex. Ass'n of Bus. v.                   Special features, advantageous both to
       Tex. Air Control Bd., S.W.2d (Tex. 1992).                      the individuals represented and to the ju-
 [**127]                                                              dicial system as a whole, . . .distinguish
       54 Accord Hunt v. Bass, 664 S.W.2d 323, 324                    suits by associations on behalf of their
       (Tex. 1984) (recognizing statutorily-granted                   members . . . . An association suing can
       standing of litigants to seek mandamus to reduce               draw upon a pre-existing reservoir of ex-
       substantial delays in court operations); Safe Water            pertise and capital. "Besides financial re-
       Foundation of Texas v. City of Houston, 661                    sources, organizations often have special-
       S.W.2d 190 (Tex. App.--Houston [1st Dist.], writ               ized expertise and research resources re-
       ref'd n.r.e.), app. dism'd, 469 U.S. 801 (1983)                lating to the subject matter of the lawsuit
       (drinking water consumer group had standing to                 that individual plaintiffs lack." . . . These
       contest fluoridation of city water).                           resources assist both courts and plaintiffs.
     Yet in these cases in which the merits of standing are
preserved for appellate court review, the Texas test ap-
                                                                Id. at 289-90. In some cases, an injury that is substantial
plied has not been complicated. We simply look to
                                                               as to many may have an individual financial impact too
whether a party has a stake in the action sufficient to
                                                               small to make a challenge economically feasible. Asso-
ensure adversarial presentation of the issues and to
                                                               ciational representation may be the only means of re-
whether the court's judgment will have any effect on those
                                                               dressing conduct when the harm is limited in degree but
before it. See Board of Water Engineers v, City of San
                                                               substantial segments of society are affected. Additionally,
Antonio, 155 Tex. 111, 283 S.W.2d 722, 724 (1955)("there
                                                               [**130] in challenging policies of government, organi-
shall be a real controversy between the parties, which . . .
                                                               zations are generally less susceptible than individuals to
will be actually determined by the judicial declaration
                                                               retaliation by the bureaucrats they challenge.
sought."). Because both of these considerations are met
in the instant case, reference to federal law is wholly             These benefits are ignored as the majority declares
[**128] unnecessary.                                           that henceforth the right of associations to bring suit in
                                                               Texas courts will be constricted by a three-part federal test
     Today, however, to justify meddling with Texas
                                                               set forth in Hunt v. Washington State Apple Advertising
standing law, the majority declares that "we foresee dif-
                                                               Comm'n, 432 U.S. 333, 343, 53 L. Ed. 2d 383, 97 S. Ct.
ficulties" not here with TAB, but in future cases involving
                                                               2434 (1977), requiring that "(a) its members would oth-
organizational standing. S.W.2d at . To cure these per-
                                                                                                                      Page 33
                                         852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                    36 Tex. Sup. J. 607

erwise have standing to sue in their own right; (b) the                  difficult enough without the compounding effect
interests it seeks to protect are germane to the organiza-               of constitutional attribution.").
tion's [*474] purpose; and (c) neither the claim asserted
                                                                         [**133] Moreover, in turning to the federal law of
nor the relief requested requires the participation of indi-
                                                                  standing, the majority invokes a doctrine that has been
vidual members in the lawsuit." 55
                                                                  criticized more heavily and justifiably than perhaps any
                                                                  other. See, e.g., Gene R. Nichol, Jr., Rethinking Standing,
        55 These requirements are allegedly necessary
                                                                  72 Cal. L. Rev. 68, 68 (1984); Mark V. Tushnet, The
        to protect "the members' best interest." S.W.2d at .
                                                                  "Case or Controversy" Controversy, 93 Harv. L. Rev.
        Perhaps an organization's members are in a better
                                                                  1698, 1713-21 (1980). Even the United States Supreme
        position than this court to determine what is in
                                                                  Court has recognized that federal standing requirements
        their best interest.
                                                                  have an "iceberg quality," Flast v. Cohen, 392 U.S. 83, 94,
      Yet the Hunt test won't hunt in [**131] Texas. It is        20 L. Ed. 2d 947, 88 S. Ct. 1942 (1968); yet the majority
adopted purportedly because of the similarities between           fails to navigate a course, not unlike the captain of the
the state and federal constitutional underpinnings of the         Titanic, that would steer Texas well away from this po-
standing doctrine. Two critical factors are ignored: (1) the      tential disaster.
significant differences between the Texas and United
                                                                       The concept of standing is "employed to refuse to
States Constitutions and (2) the fact that much of federal
                                                                  decide the merits of a legal claim." Charles A. Wright,
standing doctrine is not mandated by the federal charter,
                                                                  Arthur R. Miller & Edward H. Cooper, Federal Practice &
but is imposed solely on the grounds of judicial "pru-
                                                                  Procedure § 3531, at 338. Critics of the doctrine's com-
dence." Warth v. Seldin, 422 U.S. 490, 498, 45 L. Ed. 2d
                                                                  plexity and uncertainty have recognized how subject it is
343, 95 S. Ct. 2197 (1974) ("This [standing] inquiry in-
                                                                  to manipulation: "standing . . . is no more than a conven-
volves both constitutional limitations on federal-court
                                                                  ient tool to avoid uncomfortable issues or to disguise a
jurisdiction and prudential limitations on its exercise.").
                                                                  surreptitious ruling on the merits." Id. at 348 (citing
      The majority works a grave disservice to our Texas          commentaries). 57 Important rights can be left unpro-
Constitution by equating our open courts provision, af-           tected [**134] [*475] as a result. Id. at § 3531.3,
firmatively guaranteeing all Texans access to our judicial        416-17 ("Standing decisions present courts with an op-
system, with an express federal constitutional limitation         portunity to avoid the vindication of unpopular rights, or
on the right to seek redress in court. Despite the fact that      even worse to disguise a decision on the merits in . . .
the two provisions are vastly different in language, history      opaque standing terminology . . . . Unarticulated and
and purpose, the majority nonetheless determines to "look         arbitrary predilection, cast as standing, defeats rights that
to the more extensive jurisprudential experience of the           deserve judicial protection.").
federal courts" to determine standing. This is clearly an
erroneous course. See Davenport v. [**132] Garcia,                       57 See also, e.g., Valley Forge Christian Col-
834 S.W.2d 4, (Tex. 1992, orig. proceeding) (in blindly                  lege v. Americans United for Separation of
adhering to federal law, "based on different language,                   Church and State, 454 U.S. 464, 490, 70 L. Ed. 2d
different history and different cases, "from our treasured               700, 102 S. Ct. 752 (1982) (Brennan, J., dissent-
state heritage, law and institutions . . . [we] derive nothing.          ing); Abram Chayes, The Supreme Court, 1981
. . .").                                                                 Term -- Foreword: Public Law Litigation and the
                                                                         Burger Court, 96 Harv. L. Rev. 4, 23 (1982)
     Even the federal constitutional constraint is a simple
                                                                         (Having ritually recited the standing formula, "the
one, looking to whether "the plaintiff has 'alleged such a
                                                                         Court then chooses up sides and decides the
personal stake in the outcome of the controversy' as to
                                                                         case."); Michael A. Wolff, Standing to Sue: Ca-
warrant his invocation of the court's remedial powers on
                                                                         pricious Application of Direct Injury Standard, 20
his behalf." Warth, 422 U.S. at 498, quoting Baker v.
                                                                         St. L. U. L.J. 663, 678 (standing barrier "raised or
Carr, 369 U.S. 186, 204, 7 L. Ed. 2d 663, 82 S. Ct. 691
                                                                         lowered based on the degree of hostility to, or
(1962). In fact, this bare-bones test closely resembles the
                                                                         favoritism for, consideration of the issues on their
approach that Texas courts have long chosen to follow. To
                                                                         merits"); Albert Broderick, The Warth Optional
the extent Hunt constructs additional barriers to access to
                                                                         Standing Doctrine: Return to Judicial Suprema-
our judicial system, they are wholly court-created. 56 No
                                                                         cy? 25 Cath. U. L. Rev. 467, 504, 516-17 (1976).
justification for their adoption is contained in the majority
opinion.                                                                [**135] Even during the three years that this par-
                                                                  ticular cause has been pending here, the federal courts
        56 Charles A. Wright, Arthur R. Miller & Ed-              have been hard at work to manipulate standing require-
        ward H. Cooper, Federal Practice & Procedure, §           ments to bar public interest groups from seeking judicial
        3531.3, at 418 ("The problems [of standing] are           vindication of rights common to their members. In Lujan
                                                                                                                Page 34
                                      852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                 36 Tex. Sup. J. 607

v. National Wildlife Federation, ___ U.S. ___, 497 U.S.       standing as a procedural issue, then unnecessarily modi-
871, 110 S.Ct. 3177, 111 L.Ed.2d 695 (1990), a nation-        fies all Texas precedent addressing the merits of standing.
ally-recognized environmental group challenged a new          Without explanation, today's opinion simply photocopies
development classification for certain federal wilderness     into our Texas law books the federal law of standing with
areas that allegedly violated several federal statutes. The   all of its much-criticized complexities. Once again the
suit was dismissed for lack of standing based upon a rigid    majority chooses more Washington wisdom for Texas
construction of the requirement of injury to the associa-     when what we need is more Texas thinking in Washing-
tion's members. This decision has been widely criticized      ton. See Bexar County Sheriff's Civ. Service Comm'n v.
as significantly impairing the ability of public interest     Davis, 802 S.W.2d 659, 665 (Tex. 1990) (Doggett, J.,
groups to represent their members, particularly those that    dissenting).
seek to protect this nation's environment and natural re-
                                                                   While today the corporate members of the Texas
sources. 58 Today the majority eagerly positions itself to
                                                              Association of Business are permitted to challenge the
give the same treatment to those Texans who would peti-
                                                              bureaucracy, tomorrow this same reasoning will be em-
tion our state courts to protect the public interest. The
                                                              ployed to bar public interest, neighborhood, environ-
majority not only conspicuously relies on Lujan, S.W.2d
                                                              mental and consumer groups from vindicating the rights
at, but also embraces the extremist anti-environmental
                                                              of their members. Today's opinion not only repudiates our
stance propounded [**136] in an article openly critical
                                                              past "open courts" approach to access to the judicial sys-
of judicial opinions permitting citizens to complain of
                                                              tem but also eliminates the long-recognized [**138]
harm inflicted upon our natural resources. Id. at, citing
                                                              appellate requirement that [*476] error be preserved.
Atonin Scalia, The Doctrine of Standing as an Essential
                                                              The majority has charged well beyond traditional con-
Element of the Separation of Powers, 17 Suffolk U. L.
                                                              straints in its writing.
Rev. 881 (1983).
                                                                   To the extent this case is about standing, it is about
       58 See Katherine B. Steuer and Robin L. Juni,          standing still, about closing the courthouse door, once
       Court Access for Environmental Plaintiffs:             standing open. For today the majority extends a standing
       Standing Doctrine in Lujan v. National Wildlife        invitation to those who would harm our environment to
       Federation, 15 Harv. Envtl. L. Rev. 187, 232-33        act without fear of citizen challenge in the Texas courts.
       (1991); Sarah A. Robichaud, Note, Lujan v. Na-
       tional Wildlife Federation: The Supreme Court          IV. Conclusion
       Tightens the Reins on Standing for Environmental
                                                                   Today the environment is the immediate victim.
       Groups, 40 Cath. U. L. Rev. 443, 470-74 (1991);
                                                              Those who pollute our rivers, release toxins into our air,
       V. Maria Cristiano, Note, In Determining an En-
       vironmental Organization's Standing to Challenge       and damage our land cannot be promptly penalized. In-
       Government Actions Under the Land Withdrawal           stead, only after the very slow wheels of our judicial
                                                              system have creaked to a stop will violators of environ-
       Review Program, the Use of Lands in the Vicinity
                                                              mental protection laws be held accountable.
       of Lands Adversely Affected by the Order of the
       Bureau of Land Management Does Not Constitute               Yet the environment is not the whole story. Much as a
       Direct Injury--Lujan v. National Wildlife Federa-      river may seem pure and clear even at the place where
       tion, 2 Seton Hall Const. L.J. 445 (1991); Michael     illegal sewage is being pumped into it, the danger from a
       J. Shinn, Note, Misusing Procedural Devices to         court's opinion may not be immediately apparent on its
       Dismiss an Environmental Lawsuit, 66 Wash. L.          surface. Only after the reasoning is applied in other cases
       Rev. 893, 904-12 (1991); Lynn Robinson O'Don-          is the severity of the resulting harm to our system of jus-
       nell, Note, New Restrictions in Environmental          tice revealed. Today's impairment of the ability of con-
       Litigation: Standing and Final Agency Action Af-       cerned citizens to vindicate the rights of many in our
       ter Lujan v. National Wildlife Federation, 2 Vill.     [**139] courts and the majority's knockout punch to the
       Envtl. L.J. 227, 251 (1991); Bill J. Hays, Com-        right of trial by jury will unfold in future cases to bar
       ment, Standing and Environmental Law: Judicial         participation of ordinary citizens in Texas courts.
       Policy and the Impact of Lujan v. National Wild-
       life Federation, 39 Kan. L. Rev. 997, 1042-43              The mess in Texas is not only with our environment
       (1991).                                                but with the misinterpretation of the law.

     [**137] Rather than a careful consideration of our           Lloyd Doggett
Texas precedent and our unique Texas Constitution, today          Justice
Texans are handed yet another unthinking embrace of
federal law. Claiming "guidance" from federal precedent,          Opinion Delivered: March 3, 1993
S.W.2d at, the majority overrules all Texas cases treating        CONCURRING AND DISSENTING OPINION
                                                                                                                   Page 35
                                       852 S.W.2d 440, *; 1993 Tex. LEXIS 22, **;
                                                  36 Tex. Sup. J. 607

    Rose Spector                                               polluters will be left with little if any incentive to timely
                                                               comply with environmental laws and regulations.
     I agree with the substance of the concurring and
dissenting opinion by Justice Doggett. I write separately,          The effects of today's decision, though, extend far
however, to explain why I would uphold the statutory           beyond the statutes at issue in this case. By rejecting these
requirement that those who run afoul of environmental          prepayment requirements, without regard to the state
laws make timely payment of administrative penalties           interest involved, the majority has struck a severe blow to
before seeking judicial review.                                this state's ability to enforce a broad range of regulations
                                                               in the public interest. The similar statutory provisions
     In two other causes decided today, this court has
                                                               identified in the opinion by Justice Doggett, ___ S.W.2d
considered open courts challenges to the statutory re-
                                                               at ___, [**141] cannot be dismissed as minor techni-
quirement that state mineral lessees prepay administrative
                                                               calities; they are carefully-crafted measures that the leg-
deficiency assessments before seeking judicial review of
                                                               islature considered vital to protect the public from recal-
those assessments. State v. Flag-Redfern Oil Co. and State
                                                               citrant lawbreakers. Casting those provisions aside will
v. Rutherford Oil Corp., ___ S.W.2d ___ (Tex. 1993)
                                                               seriously disrupt the effective operation of our state gov-
(considering Tex. Nat. Res. Code § 52.137). Our analysis
                                                               ernment.
in those cases focused on the [*480] public interest at
stake: the State's only interest in the prepayment re-              The Texas Constitution cannot be construed in ab-
quirement, we noted, [**140] was its financial interest        solutes. The basic right of access to the courts must be
in immediate access to disputed royalty payments. Id. at       balanced against the need to protect the public's health and
___. Thus, we concluded that the prepayment requirement        safety. While the restriction at issue in this case may be
of section 52.137 was no different, in constitutional terms,   substantial, I would hold that the public's interest in clean
from the litigation tax disapproved in LeCroy v. Hanlon,       air and water, combined with the due process afforded to
71 S.W.2d 335, 342 (Tex. 1986). Id.                            TAB's members in the administrative process, tips the
                                                               balance in favor of the prepayment requirement. I there-
     The present case, in contrast, does not involve a liti-
                                                               fore dissent.
gation tax. The Clean Air Act, the Solid Waste Disposal
Act, and the Water Quality Act embody this state's                 Rose Spector
commitment to protect the environment; and the pre-
                                                                   Justice
payment requirements struck down today were intended
to give force to that commitment, not to raise revenue.            OPINION DELIVERED: March 3, 1993
Without the need to prepay administrative penalties,
                                                                                                                        Page 1




                                        LexisNexis (R) Texas Annotated Statutes
                                 Copyright © 2014 by Matthew Bender & Company, Inc.
                                           a member of the LexisNexis Group
                                                  All rights reserved.

                          *** This document is current through the 2013 3rd Called Session ***

                                      CIVIL PRACTICE AND REMEDIES CODE
                                    TITLE 2. TRIAL, JUDGMENT, AND APPEAL
                                            SUBTITLE C. JUDGMENTS
                                    CHAPTER 37. DECLARATORY JUDGMENTS

                                   GO TO TEXAS CODE ARCHIVE DIRECTORY

                                      Tex. Civ. Prac. & Rem. Code § 37.002 (2014)

§ 37.002. Short Title, Construction, Interpretation

   (a) This chapter may be cited as the Uniform Declaratory Judgments Act.
     (b) This chapter is remedial; its purpose is to settle and to afford relief from uncertainty and insecurity with respect to
rights, status, and other legal relations; and it is to be liberally construed and administered.
    (c) This chapter shall be so interpreted and construed as to effectuate its general purpose to make uniform the law of
those states that enact it and to harmonize, as far as possible, with federal laws and regulations on the subject of declar-
atory judgments and decrees.
                                                                                                                      Page 1




                                        LexisNexis (R) Texas Annotated Statutes
                                 Copyright © 2014 by Matthew Bender & Company, Inc.
                                           a member of the LexisNexis Group
                                                  All rights reserved.

                          *** This document is current through the 2013 3rd Called Session ***

                                      CIVIL PRACTICE AND REMEDIES CODE
                                    TITLE 2. TRIAL, JUDGMENT, AND APPEAL
                                            SUBTITLE C. JUDGMENTS
                                    CHAPTER 37. DECLARATORY JUDGMENTS

                                   GO TO TEXAS CODE ARCHIVE DIRECTORY

                                      Tex. Civ. Prac. & Rem. Code § 37.004 (2014)

§ 37.004. Subject Matter of Relief

   (a) 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.
    (b) A contract may be construed either before or after there has been a breach.
    (c) Notwithstanding Section 22.001, Property Code, a person described by Subsection (a) may obtain a determination
under this chapter when the sole issue concerning title to real property is the determination of the proper boundary line
between adjoining properties.
                                                                                                                    Page 1
                                   985 S.W.2d 149, *; 1998 Tex. App. LEXIS 7354, **




                    Texas Department of Public Safety, Appellant v. Charles V. Moore, Appellee

                                                   NO. 03-98-00135-CV

                         COURT OF APPEALS OF TEXAS, THIRD DISTRICT, AUSTIN

                                      985 S.W.2d 149; 1998 Tex. App. LEXIS 7354


                                                November 30, 1998, Filed

PRIOR HISTORY:          [**1] FROM THE DIS-                    section 411.007 of the [**2] Texas Government Code
TRICT COURT OF TRAVIS COUNTY, 250TH JUDI-                      and the UDJA; (2) the trial court's decision to order the
CIAL DISTRICT. NO. 95-00349, HONORABLE PAUL                    four positions vacated; and (3) the trial court's discretion
R. DAVIS, JR., JUDGE PRESIDING.                                in awarding attorney's fees. We will affirm the trial court's
                                                               order in part and reverse in part.
DISPOSITION:           Affirmed in Part; Reversed and
                                                                   BACKGROUND
Rendered in Part.
                                                                     In October 1993, the Department announced a va-
                                                               cancy in the position of Assistant Commander of the
COUNSEL: FOR APPELLANT: The Honorable Dan                      Criminal Intelligence Service. Commander Don Plemons,
Morales, Attorney General, Mr. Martin J. Thompson, Jr.,        the officer charged with making the recommendation for
Assistant Attorney General, Austin, TX.                        appointment to fill the vacancy, orally interviewed seven
                                                               candidates. Among these candidates were Charles Moore,
FOR APPELLEE: Mr. Paul Dodson, White, Huseman &                a white male, and Enrique Garcia, an Hispanic male.
Pletcher, Corpus Christi, Tx.                                  Plemons recommended Garcia, and Garcia was appointed
                                                               to the position. Moore sued in district court.
JUDGES: Before Justices Powers, Jones and Kidd.
                                                                    Moore originally brought suit under the Human
                                                               Rights Act claiming he was the victim of reverse racial
OPINION BY: MACK KIDD
                                                               discrimination when he was denied promotion in favor of
                                                               Garcia. 1 Moore later amended his petition to include a
OPINION
                                                               declaratory judgment claim based upon the Department's
      [*152] Appellant, the Texas Department of Public         alleged failure to comply with section 411.007(b) of the
Safety (the "Department"), failed to recommend appellee        Texas Government Code, which requires that the De-
Charles Moore for promotion to the position of Assistant       partment make promotions or appointments based upon
Commander of the Criminal Intelligence Service. Moore          merit determined by examination. [**3] See Tex. Gov't
sued under the Human Rights Act claiming reverse dis-          Code Ann. § 411.007(b) (West 1998). The trial court
crimination and, by later amendment, under the Uniform         granted cross motions for summary judgment; declaring
Declaratory Judgments Act (the "UDJA") seeking a dec-          that the Department failed to comply with all the re-
laration that the Department acted outside its statutory       quirements of section 411.007(b) in promoting Garcia to
authority in filling four high-ranking positions without       Assistant Commander of the Criminal Intelligence Ser-
examining applicants based on merit. The trial court           vice, and dismissing Moore's discrimination claim for
granted summary judgment against Moore on the dis-             failure to exhaust the necessary administrative remedies. 2
crimination claim. The trial court also granted partial        Moore does not appeal the dismissal of his discrimination
summary judgment in favor of Moore, declaring that the         claim.
Department acted outside its statutory authority in filling
the four positions, and ordered those positions vacated.              1      The relevant statute provides:
The Department appeals. In its points of error, the De-
partment challenges (1) the trial court's jurisdiction under
                                                                                                                    Page 2
                                    985 S.W.2d 149, *; 1998 Tex. App. LEXIS 7354, **


              An employer commits an unlawful employ-            norms for the Department in promoting its employees,
         ment practice if because of race, color, disability,    and fails to create any cause of action in Moore. Addi-
         religion, sex, national origin, or age the employer:    tionally, the Department contends that the UDJA likewise
                                                                 fails to create a cause of action in Moore, and cannot be
              (1) fails or refuses to hire an individual, dis-
                                                                 used as a vehicle to interpret section 411.007(b) of the
         charges an individual, or discriminates in any
                                                                 Labor Code. The determination of jurisdiction under the
         other manner against an individual in connection
                                                                 UDJA is a question of law. See Ainsworth v. Oil City
         with compensation or the terms, conditions, or
                                                                 Brass Works, 271 S.W.2d 754, 760 (Tex. Civ.
         privileges of employment; or
                                                                 App.--Beaumont 1954, no writ). We will look first to the
              (2) limits, segregates, or classifies an em-       jurisdiction of the trial court before deciding whether the
         ployee or applicant for employment in a manner          court erred in entering its order.
         that would deprive or tend to deprive an individual
                                                                     [**6]     Jurisdiction and the Declaratory Judg-
         of any employment opportunity or adversely af-
                                                                 ments Act
         fect in any other manner the status of an employee.
                                                                      Enacted in 1943, the UDJA confers on Texas courts
             Tex. Labor Code Ann.          § 21.051 (West
                                                                 the authority to "declare rights, status, and other legal
         1996).
                                                                 relations whether or not further relief is or could be
 [**4]
                                                                 claimed." Tex. Civ. Prac. & Rem. Code Ann. § 37.003
         2     An employee of the State of Texas who al-
                                                                 (West 1997). The Legislature intended the UDJA to be
         leges employment discrimination must file a
                                                                 remedial, to settle and afford relief from uncertainty and
         complaint with the Texas Commission on Human
                                                                 insecurity with respect to rights, and to be liberally con-
         Rights not later than the 180th day after the date
                                                                 strued. Tex. Civ. Prac. & Rem. Code Ann. § 37.002
         the alleged unlawful employment practice oc-
                                                                 (West 1997). Describing the subject matter available for
         curred. Tex. Labor Code Ann. § 21.202 (West
                                                                 relief, the UDJA provides:
         1996). Furthermore, any federal complaint of
         employment discrimination shall be filed with the            A person interested under a deed, will, written con-
         Equal Employment Opportunity Commission                 tract, or other writings constituting a contract or whose
         within 180 days; except that if the employee files      rights, status, or other legal relations are affected by a
         with a state agency then the employee has 300           statute, municipal ordinance, contract, or franchise may
         days to file. 42 U.S.C.S. § 2000e-5(c) (1989).          have determined any question of construction or validity
                                                                 arising under the instrument, statute, ordinance, contract,
              A plaintiff's failure to file a complaint and
                                                                 or franchise and obtain a declaration of rights, status, or
         pursue administrative remedies creates a jurisdic-
                                                                 other legal relations thereunder.
         tional bar to his claim. See Schroeder v. Texas Iron
         Works, 813 S.W.2d 483, 488 (Tex. 1991).                     Tex. Civ. Prac. & Rem. Code Ann. § 37.004 (West
                                                                 1998) (emphasis added).
      Before the trial court rendered final judgment, the
Department filled the positions of Commander of the                   A suit under the UDJA is not confined to cases in
Criminal Intelligence Service, Commander of Narcotics,           which the parties have a cause of action apart from [**7]
and Assistant [*153] Commander of Narcotics; also by             the Act itself. Transportation Ins. Co. v. Franco, 821
appointment, and also, allegedly, without a competitive          S.W.2d 751, 754 (Tex. App.--Amarillo 1992, writ denied).
examination. The trial court allowed amendment of                A declaratory judgment, however, is appropriate only if
Moore's petition to ask for declaratory relief [**5] re-         (1) a justiciable controversy exists as to the rights and
garding these three additional positions. Subsequently, the      status of the parties; and (2) the controversy will be re-
trial court rendered final judgment declaring that the           solved by the declaration sought. See Bonham State Bank
Department failed to comply with the competitive ex-             v. Beadle, 907 S.W.2d 465, 467 (Tex. 1995) (citing Texas
amination requirements of section 411.007(b) in hiring           Ass'n of Bus. v. Texas Air Control Bd., 852 S.W.2d 440,
the four aforementioned positions, and ordered them              446 (Tex. 1993)); see also City of Austin v. L.S. Ranch,
vacated and filled through competitive examination. The          Ltd., 970 S.W.2d 750, 754, (Tex. App.--Austin 1998, no
trial court also awarded Moore attorney's fees. The De-          pet.). A justiciable controversy is one in which a real and
partment brings this appeal.                                     substantial controversy exists involving a genuine conflict
                                                                 of tangible interest and not merely a theoretical dispute.
DISCUSSION                                                       See Beadle, 907 S.W.2d at 467. A justiciable controversy
                                                                 must be distinguished from an advisory opinion, which is
 The Department initially challenges the trial court's ju-       prohibited under both the Texas and federal constitutions.
risdiction to hear Moore's claim. Specifically, the De-          See Texas Air Control Bd., 852 S.W.2d at 444. A judg-
partment argues that section 411.007(b) only establishes         ment under the UDJA depends on a finding that the issues
                                                                                                                      Page 3
                                    985 S.W.2d 149, *; 1998 Tex. App. LEXIS 7354, **


are not hypothetical or contingent, and the questions            tional rules to future appointment vacancies. The De-
presented must resolve an actual controversy. Empire             partment has already taken an adverse stance to Moore's
Life Ins. Co. v. Moody, 584 S.W.2d 855, [**8] 858                position by allegedly not requiring competitive examina-
(Tex. 1979). A justiciable controversy, however, does not        tions when filling the initial vacancy. The Department's
necessarily equate with a fully ripened cause of action:         repetition of the same behavior in filling three subsequent
                                                                 positions emphasizes the actuality of the controversy.
It is not necessary that a person who seeks a declaration of     There is clearly a justiciable controversy sufficient to
rights under this statute shall have incurred or caused          invoke the court's jurisdiction through the UDJA to clarify
damage or injury in a dispute over rights and liabilities,       Moore's, and any other applicant's, rights as they pertain
but it has frequently been held that an action for declara-      to the Department's hiring procedure. Furthermore, the
tory judgment would [*154] lie when the fact situation           trial court's declaration resolves the controversy by in-
manifests the presence of 'ripening seeds of a controver-        forming the Department that its actions in filling Assistant
sy.' Such appear where the claims of several parties are         Commander and Commander positions without examin-
present and indicative of threatened litigation in the im-       ing applicants based on merit falls outside its statutory
mediate future which seems unavoidable, even though the          authority.
differences between the parties as to their legal rights have
                                                                      The Department next argues that sovereign immunity
not reached the state of an actual controversy.
                                                                 shields the Department as an agency of the state. The
                                                                 Department argues that the UDJA does not act to waive
 Ainsworth, 271 S.W.2d at 761.
                                                                 the State's ordinary immunity from liability. Suits chal-
     The crux of this appeal concerns the application of         lenging an [**11] agency's action as being outside the
section 411.007(b) to the advancement of personnel               scope of its delegated authority are not suits against the
within the Department through appointment or promo-              State requiring legislative or statutory authority. Public
tion. In the section entitled "Officers and Employees,"          Util. Comm'n v. City of Austin, 728 S.W.2d 907, 911 (Tex.
section 411.007(b) provides:                                     App.--Austin 1987, writ ref'd n.r.e.). Because Moore's suit
                                                                 under the UDJA sought a declaration that the Department
     Appointment or promotion of an officer or employee
                                                                 acted outside its statutory authority in appointing various
must be based on merit determined by examination under
                                                                 high-level positions without examining applicants based
commission rules that take into consideration the appli-
                                                                 on merit, no explicit waiver by the State was necessary.
cant's age, physical [**9] condition, experience, and
                                                                 Therefore, Moore's suit was not barred by sovereign
education. Each person who has an application on file for
                                                                 immunity. We hold the trial court had jurisdiction to hear
a position in the department shall be given reasonable
                                                                 Moore's claim under the UDJA and overrule the De-
written notice of the time and place of those examinations.
                                                                 partment's points of error in that regard.
     Tex. Gov't Code Ann. § 411.007(b) (West 1998).
                                                                     The Requirement of "Merit-Based" Promotion
The Department originally contends that section
411.007(b) creates no cause of action in Moore, and,                  We must now determine whether the trial court erred
therefore, the trial court had no jurisdiction to hear the       in holding that the Department acted outside its statutory
case. The trial court received its jurisdiction from the         authority when filling the four vacancies. The enabling
controversy created by the Department's application of           statutes of the Department clearly provide for merit-based
section 411.007(b) to Moore, not from the words of the           promotion and appointment. See Tex. Gov't Code Ann.
statute itself. The UDJA provides for a declaration of           [*155] § 411.007(b) (West 1998). That same section
rights for persons "whose rights, status, or other legal         further provides for a competitive examination of some
relations are affected by a statute . . . ." Tex. Civ. Prac. &   sort, and provides that all applicants "shall receive [**12]
Rem. Code Ann. § 37.004 (West 1998). Jurisdiction                notice of the time and place of such examinations." Id.
under the UDJA primarily depends on the nature of the            While it is true that the statute, under the section entitled
controversy; whether the controversy is merely hypo-             "Duties of Director," reserves for the Director's discretion
thetical or rises to the justiciable level. See Empire Life      some positions to be filled by "direct appointment," the
Ins., 584 S.W.2d at 858.                                         section limits these direct appointments to chiefs of bu-
                                                                 reaus. See Tex. Gov't Code Ann. § 411.006(6) (West
     Moore's interest in being treated according to statute
                                                                 1998) (emphasis added). 3 No other positions are men-
when applying for vacant positions in the Department
                                                                 tioned.
clearly implicates the UDJA's purpose of clarifying rights
affected by statute. The controversy [**10] lies not in
                                                                        3     The relevant section of the statute provides:
the actions of the Department in reviewing Moore's ap-
                                                                        "The director shall: . . . appoint, with the advice
plication for Assistant Commander of Criminal Intelli-
                                                                        and consent of the commission, the chiefs of bu-
gence, but in the Department's application of its promo-
                                                                                                                         Page 4
                                    985 S.W.2d 149, *; 1998 Tex. App. LEXIS 7354, **


        reaus provided for by this chapter." Tex. Gov't          examination. The language of the statute, and that of the
        Code Ann. § 411.006(6) (West 1998).                      Department's own rules, clearly envisions a merit-based
                                                                 promotional system for all those positions not specifically
     Pursuant to section 411.004(3), the Public Safety
                                                                 exempted as director appointments. And, according to
Commission (the "Commission") promulgated rules
                                                                 statute and the rules promulgated by the Commission,
governing appointments and promotions. See Tex. Gov't
                                                                 Assistant Commander and Commander are not positions
Code § 411.004(3) (West 1998). 4 These rules include
                                                                 so exempted. Furthermore, the mere existence of section
the policy that the Department shall make all appoint-
                                                                 26.04(4) in the Department's General Manual expanding
ments based on merit. See 37 Tex. Admin. Code § 1.21(a)
                                                                 the number of exemptions beyond statutory limits both
(1998). In keeping with [**13] the policy of making
                                                                 exceeds the Department's authority and belies the De-
appointments based on merit, the rules provide that
                                                                 partment's argument that the oral interviews given appli-
"examinations will be conducted for all positions ex-
                                                                 cants fulfilled the requirement of a competitive examina-
cepting unskilled labor, trades, and direct appointments
                                                                 tion.
made by the Director." 37 Tex. Admin. Code § 1.27
(1998) (emphasis added). Reading the rule in conjunction              Moore argues that the statute contemplates written
with the statute, the rule exempts from competitive ex-          examinations as the proper manifestation of competitive
amination only unskilled labor, trades, and the chiefs of        examinations. To the extent that Moore seeks affirmation
bureaus. However, despite the language of the statute            from this Court for his position, we reject it. The De-
restricting directorial appointments to bureau chiefs, and       partment maintains the discretion to [*156] create
despite the Department's own rules advocating the policy         procedures for competitive examinations regarding
of promotions based on merit, the Department seeks in its        promotive appointments, provided such procedures make
General Manual to expand the number of director ap-              a good faith effort to comply with the statutory and
pointments exempted from competitive examination:                agency requirement of "merit-based" promotions.
                                                                 [**16] The Department should bear in mind, however,
        4      The relevant section of the statute provides:     that the written notice requirements of the statute re-
        "The commission shall . . . adopt rules necessary        garding a stated time and location for the competitive
        for carrying out the department's work." Tex. Gov't      examination seem to mandate some type of formalized
        Code Ann. § 411.004(3) (West 1998).                      and structured examination. 5 See Tex. Gov't Code Ann.
                                                                 § 411.007(b) (West 1998).
     Positions of major division chief, assistant major di-
vision chief, division chief, [**14] regional com-
                                                                         5     We reject, for example, the suggestion made
mander, commander, assistant commander, senior Ranger
                                                                         by the Department at oral argument that an official
captain, assistant supervisor of Rangers, Director and
                                                                         with the Department could discharge the De-
Assistant Director of Personnel and of Training, other
                                                                         partment's responsibility to offer a competitive
positions deemed necessary and appropriate by the Di-
                                                                         examination by merely examining the personnel
rector and positions of the Director's staff will be filled by
                                                                         records of the applicants.
direct appointment of the Director.
                                                                      The Injunctive Order
   Texas Department of Public Safety General Manual,
Chap. 7, § 26.04(4).                                                   The Department next contends that even if the trial
                                                                 court had jurisdiction to declare that the Department failed
     The Department argues that the Assistant Com-
                                                                 to comply with section 411.007(b) in hiring Garcia and
mander and Commander positions are exempt from
                                                                 the others without resort to competitive examination, the
competitive examination by virtue of the discretion
                                                                 trial court had no jurisdiction, or, alternatively, abused its
granted the Department by statute coupled with the listing
                                                                 discretion, in ordering the Department to vacate the four
of director appointments found in the Department's Gen-
                                                                 positions contested by Moore. We note initially that ac-
eral Manual. In the alternative, the Department argues
                                                                 tions under [**17] the UDJA are sui generis; they are
that, should the Assistant Commander position be subject
                                                                 unique in that the declarations of "rights, status and other
to competitive examination, the oral interview by Com-
                                                                 legal relations" are not truly legal or equitable. See Cobb
mander Plemons given to applicants should suffice. While
                                                                 v. Harrington, 144 Tex. 360, 190 S.W.2d 709, 713 (Tex.
we agree with the Department that the statute does pro-
                                                                 1945); see also Texas Liquor Control Bd. v. Canyon
vide discretion to the Commission and the Department to
                                                                 Creek Land Corp., 456 S.W.2d 891, 895 (Tex. 1970). We
create its own rules and to define examination based on
                                                                 further note that, at the time of the trial court's rendition of
merit for purposes of promotional appointments, we reject
                                                                 final judgment, Moore's discrimination claim had been
the notion that the Assistant Commander and Commander
                                                                 dismissed through summary judgment; thus the trial
positions are exempt, or that the oral [**15] interview
                                                                 court's authority to act was based on the UDJA alone.
could fulfill the statutory requirement of a competitive
                                                                 Moore argues that the UDJA allows the trial court to grant
                                                                                                                    Page 5
                                   985 S.W.2d 149, *; 1998 Tex. App. LEXIS 7354, **


the injunctive relief requested, namely the vacation of the    represented Moore's exclusive injunctive [**20] remedy
four positions, as ancillary to the declaratory relief         until his administrative remedies had been exhausted.
awarded. See Tex. Civ. Prac. & Rem. Code § 37.011              Moore could have sought an injunction to halt the De-
(West 1998); see also Davis v. Pletcher, 727 S.W.2d 29,        partment from promoting Garcia and the other three ap-
35 (Tex. App.--San Antonio 1987, writ ref'd n.r.e.). Under     pointments had he followed the proper administrative
the facts presented here, we disagree.                         procedures. He failed to do so. He sought and received in
                                                               district court a declaration that the Department had mis-
     As Moore suggests, the UDJA allows for injunctive
                                                               interpreted and misapplied section 411.007(b). This dec-
relief ancillary to a declaration of rights in some situa-
                                                               laration clarified Moore's rights and status regarding fu-
tions: "Further relief based on a declaratory judgment or
                                                               ture vacancies in the Department. However, the order by
decree may be granted whenever necessary or proper. The
                                                               the trial court retroactively vacating the four Assistant
application must be by petition to [**18] a court having
                                                               Commander and Commander positions rewarded Moore
jurisdiction to grant relief." Tex. Civ. Prac. & Rem. Code.
                                                               for failing to follow the exclusive remedies provided for
Ann. § 37.011 (West 1998). 6 This power to grant ancil-
                                                               him by law. Declaratory relief creates no substantive
lary relief is conditioned on such relief being necessary
                                                               rights. State v. Morales, 869 S.W.2d 941, 947 (Tex.
and proper. For the following reasons, such relief in this
                                                               1994). It provides a procedural device for the determina-
case is inappropriate.
                                                               tion of controversies which are already within the juris-
                                                               diction of the court. Id. The remedy afforded by the UDJA
       6      Several courts, including this one, have in-
                                                               is additional and does not supplant any existing remedy.
       terpreted section 37.011 of the UDJA as allowing
                                                               Cobb, 190 S.W.2d at 713; Crow v. City of Corpus Christi,
       parties to combine a request for declaratory relief
                                                               146 Tex. 558, 209 S.W.2d 922, 924 (Tex. 1948). Because
       with a request for injunction. See Weaver v. AIDS
                                                               the exclusive remedy available to Moore regarding his
       Servs. of Austin, Inc., 835 S.W.2d 798, 803 (Tex.
                                                               reverse discrimination [**21] claim is the Human Rights
       App.--Austin 1992, writ denied) (AIDS services
                                                               Act, which contains the right to injunctive relief, the trial
       group seeking declaration of rights and injunction
                                                               court erred in vacating the positions in the Department
       barring protestors from interfering with work-
                                                               based solely on the ancillary injunctive power contained
       shops); Davis, 727 S.W.2d at 35 (purchaser of real
                                                               in the UDJA.
       property seeking declaration interpreting various
       property conveyances and injunction to halt trig-
                                                               Furthermore, the trial court's order undercut the purpose
       gering of acceleration clause).
                                                               of the Human Rights Act to create a comprehensive ad-
     Regarding Moore's original reverse discrimination         ministrative review. See Stinnet, 858 S.W.2d at 577. The
claim, filing a complaint with the Human Rights Com-           Human Rights Act was intended to embody the policies
mission and exhausting administrative remedies was a           embedded in Title VII, 42 U.S.C. § 2000e et seq., in-
mandatory [**19] prerequisite to filing a civil action         cluding "administrative procedures involving informal
alleging a violation of the Human Rights Act under the         conference, conciliation and persuasion, as well as judi-
Texas Labor Code. Schroeder v. Texas Iron Works, Inc.,         cial review of administrative action." Schroeder, 813
813 S.W.2d 483, 488 (Tex. 1991). The rationale for this        S.W.2d at 487. Allowing the jurisdiction created by the
result is that the Human Rights Act provides the exclusive     UDJA to circumvent the procedures and remedies pro-
remedy for alleged discrimination in administrative            vided by the Human Rights Act could create a back door
agency personnel decisions. See Stinnett v. Williamson         to district court not contemplated by the Legislature. The
County Sheriff's Dep't, 858 S.W.2d 573, 577 (Tex.              proper remedy for Moore is prospective. His declaratory
App.--Austin 1993, writ denied). Thus, Moore's failure to      judgment carries preclusive effect in any future lawsuit,
exhaust his administrative remedies was a jurisdictional       whether administrative or judicial, should the Department
bar to filing a discrimination claim in district court, and    fail to offer him notice and the opportunity for mer-
the trial court properly granted summary judgment against      it-based promotion as required by section 411.007(b). See
Moore's claim. Schroeder, 813 S.W.2d at 488.                   Valley Oil Co. v. City of Garland, [**22] 499 S.W.2d
                                                               333, 335 (Tex. Civ. App.--Dallas 1973, no writ). Thus, the
This procedural posture becomes important with regard to       retroactive injunctive relief ordered by the trial court was
the trial court's award of injunctive relief based solely on   not "necessary and proper" as required under the UDJA
jurisdiction under the UDJA because it allows Moore to         before ancillary injunctive relief could be awarded. We
circumvent the exclusive remedies provided for, and the        reverse the trial court's order vacating the Department's
purposes contained in, the Human Rights Act. [*157]            appointments of Assistant Commander of Criminal Intel-
The Human Rights Act includes a provision for injunctive       ligence Service, Commander of Criminal Intelligence
relief from unlawful employment practices. See Tex.            Service, Commander of Narcotics, and Assistant Com-
Labor Code Ann. § 21.210 (West 1996). This provision           mander of Narcotics.
                                                                                                                     Page 6
                                    985 S.W.2d 149, *; 1998 Tex. App. LEXIS 7354, **


                                                                 § 37.009 (West 1997). The Department's argument fails.
Attorney's Fees                                                  The Department also objects to the award of attorney's
                                                                 fees in the final judgment based upon affidavits of the
 The trial court awarded Moore attorney's fees under the         competing parties, claiming that the affidavits do not
UDJA. The UDJA provides that "in any proceeding under            represent competent evidence that the attorney's fees were
this chapter, the court may award costs and reasonable           reasonable and necessary. See Stewart Title Guar. Co. v.
and necessary attorney's fees as are equitable and just."        Sterling, 822 S.W.2d 1, 10 (Tex. 1991). We refuse to hold
Tex. Civ. Prac. & Rem. Code Ann. § 37.009 (West                  that this procedure for determining attorney's fees rises to
1997). The Texas Supreme Court has expressly held that           the level of an abuse of discretion. [**24] We overrule
"by authorizing declaratory judgment actions to construe         the Department's point of error regarding attorney's fees.
the legislative enactments of governmental entities and
                                                                     CONCLUSION
authorizing awards of attorney fees, the UDJA necessarily
waives governmental immunity for such awards." Texas                   We affirm the order of the trial court declaring that
Educ. Agency v. Leeper, 893 S.W.2d 432, 446 (Tex. 1994).         the Department acted outside its statutory duty pursuant to
The grant or denial of attorney's fees in a declaratory          section 411.007(b) in filling four Assistant Commander
judgment lies within [**23] the discretion of the trial          and Commander positions without examining applicants
court, and its judgment will not be reversed on appeal           based on merit. We further affirm the order of the trial
absent a clear showing that it abused that discretion.           court awarding attorney's fees. We reverse the order of the
Oake v. Collin County, 692 S.W.2d 454, 455 (Tex. 1985).          trial court vacating the four Assistant Commander and
                                                                 Commander positions and hold that Moore's only injunc-
     The Department argues that the UDJA may not be
                                                                 tive relief must be prospective.
used solely as a vehicle for attorney's fees. See HECI
Exploration Co. v. Clajon Gas Co., 843 S.W.2d 622, 637               Mack Kidd, Justice
(Tex. App.--Austin 1992, writ denied). Since we have
                                                                     Before Justices Powers, Jones and Kidd
held that the trial court had jurisdiction to construe section
411.007(b) and that the trial court's construction of that           Affirmed in Part; Reversed and Rendered in Part
statute favors Moore, Moore has achieved a declaration
[*158] of rights entitling him to seek the additional relief         Filed: November 30, 1998
of attorney's fees. See Tex. Civ. Prac. & Rem. Code Ann.
                                                     Texas Rules
                               Copyright (c) 2015 by Matthew Bender & Company, Inc.
                                         a member of the LexisNexis Group.
                                                 All rights reserved.

                               *** This document is current through January 2, 2015 ***

                                         STATE RULES
                             TEXAS RULES OF APPELLATE PROCEDURE
                 SECTION TWO. APPEALS FROM TRIAL COURT JUDGMENTS AND ORDERS

                                             Tex. R. App. P. Rule 43 (2015)

Rule 43 Judgment of the Court of Appeals

   43.1      Time. --The court of appeals should render its judgment promptly after submission of a case.
    43.2      Types of Judgment. --The court of appeals may:
          (a) affirm the trial court's judgment in whole or in part;
          (b) modify the trial court's judgment and affirm it as modified;
       (c) reverse the trial court's judgment in whole or in part and render the judgment that the trial court
should have rendered;
          (d) reverse the trial court's judgment and remand the case for further proceedings;
          (e) vacate the trial court's judgment and dismiss the case; or
          (f) dismiss the appeal.
   43.3 Rendition Appropriate Unless Remand Necessary. --When reversing a trial court's judgment, the court
must render the judgment that the trial court should have rendered, except when:
          (a) a remand is necessary for further proceedings; or
          (b) the interests of justice require a remand for another trial.
    43.4 Judgment for Costs in Civil Cases. --In a civil case, the court of appeals' judgment should award to the
prevailing party the appellate costs - including preparation costs for the clerk's record and the reporter's record -
that were incurred by that party. But the court of appeals may tax costs otherwise as required by law or for good
cause.
    43.5 Judgment Against Sureties in Civil Cases. --When a court of appeals affirms the trial court judgment, or
modifies that judgment and renders judgment against the appellant, the court of appeals must render judgment
against the sureties on the appellant's supersedeas bond, if any, for the performance of the judgment and for any
costs taxed against the appellant.
    43.6 Other Orders. --The court of appeals may make any other appropriate order that the law and the na-
ture of the case require.
                                                                                                                         Page 1




                                                       Texas Rules
                                 Copyright (c) 2015 by Matthew Bender & Company, Inc.
                                           a member of the LexisNexis Group.
                                                   All rights reserved.

                                 *** This document is current through January 2, 2015 ***

                                               STATE RULES
                                    TEXAS RULES OF CIVIL PROCEDURE
                       PART II. RULES OF PRACTICE IN DISTRICT AND COUNTY COURTS
                                             SECTION 4. Pleading
                                       C. PLEADINGS OF DEFENDANT

                                                  Tex. R. Civ. P. 94 (2015)

Rule 94 Affirmative Defenses

    In pleading to a preceding pleading, a party shall set forth affirmatively accord and satisfaction, arbitration and award,
assumption of risk, contributory negligence, discharge in bankruptcy, duress, estoppel, failure of consideration, fraud,
illegality, injury by fellow servant, laches, license, payment, release, res judicata, statute of frauds, statute of limitations,
waiver, and any other matter constituting an avoidance or affirmative defense. Where the suit is on an insurance contract
which insures against certain general hazards, but contains other provisions limiting such general liability, the party suing
on such contract shall never be required to allege that the loss was not due to a risk or cause coming within any of the
exceptions specified in the contract, nor shall the insurer be allowed to raise such issue unless it shall specifically allege
that the loss was due to a risk or cause coming within a particular exception to the general liability; provided that nothing
herein shall be construed to change the burden of proof on such issue as it now exists.
                                                        Tex. R. Civ. P. 166a

                                       This document is current through February 4, 2015


Rule 166a Summary Judgment
  (a) For Claimant. --A party seeking to recover upon a claim, counterclaim, or cross-claim or to obtain a declaratory
      judgment may, at any time after the adverse party has appeared or answered, move with or without supporting affidavits
      for a summary judgment in his favor upon all or any part thereof. A summary judgment, interlocutory in character, may
      be rendered on the issue of liability alone although there is a genuine issue as to amount of damages.
  (b) For Defending Party. --A party against whom a claim, counterclaim, or cross-claim is asserted or a declaratory
      judgment is sought may, at any time, move with or without supporting affidavits for a summary judgment in his favor as
      to all or any part thereof.
  (c) Motion and Proceedings Thereon. --The motion for summary judgment shall state the specific grounds therefor. Except
      on leave of court, with notice to opposing counsel, the motion and any supporting affidavits shall be filed and served at
      least twenty-one days before the time specified for hearing. Except on leave of court, the adverse party, not later than
      seven days prior to the day of hearing may file and serve opposing affidavits or other written response. No oral testimony
      shall be received at the hearing. The judgment sought shall be rendered forthwith if (i) the deposition transcripts,
      interrogatory answers, and other discovery responses referenced or set forth in the motion or response, and (ii) 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. 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. A summary judgment may be based on uncontroverted testimonial evidence of an interested witness, or of an
      expert witness as to subject matter concerning which the trier of fact must be guided solely by the opinion testimony of
      experts, if the evidence is clear, positive and direct, otherwise credible and free from contradictions and inconsistencies,
      and could have been readily controverted.
  (d) Appendices, References and Other Use of Discovery Not Otherwise on File. --Discovery products not on file with the
      clerk may be used as summary judgment evidence if copies of the material, appendices containing the evidence, or a
      notice containing specific references to the discovery or specific references to other instruments, are filed and served on
      all parties together with a statement of intent to use the specified discovery as summary judgment proofs: (i) at least
      twenty-one days before the hearing if such proofs are to be used to support the summary judgment; or (ii) at least seven
      days before the hearing if such proofs are to be used to oppose the summary judgment.
  (e) Case Not Fully Adjudicated on Motion. --If summary judgment is not rendered upon the whole case or for all the relief
       asked and a trial is necessary, the judge may at the hearing examine the pleadings and the evidence on file, interrogate
       counsel, ascertain what material fact issues exist and make an order specifying the facts that are established as a matter of
       law, and directing such further proceedings in the action as are just.
  (f) Form of Affidavits; Further Testimony. --Supporting and opposing affidavits 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. Sworn or certified copies of all papers or parts thereof referred to in an affidavit shall
      be attached thereto or served therewith. The court may permit affidavits to be supplemented or opposed by depositions or
      by further affidavits. Defects in the form of affidavits or attachments
     will not be grounds for reversal unless specifically pointed out by objection by an opposing party with
     opportunity, but refusal, to amend.
(g) When Affidavits Are Unavailable. --Should it appear from the affidavits of a party opposing the motion that
    he cannot for reasons stated present by affidavit facts essential to justify his opposition, the court may refuse
    the application for judgment or may order a continuance to permit affidavits to be obtained or depositions to
    be taken or discovery to be had or may make such other order as is just.
(h) Affidavits Made in Bad Faith. --Should it appear to the satisfaction of the court at any time that any of the
    affidavits presented pursuant to this rule are presented in bad faith or solely for the purpose of delay, the court
    shall forthwith order the party employing them to pay to the other party the amount of the reasonable
    expenses which the filing of the affidavits caused him to incur, including reasonable attorney's fees, and any
    offending party or attorney may be adjudged guilty of contempt.
(i) No-Evidence Motion. --After adequate time for discovery, a party without presenting summary judgment
    evidence may move for summary judgment on the ground that there is no evidence of one or more essential
    elements of a claim or defense on which an adverse party would have the burden of proof at trial. The motion
    must state the elements as to which there is no evidence. The court must grant the motion unless the
    respondent produces summary judgment evidence raising a genuine issue of material fact.
                                                                                                               Page 1




               TRANSCONTINENTAL REALTY INVESTORS, INC., Appellant v. ORIX CAPI-
                               TAL MARKETS, LLC, Appellee

                                                 No. 05-10-00655-CV

                        COURT OF APPEALS OF TEXAS, FIFTH DISTRICT, DALLAS

                                    353 S.W.3d 241; 2011 Tex. App. LEXIS 8272


                                          October 19, 2011, Opinion Filed

SUBSEQUENT HISTORY:               Released for Publica-     Capital Markets, LLC. In three issues, Transcontinental
tion December 1, 2011                                       generally contends: (1) the trial court erred in granting
Rehearing denied by Transcon. Realty Investors, Inc. v.     declaratory relief because no justiciable controversy ex-
Orix Capital Mkts. LLC, 2011 Tex. App. LEXIS 9388           isted and because Orix had previously filed, but aban-
(Tex. App. Dallas, Nov. 21, 2011)                           doned, a breach of contract claim raising the same con-
Petition for review denied by Orix Capital Mkts., LLC v.    tentions, (2) the declaratory judgment act did not author-
Transcon. Realty Investors, Inc., 2012 Tex. LEXIS 191       ize the award of attorneys' fees in this case, and (3) the
(Tex., Mar. 2, 2012)                                        attorneys' fees award was improper because Orix did not
                                                            segregate the fees expended on the declaratory judgment
PRIOR HISTORY: [**1]                                        claim from fees expended on the abandoned breach of
   On Appeal from the 134th Judicial District Court,        contract claim. For the following reasons, we vacate the
Dallas County, Texas. Trial Court Cause No.                 trial court's judgment and dismiss the cause.
09-05999-G.
                                                                 This suit involves a Guaranty in which Transconti-
ECF N. Ridge Assocs., L.P. v. Orix Capital Mkts., L.L.C.,
                                                            nental guaranteed payment of attorneys' fees Orix ex-
336 S.W.3d 400, 2011 Tex. App. LEXIS 1839 (Tex. App.
                                                            pended in a suit against a Transcontinental subsidiary,
Dallas, 2011)
                                                            TCI 9033 Wilshire Boulevard, Inc. (TCI). TCI was the
                                                            owner [**2] of commercial real estate subject to a
                                                            mortgage loan serviced by Orix. A dispute arose as to
COUNSEL: For APPELLANT: Mitchell Madden,
                                                            whether Orix could require that TCI purchase terrorism
Thomas V. Murto, III, The Law Offices of Mitchell
                                                            insurance. Orix demanded that TCI purchase [*243]
Madden, Dallas, TX.
                                                            such insurance and TCI refused. Orix then declared the
                                                            loan in default and began charging interest at the default
For APPELLEE: Talmage Boston, Kent B. Pearson,
                                                            rate. TCI filed suit for breach of contract and declaratory
Winstead P.C., Dallas, TX; Nicola Hobeiche, Gregory D.
                                                            relief. Orix counterclaimed -- also for breach of contract
May, Orix USA Corporation, Dallas, TX.
                                                            and declaratory relief.
JUDGES: Before Justices Morris, O'Neill, and Filmore.            Meanwhile, a third party sought to purchase the TCI
Opinion By Justice O'Neill.                                 property. The mortgage documents required Orix to
                                                            consent to any sale of the property. Before Orix would
OPINION BY: MICHAEL J. O'NEILL                              consent, it required TCI's parent company, Transconti-
                                                            nental, to guarantee any attorneys' fees that might be
OPINION                                                     awarded to Orix in the TCI litigation, which was to con-
                                                            tinue. To facilitate the sale, Transcontinental agreed and
     [*242] Opinion By Justice O'Neill
                                                            signed the Guaranty.
    Appellant Transcontinental Realty Investors, Inc.
                                                                Orix ultimately prevailed in the underlying litigation
appeals a declaratory judgment granted in favor of Orix
                                                            and obtained a judgment against TCI that included
                                                                                                                       Page 2
                                    353 S.W.3d 241, *; 2011 Tex. App. LEXIS 8272, **


$241,380.39 in attorneys' fees as well as appellate costs        asserts the trial court erred in [*244] granting declara-
and fees in the event TCI unsuccessfully appealed. TCI           tory relief because validity of the Guaranty did not present
did appeal that judgment. A few months later, while the          a justiciable issue. We agree.
appeal was pending, Orix filed the instant suit. In its
                                                                      A person interested under a deed, will, written con-
original petition, Orix alleged [**3] Transcontinental
                                                                 tract, or other writings constituting a contract or whose
breached the Guaranty. Specifically, Orix contended that
                                                                 rights, status, or other legal relations are affected by a
after the TCI judgment was signed, it made a demand
                                                                 statute, municipal ordinance, contract, or franchise may
upon Transcontinental to "comply with its obligations"
                                                                 have determined any question of construction or validity
under the agreement, but Transcontinental refused to
                                                                 arising under the instrument, statute, or ordinance, con-
"accept" its responsibilities and indebtedness created
                                                                 tract or franchise and obtain a declaration of rights, status,
under the Guaranty. As damages, it alleged the
                                                                 or other legal relations thereunder. TEX. CIV. PRAC. &
$241,380.39 that had been awarded, as well as any addi-
                                                                 REM. CODE ANN. § 37.004(a) (West 2008). The purpose of
tional appellate attorneys' fees that might later be incurred
                                                                 the Declaratory Judgments Act is "to settle and afford
in the TCI appeal if Orix prevailed.
                                                                 relief from uncertainty and insecurity with respect to
      Transcontinental answered with a general denial and        rights, status, and other legal relations." TEX. CIV. PRAC. &
also asserted the affirmative defense of duress asserting        REM.CODE ANN. § 37.002(b) (West 2008). It is "remedial"
the Guaranty was unenforceable. Transcontinental also            and "is to be liberally construed." Id.
filed a motion to abate or stay asserting the trial court
                                                                      The Declaratory Judgments Act cannot be used to
should not determine the validity of the Guaranty until the
                                                                 obtain an advisory [**6] opinion, which Texas courts
TCI appeal was resolved because no determination could
                                                                 lack subject-matter jurisdiction to give. Tex. Ass'n of Bus.
be made as to whether it was liable until Transcontinen-
                                                                 v. Tex. Air Control Bd., 852 S.W.2d 440, 444 (Tex.1993).
tal's liability was first finally resolved.
                                                                 Declaratory judgment is appropriate only when a real
     Orix responded by amending its petition to abandon          controversy exists between the parties and the entire
its breach of contract claim and replace it with a claim for     controversy may be determined by the judicial declara-
declaratory relief. In its First Amended Petition, Orix          tion. Brooks v. Northglen Ass'n, 141 S.W.3d 158, 163-64
sought a global declaration that the Guaranty was valid          (Tex. 2004); OAIC Commercial Assets, L.L.C. v.
and enforceable and that Transcontinental was obligated          Stonegate Village, L.P., 234 S.W.3d 726, 745 (Tex.
[**4] to pay Orix all expenses, attorneys' fees, and other       App.--Dallas 2007, pet. denied). The Act does not give a
costs incurred at all levels of litigation of the TCI lawsuit    litigant the right to try a case piecemeal. United Servs. Life
as well as in any separate proceeding.                           Ins. Co. v. Delaney, 396 S.W.2d 855, 858 (Tex. 1965); SW
                                                                 Airlines Co. v. Tex. High-Speed Rail Auth., 863 S.W.2d
     Orix filed a motion for summary judgment asserting
                                                                 123, 125 (Tex. App.--Austin 1993, writ denied).
the Guaranty was valid as a matter of law and was not
procured by duress. Orix stated it was seeking a deter-               Ripeness is a requirement of justiciability. Perry v.
mination that Transcontinental was liable for the attor-         Del Rio, 66 S.W.3d 239, 249 (Tex. 2001); Patterson v.
neys' fees ultimately awarded if they were affirmed on           Planned Parenthood of Houston & Se. Tex., Inc., 971
appeal. It asserted the pendency of the appeal in the un-        S.W.2d 439, 442 (Tex. 1998). The ripeness doctrine con-
derlying judgment should not prevent it from obtaining           serves judicial time and resources for real and current
declaratory relief because it was not seeking to recover         controversies, rather than abstract, hypothetical, or remote
any attorneys' fees from the TCI lawsuit yet, but was only       disputes. Mayhew v. Town of Sunnyvale, 964 S.W.2d 922,
seeking a declaration of liability for such fees (and all        928 (Tex. 1998); TCI West End, Inc. v. City of Dallas, 274
additional appellate fees in that case) "if and when" the        S.W.3d 913, 918 (Tex. App.--Dallas 2008, no pet.). [**7]
TCI appeal was concluded in Orix's favor. Orix also ex-          The doctrine prohibits suits involving "uncertain or con-
pressly requested the trial court to "extinguish" all af-        tingent future events that may not occur as anticipated, or
firmative defenses to the Guaranty. Transcontinental             indeed may not occur at all." Patterson, 971 S.W.2d at
responded to the motion asserting the trial court lacked         442. A case is not ripe if its resolution depends on con-
jurisdiction because whether any controversy about the           tingent facts or upon events that have yet to come to pass.
Guaranty existed was not ripe for review.                        See id. at 443.
    The trial court granted declaratory relief declaring the          The declaration sought in this case concerned validity
Guaranty "valid and enforceable" to which Transconti-            of a Guaranty for payment for attorneys' fees awarded to
nental had [**5] "no viable affirmative defense." The            Orix from TCI in underlying litigation. The Guaranty
court also declared that Transcontinental was obligated to       obligated Transamerica to pay these fees to Orix if TCI
pay all attorneys' fees and costs awarded to Orix in the         did not. Because Transcontinental's liability under the
TCI litigation at all levels. In this appeal, Transcontinental   Guaranty in this case would arise only if TCI was found
                                                                                                                     Page 3
                                   353 S.W.3d 241, *; 2011 Tex. App. LEXIS 8272, **


liable for attorney's fees, its liability can be compared to   court's judgment is affirmed. Orix thus admits that if the
liability that arises in indemnity cases. In Firemen's In-     underlying judgment was reversed, the entire proceedings
surance Co. v. Burch, 442 S.W.2d 331, 332 (Tex. 1968),         -- in the trial court and in this court -- would be completely
the Texas Supreme Court held that a trial court cannot         meaningless. Further, the declaration sought - and the
determine a claim for indemnity before liability is estab-     declaration given - was that Transcontinental was re-
lished in the underlying case because any such opinion         sponsible for any fees awarded in the TCI litigation at all
would be purely advisory. See also State Farm Lloyds v.        trial and appellate levels. Thus, the trial court declared
C.M.W., 53 S.W.3d 877, 893 (Tex. App.--Dallas 2001, pet.       Transcontinental's liability for fees that had yet to even be
denied). The Court later limited this holding in Farmers       expended. Moreover, this case concerned a guarantee of
Texas County Mutual Insurance, Co. v. Griffin, 955             payment for fees TCI incurred and was liable for. Future
S.W.2d 81, 84 (Tex. 1997), [**8] concluding that, under        events [**10] could certainly alter TCI's willingness or
limited circumstances, a claim for indemnity could be          ability to pay its fees itself. Any such payment by TCI
litigated while the underlying litigation remained pend-       would effect Transcontinental's liability on the Guaranty.
ing. Specifically, the Court held "the duty to indemnify is
                                                                    Finally, and perhaps most importantly, Orix's attempt
justiciable before the insured's liability is determined in
                                                               to "extinguish" any defenses to the Guaranty and get a
the liability [*245] lawsuit when the insurer has the
                                                               declaration that no defenses existed was not proper. Ac-
duty to defend and the same reasons that negate the duty
                                                               cording to Orix's rationale, Transcontinental should be
to defend likewise negate any possibility the insurer will
                                                               forced to litigate any potential defenses it might have to
ever have a duty to indemnify." Griffin, 955 S.W.2d at 84
                                                               liability before liability has even been established. A
(emphasis in original). It reasoned that under those cir-
                                                               defendant may not use a declaratory judgment to prema-
cumstances, "no facts could be developed" in the under-
                                                               turely adjudicate defenses to liability that may not yet
lying tort suit that could alter the court's conclusion no
                                                               exist. Cf. Calderon v. Ashmus, 523 U.S. 740, 118 S. Ct.
duty to indemnify existed. Id.
                                                               1694, 140 L. Ed. 2d 970 (1998) (under federal constitu-
     Here, Orix was seeking a general declaration of va-       tion, party may not use a declaratory judgment to get
lidity of the Guaranty and lack of viable defenses. Orix       advance ruling on an affirmative defense); see also Cohen
pleaded it was entitled to declaratory relief because          v. Orthalliance New Image, Inc., 252 F. Supp.2d 761, 766
Transcontinental had failed to "acknowledge" its liability     (N.D. Ind. 2003) (assessing the success of a defense to a
under the Guaranty and because, in response to its aban-       potential claim (breach-of-contract or otherwise) is gen-
doned breach of contract claim, it had pleaded duress. It      erally the type of hypothetical question federal courts
was not seeking guidance with respect to what was then         endeavor to avoid). Not all affirmative defenses depend
currently required under the Guaranty. Indeed, in oral         upon facts that exist at the time of contract formation. Any
argument Orix conceded that Transcontinental was not           determination that no defenses could exist would be
obligated until appeals concluded [**9] and admitted it        completely advisory. [**11] Even if we could say
sought declaratory relief to make collection efforts more      Transcontinental's answer pleading duress may have put
expedient "if and when" the judgment was finally af-           that specific defense in controversy, the declaratory
firmed.                                                        judgment was not intended to permit the piecemeal trial of
                                                               lawsuits. Delaney, 396 S.W.2d at 858. We conclude the
     The issue presented in determining justiciability is
                                                               trial court had no jurisdiction to declare the Guaranty
whether all the facts surrounding the Guaranty and de-
                                                               valid and that Transcontinental had no defenses to
fenses to it were sufficiently developed such that Trans-
                                                               [*246] it. Consequently, we vacate the trial court's
continental's liability could not have been affected by
                                                               judgment and dismiss this cause.
subsequent events. In its motion for summary judgment,
Orix admitted that Transcontinental's liability was trig-          MICHAEL J. O'NEILL
gered "assuming the Final Judgment is affirmed on ap-
                                                                   JUSTICE
peal." It complained Transcontinental did not
"acknowledge" its responsibility "in the event" the trial
                                                                                                                  Page 1




               TRANSPORTATION INSURANCE COMPANY, NATIONAL FIRE INSURANCE
               COMPANY OF HARTFORD, VALLEY FORGE INSURANCE COMPANY, AND
                CONTINENTAL CASUALTY COMPANY, Appellants v. WH CLEANERS, IN-
                                  CORPORATED, Appellee

                                                  No. 05-10-00654-CV

                         COURT OF APPEALS OF TEXAS, FIFTH DISTRICT, DALLAS

                                     372 S.W.3d 223; 2012 Tex. App. LEXIS 4508


                                              June 7, 2012, Opinion Filed

SUBSEQUENT HISTORY:                Released for Publica-      trial court's order granting WH Cleaners, Incorporated's
tion July 13, 2012.                                           plea to the jurisdiction. We conclude under the circum-
                                                              stances presented that a justiciable controversy exists and
PRIOR HISTORY: [**1]                                          the trial court erred by granting WHC's plea to the juris-
  On Appeal from the 162nd Judicial District Court,           diction. We reverse the trial court's order and remand for
Dallas County, Texas. Trial Court Cause No. 10-06208-I.       further proceedings.

DISPOSITION:         Reverse and Remand.                      BACKGROUND1

                                                                     1 The underlying declaratory-judgment action
COUNSEL: For APPELLANT: Greta Ayn Matzen,                            involves multiple parties and insurance policies
Taber Estes Thome & Carr PLLC, Dallas, TX; Levon G.                  and contains a complicated history of the rela-
Hovnatanian, Bruce E. Ramage, Martin, Disiere, Jeffer-               tionship among WHC and the other defendants in
son & Wisdom, L.L.P., Houston, TX.                                   the Indiana suit. Although an exposition [**2] of
                                                                     those facts is necessary to resolve the merits of the
For APPELLEE: Werner A. Powers, Charles C. Keeble,                   declaratory-judgment action, a complete factual
Jr., Haynes & Boone, L.L.P., Dallas, TX.                             background is not relevant here. Rather, we focus
                                                                     on only those facts necessary for our disposition.
JUDGES: Before Justices Bridges, Richter, and Murphy.
                                                                   WHC is a Texas corporation involved in the
Opinion By Justice Murphy.
                                                              dry-cleaning business. Between 1997 and 2003, WHC
                                                              leased retail space or otherwise controlled the space
OPINION BY: MARY MURPHY
                                                              through subleases in a shopping center in Greenwood,
                                                              Indiana. In 2006, the owner of the shopping center learned
OPINION
                                                              the property was contaminated by various hazardous
     [*225] Opinion By Justice Murphy                         substances used in dry cleaning. After the Indiana De-
                                                              partment of Environmental Management required the
     The issue we must resolve in this declarato-
                                                              owner to investigate and clean up the contamination, the
ry-judgment action is whether the trial court had sub-
                                                              owner filed suit in Indiana against WHC and its former
ject-matter jurisdiction to declare the duties of insurance
                                                              president, Robert Hitch, as well as others that operated dry
carriers, once they denied coverage, related to a pending
                                                              cleaning businesses in the shopping center; the owner
lawsuit against the insured in Indiana. The carriers,
                                                              alleged WHC and the other defendants caused the con-
Transportation Insurance Company, National Fire Insur-
                                                              tamination through their business operations and should
ance Company of Hartford, Valley Forge Insurance
                                                              pay [*226] for the cleanup. The Indiana action has not
Company, and Continental Casualty Company, appeal the
                                                              yet proceeded to judgment.
                                                                                                                       Page 2
                                   372 S.W.3d 223, *; 2012 Tex. App. LEXIS 4508, **


     The carriers issued various comprehensive general          proper subject of a declaratory judgment. They also
liability insurance policies to WHC and other defendants        claimed the carriers' request for declaratory relief with
in the Indiana suit during the relevant time period. By         respect to their duty to indemnify "fails to present a jus-
letter dated [**3] August 11, 2008, and as required by          ticiable controversy."
the policies, WHC2 told the carriers about the Indiana suit,
                                                                     The trial court sustained WHC's plea to the jurisdic-
attached a 2 copy of the complaint, and asserted entitle-
                                                                tion and signed an order dismissing the carriers' claims
ment "to defense and indemnity of all claims with respect
                                                                against WHC; Hitch was non-suited from the case before
to this property under any and all policies issued by [the
                                                                the trial court issued its ruling. The trial court also granted
carriers]." The letter included the policy number for each
                                                                a motion to sever the claims asserted against WHC from
policy implicated, including policies issued to other de-
                                                                those against Bargain and signed a judgment in May 2010
fendants and under which WHC sought coverage as an
                                                                in favor of WHC in the severed action.5
additional insured. WHC also emphasized that the poli-
cies specifically covered "costs of remediation of envi-
                                                                        5 Although the judgment recites that the carriers
ronmental contamination" because the Indiana Supreme
                                                                        "take nothing" against WHC, no party asserts the
Court had ruled the pollution exclusion in such policies
                                                                        judgment adjudges anything other than the finality
was ambiguous and unenforceable. The letter ended with
                                                                        of the order sustaining WHC's plea to the juris-
a request that the carriers contact WHC's counsel "to
                                                                        diction and dismissing the carriers' declarato-
arrange for payment of the costs of defense, indemnity
                                                                        ry-judgment claims without prejudice.
and possible settlement" of the matter.
                                                                 [*227] DISCUSSION
       2 The letter was written by counsel for WHC,
       Hitch, and Coaster Management, Inc., all de-                  The carriers challenge the trial court's order sustain-
       fendants in the Indiana suit. For simplicity and         ing WHC's plea to the jurisdiction. The carriers list four
       because WHC is the only appellant before the             "issues" on appeal, yet the questions presented are
       Court, we reference only WHC.                            sub-parts of the first issue of whether the trial court erred
                                                                in granting WHC's plea to the jurisdiction [**6] based
     The carriers issued a formal response, denying cov-
                                                                on lack of subject-matter jurisdiction. We address that
erage for the environmental cleanup claims asserted in the
                                                                issue.
Indiana suit.3 Shortly thereafter, [**4] the carriers filed
the petition 3 for declaratory judgment in Texas against
                                                                Legal Standards & Applicable Law
WHC, Hitch, and Bargain Cleaners, Inc.4 that is the sub-
ject of this appeal. The carriers sought a judicial declara-         Subject-matter jurisdiction is essential to a trial
tion that they had no duty to defend or indemnify WHC           court's power to decide a case and may be challenged by a
and Hitch in the Indiana suit under any of the policies         plea to the jurisdiction. Bland Indep. Sch. Dist. v. Blue, 34
because of the pollution exclusions contained in the poli-      S.W.3d 547, 553-54 (Tex. 2000). The question of whether
cies. The carriers also alleged WHC was not entitled to         a trial court has subject-matter jurisdiction is one of law
coverage in the capacity of an additional insured under the     that we review de novo. Tex. Dep't of Parks & Wildlife v.
other defendants' policies.                                     Miranda, 133 S.W.3d 217, 226 (Tex. 2004); Noell v. Air
                                                                Park Homeowners Ass'n, Inc., 246 S.W.3d 827, 831 (Tex.
       3 The letter denying coverage is not included in         App.--Dallas 2008, pet. denied). The plaintiff bears the
       the record before us. WHC asserts, and the carriers      burden to plead facts affirmatively demonstrating the
       do not dispute, that the letter was dated February       court's jurisdiction to hear the case. Miranda, 133 S.W.3d
       25, 2009. There is also no dispute that the letter       at 226 (citing Tex. Ass'n of Bus. v. Tex. Air Control Bd.,
       indicated the carriers were denying coverage for         852 S.W.2d 440, 446 (Tex. 1993)). When reviewing a trial
       the claims brought against WHC in the Indiana            court's order dismissing a case for lack of jurisdiction, we
       suit.                                                    liberally construe the plaintiff's pleadings in favor of
       4 Bargain, a Texas corporation, is a defendant           jurisdiction, and we look to the plaintiff's intent. Tex.
       in the Indiana suit but is not a party to this appeal.   Ass'n of Bus., 852 S.W.2d at 446.
     WHC and Hitch filed a plea to the jurisdiction and              The Texas Uniform Declaratory Judgments Act gives
special exceptions in response to the carriers' declarato-      Texas courts the power to "declare rights, status, and other
ry-judgment action, challenging the trial court's sub-          legal relations whether or not further [**7] relief is or
ject-matter jurisdiction. They argued the carriers were, in     could be claimed." TEX. CIV. PRAC. & REM. CODE ANN. §
effect, seeking "a declaration that their denial of coverage    37.003(a) (West 2008). The Act is a remedial statute, the
to [WHC and Hitch] [**5] was not a breach of their              purpose of which is to settle and afford relief from un-
insurance contract" and such a determination is not a           certainty and insecurity with respect to those matters, and
                                                                                                                    Page 3
                                   372 S.W.3d 223, *; 2012 Tex. App. LEXIS 4508, **


is to be liberally construed and administered. Id. §                In Texas, the determination of whether a carrier has
37.002(b); Bonham State Bank v. Beadle, 907 S.W.2d 465,        the responsibility to defend its insured constitutes a justi-
467 (Tex. 1995); Cobb v. Harrington, 144 Tex. 360, 190         ciable controversy. See Bituminous Cas. Corp. v. Com-
S.W.2d 709, 713 (Tex. 1945) (declaratory-judgment action       mercial Standard Ins. Co., 639 S.W.2d 25, 26 (Tex. 1982);
is "an instrumentality to be wielded in the interest of        Colony Ins. Co. v. H.R.K., Inc., 728 S.W.2d 848, 852 (Tex.
preventative justice and its scope should be kept wide and     App.--Dallas 1987, no writ); see also MBM Fin. Corp. v.
liberal, and should not be hedged about by technicali-         Woodlands Operating Co., L.P., 292 S.W.3d 660, 668
ties").                                                        (Tex. 2009) (noting suit by insurers to declare
                                                               non-liability under duty-to-defend clause as among most
     The Act does not create or augment a trial court's
                                                               common suits filed under the Act). Likewise, the deter-
subject-matter jurisdiction--it is "merely a procedural
                                                               mination of whether a carrier has a duty to indemnify is
device for deciding cases already within a court's juris-
                                                               [**10] justiciable before the underlying suit proceeds to
diction." Tex. Ass'n of Bus., 852 S.W.2d at 444. A declar-
                                                               judgment when the same reasons that negate the carrier's
atory-judgment action will lie within the trial court's
                                                               duty to defend also negate any possibility the carrier will
subject-matter jurisdiction when a justiciable controversy
                                                               have to indemnify for any judgment. Farmers Tex. Cnty.
exists as to the rights and status of the parties before the
                                                               Mut. Ins. Co. v. Griffin, 955 S.W.2d 81, 83 (Tex. 1997)
court for adjudication, and the requested declaration will
                                                               (per curiam); Collier v. Allstate Cnty. Mut. Ins. Co., 64
actually resolve the controversy. Brooks v. Northglen
                                                               S.W.3d 54, 62 (Tex. App.--Fort Worth 2001, no pet.).
Ass'n, 141 S.W.3d 158, 163-64 (Tex. 2004); OAIC Com-
mercial Assets, L.L.C. v. Stonegate Vill., L.P., 234 S.W.3d
                                                               Analysis
726, 745 (Tex. App.--Dallas 2007, pet. denied). [**8] A
justiciable controversy is one in which a real and sub-             We begin with the statute and look to the carriers'
stantial controversy exists involving a genuine conflict of    petition for declaratory judgment to determine whether
tangible interest and not merely a theoretical dispute.        they pleaded a controversy within the scope of the Act.
Bonham State Bank, 907 S.W.2d at 467; Trinity Universal        See Miranda, 133 S.W.3d at 226. Under the Act, any
Ins. Co. v. Sweatt, 978 S.W.2d 267, 270 (Tex. App.--Fort       "person interested" under a written contract "may have
Worth 1998, no. pet.) (justiciable controversy is "real        determined any question of construction or validity"
controversy between the parties that will be actually de-      arising under that contract and "obtain a declaration of
termined by the judicial declaration sought"). A justicia-     rights, status, or other legal relations thereunder." TEX.
ble controversy is to be distinguished from an advisory        CIV. PRAC. & REM. CODE ANN. § 37.004(a); cf. Trinity
opinion, which is prohibited under the Texas and federal       Universal Ins. Co., 978 S.W.2d at 271 ("Construction and
constitutions. Tex. Ass'n of Bus., 852 S.W.2d at 444. If a     validity of contracts are the most obvious and common
justiciable controversy does not exist, the trial court must   uses of the declaratory judgment action."); Barnett v .
dismiss the case for lack of subject-matter jurisdiction. Di   Aetna Life Ins. Co., 723 S.W.2d 663, 665 (Tex. 1987)
Portanova v. Monroe, 229 S.W.3d 324, 330 (Tex.                 (insurance policies are contracts). The contract may be
App.--Houston [1st Dist.] 2006, pet. denied).                  construed before or after the breach, [**11] TEX. CIV.
                                                               PRAC. & REM. CODE ANN. § 37.004(b), and the Act con-
      [*228] Ripeness is one aspect of justiciability. See
                                                               templates declarations that are negative (nonliability) and
Noell, 246 S.W.3d at 832 (citing Perry v. Del Rio, 66
                                                               affirmative (liability). Id. § 37.003(b).
S.W.3d 239, 249 (Tex. 2001)). But a justiciable contro-
versy need not be a "fully ripened cause of action." Id.            The carriers alleged that they issued liability cover-
(citing Tex. Dep't of Pub. Safety v. Moore, 985 S.W.2d         age policies to WHC and the other defendants in the In-
149, 153 (Tex. App.--Austin 1998, no pet.)). To confer         diana suit. They pleaded WHC notified them of the In-
jurisdiction on the trial court, the fact [**9] situation      diana suit in the August 2008 letter and "asserted [it was]
must manifest the "ripening seeds of a controversy."           entitled to coverage as a named insured under certain
Moore, 985 S.W.2d at 153-54. Thus, a declarato-                comprehensive general liability insurance policies that
ry-judgment action may include a pending cause of action       [the carriers] purportedly issued to [WHC] from 1997 to
or threatened litigation in the immediate future that seems    2001." The carriers further pleaded WHC asserted enti-
unavoidable. Monk v. Pomberg, 263 S.W.3d 199, 207              tlement to coverage as an "additional insured" under
(Tex. App.--Houston [1st] Dist. 2007, no pet.); Taylor v.      policies issued to the other defendants in the Indiana suit.
State Farm Lloyds, Inc., 124 S.W.3d 665, 669 (Tex.             The carriers stated they "formally denied coverage" and
App.--Austin 2003, pet. denied) ("[T]here must either be a     that they are "seeking a judicial declaration that they have
pending cause of action between the parties or such a clear    no coverage obligation" as to [*229] WHC. In partic-
indication of the extent of the parties' differences that a    ular, the requested declaration includes construing the
court may presume one is imminent.").                          "who is an insured" provision in the various policies to
                                                               determine WHC's status under each policy (as an insured,
                                                                                                                       Page 4
                                   372 S.W.3d 223, *; 2012 Tex. App. LEXIS 4508, **


additional insured, or otherwise), as well as the pollution             post-denial-of-coverage invocation of the declar-
exclusion to determine if the exclusion precluded cover-                atory judgment remedy." This distinction is not
age.                                                                    helpful to our analysis of whether the specific
                                                                        pleading and circumstances here presented a jus-
     That the Act allows the carriers to [**12] have a
                                                                        ticiable controversy invoking the trial court's
trial court declare their rights under the insurance con-
                                                                        subject-matter jurisdiction.
tracts is clear--as parties to those contracts, they are
"persons interested" whose rights, status, or other legal             WHC presents essentially three arguments support-
relations are affected by the contracts. See id. § 37.004(a).   ing its claim the trial court had no subject-matter juris-
The carriers sought to obtain a clarification of those rights   diction because of a lack of justiciable controversy. First,
and guidance from the court with respect to what they           it argues any controversy among the parties was "effec-
were required to do under the contracts. They specifically      tively mooted" when the carriers denied its request for a
asked the court to determine questions of construction as       defense and indemnity. According to WHC, a carrier may
to WHC's status as an insured and the validity of the           not both deny coverage and then sue for a declaration of
pollution exclusion under the contracts. Stated more            its rights under the insurance policy. WHC claims these
generally, they are asking the trial court to construe cer-     two options are mutually exclusive. It argues that when
tain terms or provisions of the contracts to determine          the carriers denied coverage, they had "no need" to seek
whether they owe WHC a defense or indemnity. The                declaratory relief because the carriers themselves "had
resolution of their questions would serve to remove un-         already determined the parties' rights" and therefore faced
certainties with respect to their legal obligations--WHC        "no uncertainty or insecurity with respect to [their]
notified them expressly the pollution exclusion is unen-        [**15] rights, [*230] status, or legal relations" under
forceable and demanded a defense and indemnity as an            the policies.
insured and "additional insured" under the policies. See id.
                                                                     As support for its contentions, WHC relies on
§ 37.002(b) (purpose of Act is to afford relief from un-
                                                                Drawdy v. Direct General Insurance Company, 277 Ga.
certainty and insecurity with respect to rights). In arguing
                                                                107, 586 S.E.2d 228 (Ga. 2003), in which the Georgia
the trial court lacked jurisdiction to hear this case, WHC
                                                                Supreme Court precluded a carrier from bringing a de-
does [**13] not assert that the carriers' requested relief is
                                                                claratory-judgment action after the carrier expressly de-
not authorized by the terms of the Act. Nor does it deny
                                                                nied coverage. In Drawdy, the insured's nephew was
that courts routinely exercise jurisdiction over declarato-
                                                                involved in two automobile accidents, one of which killed
ry-judgment actions that resolve questions related to a
                                                                his passenger. Id. at 229. The carrier conducted an inves-
carrier's obligations to defend or indemnify an insured
                                                                tigation, and one month later, sent the insured and the
under a policy. Rather, WHC focuses on the fact that the
                                                                passenger's estate a letter denying all coverage under the
carriers denied coverage to WHC before they sought
                                                                policy for the collisions. Id. Nearly a year later, the carrier
declaratory relief.6
                                                                sought a declaration that it had no duty to defend or in-
                                                                demnify the insured or his nephew. Id.
       6 WHC attempts to distinguish cases cited by
       the carriers in which the facts reveal the carriers in        The Georgia Supreme Court first framed the question
       those cases also filed declaratory-judgment ac-          before the court, in part, as "whether an automobile in-
       tions after denying coverage. See, e.g., Collier, 64     surer, after expressly denying coverage without qualifi-
       S.W.3d at 57 ("Upon being sued, [insureds] re-           cation or conditions, may bring an action for declaratory
       quested that Allstate provide a defense and in-          judgment to determine its contractual duties to its insured
       demnify them for any judgment in the suit . . . .        when no litigation is pending against the insured at the
       Allstate denied coverage and asserted that it had        time the declaratory judgment action is filed . . . ." Id.
       no duty to defend or indemnify" and filed an ac-         (emphasis added). The court recited that declaratory relief
       tion seeking declaratory relief.); Flores v. Great       was [**16] not available to a party "merely to test the
       Am. Ins. Co., 401 S.W.2d 690, 692 (Tex. Civ.             viability of its defenses" and concluded the carrier was
       App.--Waco 1966, writ ref'd n.r.e.) ("Flores gave        "neither uncertain nor insecure" as to its rights because the
       notice to plaintiff Insurance Company and called         carrier had already denied coverage for the claims at is-
       upon it to defend the suit. Great American de-           sue. Id. at 230. When the carrier sought declaratory relief
       clined to defend, and filed this case for declaratory    nearly a year after the accident, it had provided its insured
       judgment that it had no obligation to defend (or         with "an unconditional and unqualified denial of cover-
       pay judgment)."). [**14] WHC maintains these             age" and had done nothing to indicate the question of
       cases do not address or hold that "an insurer can        coverage was still an issue. Id. at 230-31.
       properly seek declaratory relief after it denies
                                                                     At the time the carrier in Drawdy filed the declara-
       coverage to its insured" because there was no
                                                                tory-judgment action, no lawsuit had been filed by the
       challenge in those cases to the "insurer's
                                                                                                                      Page 5
                                    372 S.W.3d 223, *; 2012 Tex. App. LEXIS 4508, **


passenger's estate and no demand for coverage had been                Of course, the Act does not constitute "an open-ended
made by the insured. Even though the estate eventually           invitation to parties seeking interpretation of their con-
filed suit against the insured, no facts were presented          tracts." Paulsen v. Tex. Equal Access to Justice Found., 23
indicating the insured had presented the claim to the car-       S.W.3d 42, 46 (Tex. App.--Austin 1999, pet. denied).
rier or that he intended to rely on the carrier for coverage.    [**19] Although the status of the parties' differences need
The insured took no position whatsoever on coverage.             not have reached the state of an actual controversy, a
Thus, the facts of Drawdy reveal there was no real dispute       justiciable controversy within the trial court's jurisdiction
between the carrier and its insured requiring direction          requires an indication of ripeness to the extent the trial
from the court. Significantly, the Georgia Declaratory           court may presume a cause of action is imminent or un-
Judgment Act has no direct corollary to the Texas Act's          avoidable as indicated by the parties' differences over the
provision permitting any person interested [**17] under          insurance contract. Taylor, 124 S.W.3d at 669.
a "written contract" to seek a declaration to resolve ques-
                                                                      WHC's second contention focuses on the imminence
tions related to the construction or validity of that con-
                                                                 of a cause of action, and it argues there is no imminent
tract. Compare GA. CODE ANN. §§ 9-4-1 to -10, with TEX.
                                                                 disagreement among the parties because it was not going
CIV. PRAC. & REM. CODE ANN. § 37.004(a). Consequently,
                                                                 to contest the carriers' denial of coverage. In oral argu-
WHC's reliance on Drawdy is not persuasive.
                                                                 ment, WHC characterized its August 2008 letter in which
     Just because a carrier takes a position and denies          it asserted entitlement to a defense and indemnity (and
coverage to an insured does not mean there is no coverage        cited a ruling from the Indiana Supreme Court that the
and that the matter has been resolved. A court can deter-        pollution exclusion is unenforceable) as mere tender of a
mine otherwise. And uncertainty can exist with respect to        lawsuit as required under its policies. WHC claims that in
the parties' rights or duties regarding coverage, especially     the absence of a showing that it threatened the carriers
when the parties take adverse positions on a carrier's           with litigation or otherwise disputed the carriers' coverage
obligations under an insurance contract. See Aetna Life          denial, such tender cannot constitute a justiciable con-
Ins. Co. of Hartford, Conn. v. Haworth, 300 U.S. 227,            troversy.
242, 57 S. Ct. 461, 81 L. Ed. 617 (1937) (concluding
                                                                       The only record support for WHC's claim it does not
controversy existed warranting declaratory judgment
                                                                 intend to contest the denial of coverage is counsel's
when carrier denied insured's claim but insured had yet to
                                                                 statement in a response [**20] to the carriers' motion to
file coverage dispute because parties took opposing posi-
                                                                 compel that WHC "simply does not have the funds
tions as to existing obligations before suit filed); see also
                                                                 available to it to fight the deep-pocketed" carriers and "is
J.E.M. v. Fid. & Cas. Co. of N.Y., 928 S.W.2d 668, 671
                                                                 willing to enter a mutually acceptable agreed judgment to
(Tex. App.--Houston [1st Dist.] 1996, no writ) (Act is
                                                                 the effect that it is not entitled to coverage for the under-
intended "as a means for determining the rights of parties
                                                                 lying suit." But the record contains no formal withdrawal
when a controversy has arisen").
                                                                 of WHC's request for a defense and indemnity, no
       [*231] Under the Texas Act, either [**18] party           agreement that it was not entitled to coverage under any of
may seek declaratory relief if there is a question regarding     the policies, no waiver, concession, or settlement of the
rights, status, or other legal relations arising under a         claims, or anything else to indicate WHC had changed or
written contract. See TEX. CIV. PRAC. & REM. CODE ANN. §         relinquished its position of entitlement and demand for
37.004(a). If WHC had filed the declaratory-judgment             coverage as stated in its August 2008 letter. And in oral
suit instead of the carriers after the carriers' denial, there   argument, WHC admitted it had not done anything to
would be no question that the controversy is of a justici-       establish it was not contesting coverage. We decline to
able nature. The inquiry is "essentially the same" whether       make the existence of a justiciable controversy dependent
it is presented by the insured or the carrier. See Haworth,      on the subjective state of mind and intention of one party.
300 U.S. at 244 (stating it is "the nature of the contro-        It is enough that WHC took the position it is entitled to
versy, not the method of its presentation or the particular      defense costs and indemnity and the carriers disputed that
party who presents it, that is determinative"). And a dec-       position for a justiciable controversy to exist. See Ha-
laration of rights under the circumstances presented has         worth, 300 U.S. at 242.
practical consequences. For example, if the trial court
                                                                      Finally, WHC argues the trial court had no jurisdic-
made declarations in WHC's favor, the carriers would
                                                                 tion to render a declaratory [*232] judgment because
have to change course and provide WHC with a defense.
                                                                 after the carriers denied coverage, [**21] the "only
If the trial court made declarations in the carriers' favor,
                                                                 thing" left for the trial court to declare was whether that
the carriers would be relieved of any requirement that they
                                                                 denial constituted a breach of the insurance contracts.
maintain a reserve with respect to those policies. See id. at
                                                                 WHC claims such a declaration is improper. This argu-
239.
                                                                 ment also is not persuasive. Contrary to WHC's assertion,
                                                                 the carriers asked the trial court to construe certain pro-
                                                                                                                    Page 6
                                   372 S.W.3d 223, *; 2012 Tex. App. LEXIS 4508, **


visions of the insurance contract and determine WHC's           S.W.2d at 83. Consequently, the trial court had sub-
rights and the carriers' duties in the context of the Indiana   ject-matter jurisdiction over this case, and the trial court
suit; the carriers asked the trial court to determine whether   erred when it sustained WHC's plea to the jurisdiction and
WHC was an insured or additional insured and whether            dismissed the action. We sustain the carriers' issue. We
the pollution exclusion applied. The petition for declara-      reverse the trial court's judgment and remand this case for
tory judgment contains no request to have the trial court       further proceedings.
determine whether the carriers breached any terms of the
                                                                    MARY MURPHY
insurance contracts.
                                                                    JUSTICE
CONCLUSION
                                                                JUDGMENT
     After considering the carriers' allegations for declar-
atory relief and the arguments of the parties, we conclude           In accordance with this Court's opinion of this date,
the trial court was presented with a real controversy           the judgment of the trial court is REVERSED and this
among the parties involving a genuine conflict of tangible      cause is REMANDED to the trial court for further pro-
interest that was within the scope of the Act. See Bonham       ceedings. It is ORDERED that appellants Transportation
State Bank, 907 S.W.2d at 467; Trinity Universal Ins. Co.,      Insurance Company, National Fire Insurance Company of
978 S.W.2d at 270. Specifically, the carriers' request for      Hartford, Valley Forge Insurance Company, and Conti-
the court to determine whether it owed WHC a defense in         nental Casualty Company recover their costs of this ap-
the Indiana suit [**22] is a justiciable issue. See Bitu-       peal from appellee WH Cleaners, Incorporated.
minous Cas. Corp., 639 S.W.2d at 26. And because the
                                                                    Judgment entered June [**23] 7, 2012.
same provisions (the "who is an insured" provision and
pollution exclusion) the carriers claim negate their duty to        /s/ Mary Murphy
defend would also negate the possibility they will have to
indemnify WHC for any judgment, the question of                     MARY MURPHY
whether the carriers owe WHC a duty to indemnify is also            JUSTICE
a justiciable issue for declaratory relief. See Griffin, 955
                                                                                                                         Page 1
                                      411 S.W.3d 42, *; 2013 Tex. App. LEXIS 10090, **




                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

                          COURT OF APPEALS OF TEXAS, FIRST DISTRICT, HOUSTON

                                         411 S.W.3d 42; 2013 Tex. App. LEXIS 10090


                                                August 13, 2013, Opinion Issued

SUBSEQUENT HISTORY: Appeal dismissed by, Sub                        its breach of contract claim; (4) Triton's summary judg-
nomine at Bjvsd Bird Family P'ship, L.P. v. Star Elec.,             ment evidence raised genuine issues of material fact as to
413 S.W.3d 780, 2013 Tex. App. LEXIS 10088 (Tex. App.               one or more elements of StarTex's breach of contract
Houston 1st Dist., Aug. 13, 2013)                                   claim; (5) genuine issues of material fact existed as to
                                                                    Triton's claims for offset and credit based on StarTex's
PRIOR HISTORY: [**1]                                                [**2] use of improper and incorrect billing and StarTex's
  On Appeal from the 190th District Court, Harris                   use of estimated billing; (6) genuine issues of material fact
County, Texas. Trial Court Case No. 0958846.                        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
COUNSEL: For APPELLANT: Anthony L. Laporte,                         material fact existed regarding whether Triton objected
Benjamin C. Wilson, Kent M. Hanszen, Hanszen Laporte,               [*47] to StarTex's billing practices and procedures and
L.L.P., Houston, TX.                                                to invoices submitted to Triton by StarTex and whether
                                                                    StarTex failed to fulfill its legal obligations for handling
For APPELLEE: Joshua Huber, Rodney Lee Drinnon,                     such complaints.
Ronald Edward Wright, Jr., Drinnon & Wright, PLLC,
                                                                         Triton further argues that (8) StarTex's failure to
Houston, TX.
                                                                    comply with the legal requirements for handling com-
                                                                    plaints concerning retail electric service and Triton's
JUDGES: Panel consists of Justices Keyes, Sharp, and
                                                                    pending complaint against StarTex before the Texas
Huddle. Justice Sharp concurring in the judgment only.
                                                                    Public Utility Commission acted to stay the judgment and
                                                                    enforcement of the judgment. Triton attacks the trial
OPINION BY: Evelyn V. Keyes
                                                                    court's damages award, arguing that the trial court erred in
                                                                    awarding StarTex (9) liquidated damages pursuant to the
OPINION
                                                                    early termination provisions in the contract because such
       [*46] Appellants, Triton 88, L.P. f/k/a Triton 88,           an award constitutes an impermissible and unenforceable
L.L.C. and Triton 2000, L.L.C. (collectively, "Triton"),            penalty; (10) early termination fee damages based on
appeal the trial court's grant of summary judgment and a            unidentified and unproven monthly billings; (11) early
receivership order entered in favor of appellee, Star               termination fee damages [**3] based on estimated bill-
Electricity, L.L.C. d/b/a StarTex Power ("StarTex").                ing and billings for periods outside the term of the con-
Triton presents fourteen issues for appellate considera-            tract that Triton allegedly terminated early; and (12) at-
tion. In its first seven issues, Triton argues that (1) the trial   torney's fees because the fees awarded were excessive and
court erred in granting summary judgment in favor of                unreasonable, were for legal services not proven to be
StarTex on its breach of contract claim because (2) the             necessary, and were not properly proven by the summary
trial court misinterpreted and misapplied the law appli-            judgment evidence. Finally, Triton appeals the order of
cable to the claims and defenses asserted by the parties;           the trial court appointing a receiver, arguing that (13) the
(3) StarTex's summary judgment evidence did not estab-              trial court erred in appointing a receiver and ordering
lish that it was entitled to judgment as a matter of law on         Triton to turn over to the receiver confidential records and
                                                                                                                   Page 2
                                   411 S.W.3d 42, *; 2013 Tex. App. LEXIS 10090, **


all proceeds and revenue generated by Triton's businesses               [StarTex] shall render to Customer
and that (14) Triton is entitled to immediate relief from           [Triton] on a monthly basis, or as mutually
the order appointing a receiver and is entitled to recover          agreed by [StarTex] and Customer but not
all records and revenue turned over pursuant to the order,          less frequent than monthly, an invoice that
including all funds that have been disbursed, paid, relin-          is due and payable fifteen (15) days from
quished, distributed, or in any way disposed of by the              the date of the invoice. If the payment of
receiver.                                                           all undisputed amounts is not received by
                                                                    the due date, Customer will be charged a
    We affirm.
                                                                    late fee equal to five percent (5%) of the
                                                                    past due amount. Customer must provide
Background
                                                                    to [StarTex] [**6] written notice setting
      Texas deregulated its electric utility market begin-          forth in particular detail any disputed
ning in 1999. See TEX. UTIL. CODE ANN. § 39.051(a)                  amount, including the calculations with
(Vernon 2007) ("On or before September 1, 2000, each                respect to any errors or inaccuracies
electric utility shall separate from its regulated utility          claimed. If it is subsequently determined
activities its customer energy services business activities         that Customer owes [StarTex] any portion
that are otherwise [**4] also widely available in the               of the disputed amount, Customer shall
competitive market."); Tex. Indus. Energy Consumers v.              remit to [StarTex] within five (5) business
CenterPoint Energy Houston Elec., LLC, 324 S.W.3d 95,               days following such resolution the out-
97 (Tex. 2010). The Utilities Code provides that electric           standing balance plus interest . . . . Any
utilities must separate their business activities from one          amounts that may have been overpaid or
another into three units: (1) a power generation company;           underpaid shall be applied to the next
(2) a retail electric provider; and (3) a transmission and          monthly invoice.
distribution utility. TEX. UTIL. CODE ANN. § 39.051(b).
     Retail electric providers, like StarTex, essentially buy
electricity from a transmission and distribution utility and     The ESA also contained the following language:
resell it to Texas consumers. See AEP Tex. N. Co. v. Pub.
Util. Comm'n of Tex., 297 S.W.3d 435, 439 (Tex.                        Early Termination Fee. In the event
App.--Austin 2009, pet. denied) (citing TEX. UTIL. CODE             that Customer terminates this agreement or
ANN. § 39.051). The transmission and distribution utility's         Customer defaults as described [below],
rates are still regulated by the Texas Public Utility               then an Early Termination Fee will be as-
Commission ("PUC"). Tex. Indus. Energy Consumers,                   sessed. The Early Termination Fee shall be
324 S.W.3d at 97. Transmission and distribution utilities           equal to the greater of a) the three months
provide metering services, charge retail electric providers         highest bills for Customer or b) any mark
for "nonbypassable delivery charges" under rates ap-                to market costs. For purposes of this fee
proved by the PUC, and may also bill retail customers               the mark to market costs shall be calcu-
directly at the request of the retail provider. Id. at 97-98.       lated by multiplying the difference be-
Thus, Texas's electric utilities have "voluntarily [**5]            tween the initial cost of power procured to
interconnected their transmission systems" to form a                satisfy the ESA and the final net liquidated
single grid managed by the Electric Reliability Council of          value of said power at the time of termi-
Texas ("ERCOT"). Pub. Util. Comm'n of Tex. v. City Pub.             nation by the total amount of power pro-
Serv. Bd. of San Antonio, 53 S.W.3d 310, 312 (Tex. 2001).           cured from the Customer Location for the
Electricity is produced by a generating facility, transmit-         remainder of the original term of the ESA.
ted to a point of interconnection with the ERCOT grid,              ...
[*48] and then distributed to end users who purchase it
                                                                        ....
from retail electric providers.
                                                                         Customer        [**7] Acknowledg-
     It is in this context that Triton, as owner of five
                                                                    ments. Customer acknowledges that
commercial buildings, entered into an Electric Services
                                                                    [StarTex's] ability to invoice Customer is
Agreement ("ESA") in May 2006 with StarTex, a retail
                                                                    dependent on the [transmission and dis-
electricity provider. StarTex agreed to supply Triton with
                                                                    tribution provider (TDSP)]'s or ERCOT's
electricity, and Triton agreed to pay at a fixed rate for a
                                                                    ability to furnish [StarTex] all necessary
term of twelve months. Regarding invoicing and payment,
                                                                    information including meter readings or
the ESA provided that
                                                                    recorded data, as applicable. In the absence
                                                                    of such information from the TDSP or
                                                                                                                  Page 3
                                 411 S.W.3d 42, *; 2013 Tex. App. LEXIS 10090, **


       ERCOT, [StarTex] may invoice Customer                      are disputed by Customer will be replaced
       based on estimated meter reading accord-                   by the original Agreement's terms and
       ing to the Usage Profile. As soon as prac-                 conditions.
       tical, and after receipt of Customer's En-
       ergy Consumption and settlement charges
       from the TDSP and/or ERCOT, [StarTex]
                                                               In 2008, the parties again extended their agreement
       will reconcile on the next invoice any dif-
                                                           under the MCPE pricing terms for a term of thirty-six
       ference(s) between estimated and actual
                                                           months ("Second Amendment"). The Second Amendment
       consumption and settlement charges.
                                                           contained language identical to that in the First Amend-
           ....                                            ment, except that the term of the Second Amendment
                                                           commenced "upon the Customer's normal meter read
            Event of Default. An Event of De-
                                                           during the month of May [**9] 2008 and continued
       fault occurs upon:
                                                           through the Customer's normal meter read during the
                                                           month of May 2011."
                 a. failure of Customer to
              pay amounts due under the                         Triton objected to some of StarTex's billing practices.
              ESA within 5 business days                   This eventually led to Triton's terminating its contract
              of receipt of written notice                 with StarTex in October 2008 and seeking electricity from
              of payment due;                              a different retail electricity provider.
                 b. failure of either Party
                                                                On September 14, 2009, StarTex filed suit against
              to perform a material term
                                                           Triton alleging breach of contract, and, in the alternative,
              of this ESA[.]
                                                           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, copies of the ESA and
     In April 2007, Triton and StarTex extended their
                                                           First and Second Amendments, copies of its unpaid in-
agreement, under modified terms, for another twelve
                                                           voices, and a claim presentment letter from its counsel to
months ("First Amendment"). Triton elected to replace
                                                           Triton demanding payment of the unpaid amounts.
the fixed-rate pricing schedule with the Market Clearing
Price of Energy [*49] ("MCPE"). The First Amend-                On October 12, 2009, Triton answered. Triton gen-
ment [**8] provided:                                       erally denied StarTex's allegations and asserted that the
                                                           liquidated damages provision was invalid and unen-
          1. PRICE FOR ENERGY: The term for                forceable and that the attorney's fees sought were not
       this Amendment shall commence upon the              reasonable and necessary.
       Customer's normal meter read during the
                                                               Triton [**10] also asserted that
       month of May 2007, and continue through
       the Customer's normal meter read during
                                                                      the account on which [StarTex] sues . . .
       the month of May 2008. Customer agrees
                                                                  is not just and true, and all just and lawful
       to purchase electricity from STARTEX at
                                                                  offsets, payments, and credits have not
       a variable rate based on the Electric Reli-
                                                                  been applied to [Triton's] account. [Triton]
       ability Council of Texas ("ERCOT")'s
                                                                  does not owe [StarTex] $319,094.11 in
       Balancing Energy price ("Contract Price")
                                                                  damages, because [StarTex] seeks to re-
       for the Congestion Zone in which the
                                                                  cover $197,323.95 in damages based on an
       Customer's location resides. The price
                                                                  invalid liquidated damages provision.
       calculated by ERCOT in the market for
                                                                  Furthermore, based on the inaccuracies in
       Balancing Energy is referred to as the
                                                                  [StarTex's] billing and estimates since
       Market Clearing Price for Energy
                                                                  2007,      [Triton]     also     challenge[s]
       ("MCPE") in the ERCOT protocols. . . .
                                                                  [StarTex's] allegation that [it owes]
           2. Except as herein changed and                        $105,034.18 to [StarTex] for services
       amended, the Agreement [ESA] shall re-                     rendered.
       main in full force and effect as written.
       Any changes made in this Amendment that
                                                                                                                  Page 4
                                 411 S.W.3d 42, *; 2013 Tex. App. LEXIS 10090, **


    Attached to its answer, Triton provided the affidavit          committed to make purchases every fifteen
of Bill Bird, who averred:                                         (15) minutes that mirror the kWh used by
                                                                   Triton during each fifteen (15) minute in-
          I am responsible for and have                            terval.
       knowledge of Triton's business dealings
       with Plaintiff [StarTex]. Triton began do-
       ing business with Plaintiff in 2006. In the          This argument was supported by the affidavit of Stephen
       summer of 2007, Plaintiff began providing            Madden, the Senior Vice-President of Supply for StarTex.
       usage estimates to Triton, which reflected
                                                                StarTex asserted that it provided power to Triton
       very high usage. Triton brought this issue
                                                            throughout the term of the contract and submitted in-
       to Plaintiff's attention, and the [*50]
                                                            voices to Triton "based on meter reads performed by
       issue was not resolved. Triton contests the
                                                            CenterPoint Energy ("CenterPoint"), the Transmission
       validity of Plaintiff's account, and denies
                                                            and/or Distribution Services Provider ("TDSP") for the
       that it owes $105,034.18 to Plaintiff for
                                                            Houston area." StarTex further argued that:
       services rendered.
                                                                       On several occasions, StarTex was re-
                                                                   quired to generate [Triton's] monthly in-
     On January 20, 2010, StarTex moved for summary                voice using estimated reads based on his-
judgment on its breach of contract claim. StarTex argued           torical usage. This was a result of
that [**11] the parties had a valid contract and that the          CenterPoint being unable to gain access to
First and Second Amendments of the contract required               [Triton's] meters to obtain the actual usage
Triton to pay for the electricity received under the MCPE          amounts. All such estimated reads were
pricing schedule through May 2011. Copies of the ESA               reconciled on subsequent invoices once
and First and Second Amendments were attached as                   CenterPoint obtained access to the meters,
summary judgment evidence. StarTex stated that "[t]he              such that the final invoice reflected only
MCPE is a variable rate plan wherein the price changes             actual usage. [**13] All estimated reads
every fifteen (15) minutes to reflect the supply and de-           and subsequent reconciliations were de-
mand for power in a particular market."                            tailed on [Triton's] monthly invoices.
    StarTex argued,

          Due to the numerous price changes                      StarTex provided invoices and the affidavit of Robert
       involved in an MCPE contract, StarTex                Verhage, the Director of Credit and Collections for
       had to customize its purchase to fit the             StarTex, substantiating these arguments. Verhage averred
       particular consumption needs of Triton.              that the invoices attached as summary judgment evidence
       Every customer's consumption needs dif-              were true and correct copies of Triton's monthly invoices.
       fer, and StarTex must carefully time its             Verhage testified that, after Triton terminated the ESA on
       purchases so that it has sufficient power            approximately October 19, 2008, "StarTex generated one
       for the customer during their peak usage             final invoice that contained the final, outstanding balance
       hours and so that it does not over-purchase          that was reconciled to correct all estimated reads." The
       during down times. This is referred to in            final invoice reflected that Triton owed $155,034.18, and
       the industry as the "shape" of a particular          Verhage averred that Triton subsequently made
       customer, and like a fingerprint, no two             $50,000.00 in payments, leaving $105,034.18 due and
       customers have an identical "shape." Tri-            owing. Thus, StarTex argued that Triton breached the
       ton's meters are located at commercial of-           ESA [*51] when it failed to pay for $105,034.18 worth
       fice buildings, and therefore, the "shape"           of electricity provided under the ESA and subsequent
       of StarTex's purchase was designed to                amendments.
       accommodate heavy usage from the hours
                                                                 StarTex also asserted that Triton breached the ESA
       of 8:00 a.m. to 5:00 p.m., with a slight
                                                            when it terminated the ESA early. StarTex stated in its
       [**12] decrease during the lunch hour, and
                                                            motion, and Madden averred in his affidavit, that when
       minimal usage for the remaining hours of
                                                            StarTex entered into the Second Amendment extending
       the day. Therefore, in order to service
                                                            the terms of the ESA through May 2011, it contracted
       Triton's Contract, not only did StarTex
                                                            with the [**14] electricity producer "to purchase enough
       commit to purchase sufficient power to
                                                            power to service the entire thirty-six (36) month term of
       cover the life of the Contract, but it also
                                                            the Second Amendment and the purchases were tailored
                                                                                                                     Page 5
                                   411 S.W.3d 42, *; 2013 Tex. App. LEXIS 10090, **


to fit Triton's particular 'shape'." Thus, the ESA contained    amendments were valid contracts. However, Triton as-
a liquidated damages clause for early termination of the        serted that StarTex "made several promises to [Triton]
contract which entitled StarTex to $197,323.95 in liqui-        and [orally] modified the terms of the parties' agree-
dated damages after Triton unilaterally terminated the          ments." Triton argued that Michael Gary, Triton's prop-
contract on October 10, 2008, approximately thirty-one          erty manager, "had several discussions with John Bejger,
months before the contract term was set to expire in May        a representative of StarTex, relating to StarTex's esti-
2011.                                                           mated usage and Triton's disputes over [*52] the
                                                                StarTex invoices." As supported by Gary's affidavit in
     StarTex argued, based on Madden's statements in his
                                                                Triton's summary judgment evidence, Gary represented to
affidavit, that this early termination clause was a valid
                                                                Bejger that the practice of estimating electricity usage for
liquidated damages provision because, "[i]n the case of an
                                                                several consecutive months was causing damage to Triton
MCPE contract, it is impossible to calculate the total
                                                                because Triton could not bill its tenants based on esti-
damages that stem from an early termination until the
                                                                mated billing. Gary also averred that Triton had "done
term of the breached contract has expired and StarTex has
                                                                everything in its power" [**17] to give CenterPoint
been able to complete its attempts at mitigating the
                                                                access to the meters and that Triton would not continue
damages." StarTex argued that it "must continue to pur-
                                                                the business relationship with StarTex "if the estimations
chase Triton's power from its supplier until May of 2011"
                                                                and errors in billing continued on a month to month ba-
and that it was required to "purchase this power in Triton's
                                                                sis." Gary further averred that Bejger represented that the
particular 'shape'" even though StarTex did not have an-
                                                                errors would be corrected, that StarTex was attempting to
other customer to sell it to because StarTex "would have
                                                                resolve the allegations that CenterPoint did not have ac-
to find a new customer who not [**15] only wants an
                                                                cess to Triton's meters, and "that StarTex's previous
MCPE contract, but has the exact same term and volume
                                                                practice of estimating usage of consecutive months would
requirements and 'shape' as Triton." StarTex thus calcu-
                                                                not continue." Gary stated that Triton entered into the
lated its liquidated damages as $197,323.25, based on the
                                                                Second Amendment based on these representations by
sum of Triton's three highest monthly bills because the
                                                                Bejger. Triton's response asserted that Gary's affidavit
mark-to-market losses were incapable of calculation until
                                                                about his discussions with Bejger raised a disputed issue
May 2011.
                                                                of material fact as to whether there was a meeting of the
     Finally, StarTex argued that it was entitled to attor-     minds in reaching a valid modification.
ney's fees on its breach of contract claim. It argued that,
                                                                     Triton also argued that it was excused from per-
under its fee agreement with its counsel, it would incur
                                                                forming under the ESA based on StarTex's material
attorney's fees "in an amount equal to twenty-five percent
                                                                breach of the agreements "when it failed to provide [Tri-
(25%) of all amounts recovered from [Triton]," or
                                                                ton] with accurate and correct billings for the electricity
$75,589.36, and that this amount was reasonable and
                                                                that it actually delivered." Triton's motion referenced the
necessary. The summary judgment motion was accom-
                                                                invoices sent by StarTex and provided details regarding
panied by the affidavit of Rodney Drinnon, counsel for
                                                                which specific invoices were based on estimated usage,
StarTex, who averred to the specific services provided by
                                                                including several instances [**18] in which it was in-
his firm and stated that the services described were rea-
                                                                voiced based on estimated usage in consecutive months.
sonable and necessary and that "twenty-five percent
(25%) is a reasonable contingency fee for the services               Triton presented Gary's affidavit, averring that Gary
provided."                                                      first contacted StarTex to resolve the billing problems
                                                                during the original term of the ESA and that StarTex
      On January 28, 2010, Triton amended its answer,
                                                                responded by saying that CenterPoint could not access
adding claims that StarTex "materially breached the con-
                                                                and read the electricity meters in Triton's buildings. Triton
tract, which was modified by agreement," that Triton
                                                                included in its summary judgment evidence various
"complied with the terms of the modified contract," that
                                                                e-mails between Gary and StarTex in which Gary raised
Triton was "discharged [**16] from performing under
                                                                questions and disputes over the amounts billed in the
the contract after [StarTex] materially breached same,"
                                                                invoices and StarTex provided information reconciling its
and that StarTex failed "to mitigate its damages as re-
                                                                charges. Gary's e-mails did not contain any specific cal-
quired under applicable law, limitation of warranty, lim-
                                                                culations or amounts with regard to the alleged errors or
itation of liability, laches, and waiver." Triton also sought
                                                                inaccuracies. StarTex's e-mail reflects that it sent Triton a
a continuance of the summary judgment hearing, which
                                                                spreadsheet demonstrating how StarTex reconciled the
the trial court granted.
                                                                bills and comparing Triton's usage and rates. Triton also
    On April 5, 2010, Triton responded to StarTex's             included an e-mail from CenterPoint to StarTex, received
summary judgment motion. Triton did not contest                 in response to StarTex's inquiry regarding the difficulty of
StarTex's statements that the ESA and subsequent
                                                                                                                    Page 6
                                   411 S.W.3d 42, *; 2013 Tex. App. LEXIS 10090, **


getting actual meter readings. The CenterPoint repre-                   o multiple corrections from earlier
sentative stated,                                                   months' estimated energy reading make
                                                                    analysis difficult; and
          I disagree that CenterPoint is at fault for
                                                                         o it is improbable that back to back
       the estimations. Triton does not provide us
                                                                    months would have the same exact energy
       unencumbered, permanent, ongoing access
                                                                    consumption readings and that demand
       to our meters. The estimation reasons
                                                                    would remain the same for several months
       [**19] are specific to each address, but on
                                                                    in a row.
       some accounts Triton has their meters
       locked inside a mechanical room to which
       we're supposed to go track down an em-
       ployee and a key, apparently unsuccess-                   Phillips provided his opinion about other errors and
       fully at times, perhaps because the right             problems with StarTex's billing practices, without
       employee can't be found. On other ac-                 providing specific contested amounts, and concluded:
       counts, we're supposed to enter through a
       locked gate where the gate code we have                          In summary, the total value of the errors
       on record has been changed. Triton has a                     I analyzed came to almost $97,000.00.
       responsibility to keep us updated if access                  This is not an inclusive value and with
       arrangements change.                                         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 cor-
     Triton's summary judgment evidence also included
                                                                    rect; however, I found that some of these
the affidavit of Jim Phillips, the Vice President of IEA
                                                                    numbers and values were not correct when
Engineering, an energy engineering company. Phillips
                                                                    compared to each other. To this amount
stated that he reviewed StarTex's billing invoices and
                                                                    and the other uncalculated errors, taxes
Triton's historical electricity usage. He averred that he
                                                                    must be added since they are a percentage
found
                                                                    of the energy [**21] and [TDSP] charg-
                                                                    es. The error value is therefore com-
           various and repeated errors and irregu-
                                                                    pounded.
       larities in the billings for the Triton [*53]
       buildings. These errors include, without
       limitation:
                                                                 Thus, Triton argued that it "created a fact issue on
            o several errors in math (multiplica-
                                                             each element of [its] affirmative defense" of prior material
       tion of energy consumption by the cost of
                                                             breach and that it raised a fact issue regarding whether
       energy);
                                                             StarTex conclusively proved the proper amount of dam-
            o excessive estimated energy read-               ages.
       ings;
                                                                 Triton further responded to StarTex's summary
           o estimated energy readings at one site           judgment motion by arguing that StarTex violated the
       (meter) while the next site (meter) was               ESA "by estimating Triton's electricity usage for no ap-
       actually read in the same month, again                parent justifiable reasons" and by estimating Triton's
       repeatedly;                                           usage over consecutive months.
            o three meters had a monthly load                     Triton also argued that summary judgment on the
       factor greater than 100%, which is an im-             liquidated damages issue was not proper "because (1) a
       possibility [**20] (LF is the maximum                 reasonable basis for estimating just compensation in an
       demand used over hours of the                         event of default does exist under the circumstances, and
       month--over 100% is more hours than in                (2) there are factual issues that must be resolved before
       that month);                                          the legal question of liquidated damages is determined."
                                                             Finally, Triton argued that StarTex was not entitled to
            o several examples where the ending
                                                             recover attorney's fees because it "made an excessive
       energy reading of one month did not match
                                                             demand on [Triton] before filing its lawsuit."
       the beginning reading of the next month;
                                                                  Triton also objected to Drinnon's affidavit, arguing
           o energy costs are not consistent
                                                             that it "wholly fails to describe the time that was required
       across meters in the same month;
                                                                                                                        Page 7
                                   411 S.W.3d 42, *; 2013 Tex. App. LEXIS 10090, **


and expended in prosecuting [StarTex's] claim, the hourly       awarded StarTex $197,323.25 "as liquidated damages for
rate usually charged [**22] by [StarTex's] counsel, the         [Triton's] early termination of the [ESA]." Finally, the
novelty and difficulty of the questions involved in this        trial court awarded StarTex $12,000 as reasonable and
lawsuit, and the skill required to perform the legal service    necessary attorney's fees, as well as additional attorney's
properly under the circumstances." Triton also objected         fees conditioned on an unsuccessful appeal by Triton.
because Drinnon's affidavit was not supported by any
                                                                       On May 12, 2010, StarTex moved for a turnover or-
documents other than the engagement letter.
                                                                der.
     On April 13, 2010, StarTex replied to Triton's re-
                                                                     On May 25, 2010, Triton moved for reconsideration
sponse. StarTex presented the affidavit of John Bejger,
                                                                or a new trial. Triton supported this motion with new
contesting Gary's representations that the parties entered
                                                                affidavits from Jim Phillips, Michael Gary, and Montague
[*54] into an oral modification of their agreement.
                                                                Morgan, attorney for Triton, who attempted to authenti-
StarTex also argued that, "because the TDSP
                                                                cate documents attached to Phillips' affidavit. StarTex
[CenterPoint], not StarTex, is solely authorized by the
                                                                objected to and moved to strike these affidavits on the
State of Texas to provide actual and estimated readings[,]
                                                                ground that Triton did not timely file them and on the
Bejger would not have made" any representations re-
                                                                ground that Gary's affidavit was not based on his personal
garding discontinuing the use of estimated meter readings
                                                                knowledge and was made in bad faith. The trial court
in the monthly invoices. Finally, StarTex argued that the
                                                                granted StarTex's motion and struck the affidavits
parties entered into the Second Amendment after the
                                                                [**25] of Phillips, Gary, and Morgan that were attached to
alleged oral representations and thus Triton's argument
                                                                Triton's motion for new trial.1
that Texas law allows modification of a written agreement
by later oral representations was inapplicable.
                                                                         1 StarTex moved this Court to strike the affi-
     StarTex also argued that it did not breach the ESA.                 davits Triton submitted with its motion for recon-
Specifically, StarTex argued that Phillips, Triton's energy              sideration or new trial from the appellate record.
engineer expert, did not specifically identify [**23] any                Those affidavits were part of Triton's motion, and
breach by StarTex. StarTex argued that it was permitted                  "any filing that a party designates to have included
by the ESA and Texas law to bill Triton based on esti-                   in the record" is a proper part of the clerk's record.
mated usage; that, under the terms of the ESA, it is irrel-              TEX. R. APP. P. 34.5(a)(13). Therefore, we DENY
evant why CenterPoint provided Triton's estimated usage                  StarTex's motion. We note, however, that the af-
rather than actual usage; and that Triton did not follow the             fidavits attached to Triton's motion for reconsid-
contractual provisions requiring it to pay undisputed por-               eration or new trial are not relevant to our review
tions of the invoice and to set forth in detail "calculations            of the trial court's summary judgment. See TEX. R.
with respect to any errors or inaccuracies claims."                      CIV. P. 166a(c); Marek v. Tomoco Equip. Co., 738
                                                                         S.W.2d 710, 712 (Tex. App.--Houston [14th Dist]
     StarTex again argued that the liquidated damages
                                                                         1987, no writ) ("The trial court considers the rec-
provision was enforceable. Finally, StarTex argued that
                                                                         ord only as it properly appears when the motion
its original demand to Triton was not excessive, and thus
                                                                         for summary judgment is heard.").
that ground did not preclude it from recovering attorney's
fees.                                                                  [*55] On June 21, 2010, the trial court denied
                                                                Triton's motion for reconsideration/new trial and stated
     On April 16, 2010, following the summary judgment
                                                                that it did not consider the stricken affidavits. On July 6,
hearing, Triton filed its "Supplemental Response" to
                                                                2010, the trial court signed a modified order stating:
StarTex's summary judgment motion. StarTex objected to
the supplemental response and asked the trial court to
                                                                            On this day, after hearing [Triton's]
strike it from consideration because it was filed outside
                                                                         Motion for Reconsideration/New Trial
the time permitted by Texas Rule of Civil Procedure 166a
                                                                         ("Motion"), the Court, relying solely [on]
and without leave of the trial court. Triton also objected to
                                                                         the summary [**26] judgment evidence
the affidavit of John Bejger, attached to StarTex's reply to
                                                                         on file, arguments of counsel and without
Triton's response.
                                                                         considering the stricken, untimely sup-
     On April 26, 2010, the trial court granted StarTex's                plement filed by [Triton], is of the opinion
[**24] motion. The trial court's order stated that it con-               that [Triton's] Motion should be, in all
sidered "the Motion, the response, the pleadings, the af-                things, DENIED.
fidavits, other evidence on file with the Court, and argu-
                                                                            It is therefore ORDERED, AD-
ments of counsel." The trial court awarded StarTex
                                                                         JUDGED and DECREED that [Triton's]
$105,034.18 "as actual damages for [Triton's] failure to
                                                                         Motion is denied and that the Court's order
pay for electricity provided by [StarTex]." The trial court
                                                                                                                       Page 8
                                     411 S.W.3d 42, *; 2013 Tex. App. LEXIS 10090, **


        of April 26, 2010, granting Plaintiff's Tra-                   To prevail on a breach of contract claim, a plaintiff
        ditional Motion for Summary Judgment is                   must prove: (1) the existence of a valid contract; (2) the
        hereby, in all things, REAFFIRMED.                        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.
     On July 28, 2010, the trial court signed an order
                                                                  App.--Houston [1st Dist.] 2002, pet. denied). The inter-
granting StarTex's motion for a turnover order and ap-
                                                                  pretation or construction of an unambiguous contract is a
pointing a receiver. On September 9, 2010, the trial court
                                                                  matter of law to be determined by the court. See Am. Mfrs.
signed another order requiring the receiver to pay to
                                                                  Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex.
StarTex as the judgment creditor the balance of the rents
                                                                  2003). Thus, StarTex had to conclusively establish that a
collected during his receivership and any rents collected
                                                                  valid contract existed between it and Triton, that it per-
in the future until the full amount of the judgment is paid.
                                                                  formed under that contract, that Triton breached the con-
                                                                  tract, and that StarTex suffered damages as a result of
Summary Judgment
                                                                  Triton's breach.
A. Standard of Review
                                                                  1. Evidence Establishing Elements of StarTex's Claim
      We review the trial court's summary judgment de
                                                                      Attached to its summary judgment [**29] motion,
novo. Valence Operating Co. v. Dorsett, 164 S.W.3d 656,
                                                                  StarTex included copies of the ESA and First and Second
661 (Tex. 2005). The movant must establish that no ma-
                                                                  Amendments. Neither party disputes that these documents
terial fact issue exists and that it is entitled to judgment as
                                                                  constitute a valid contract between them.
a matter of law. M.D. Anderson Hosp. & Tumor Inst. v.
Willrich, 28 S.W.3d 22, 23 (Tex. 2000). Thus, for a plain-             StarTex also provided summary judgment evidence,
tiff to prevail on [**27] its motion for summary judg-            including multiple invoices and the affidavits of two
ment, it must show that it is entitled to prevail on each         corporate representatives, that it provided electricity to
element of its cause of action. Hourani v. Katzen, 305            Triton. Triton does not dispute that StarTex provided it
S.W.3d 239, 248 (Tex. App.--Houston [1st Dist.] 2009,             with electricity up until Triton terminated the ESA.
pet. denied) (citing MMP, Ltd. v. Jones, 710 S.W.2d 59, 60
                                                                       StarTex provided invoices and affidavits demon-
(Tex. 1986)). Only if the movant conclusively establishes
                                                                  strating that Triton owed $105,034.18 under the unpaid
its cause of action does the burden shift to the nonmovant
                                                                  invoices. The account summary on the final invoice
to respond to the summary judgment. Willrich, 28 S.W.3d
                                                                  showed that Triton owed $155,034.18 as of November 15,
at 23. When reviewing a motion for summary judgment,
                                                                  2008. Verhage's affidavit testimony provided that Triton
we take the nonmovant's evidence as true, indulge every
                                                                  subsequently made $50,000.00 in payments, leaving
reasonable inference in favor of the nonmovant, and re-
                                                                  $105,034.18 due and owing.
solve all doubts in favor of the nonmovant. Id.
                                                                        We conclude that StarTex conclusively established
     In its first through seventh issues, Triton argues that
                                                                  its right to recover $105,034.18 from Triton for Triton's
the trial court erred in granting summary judgment in
                                                                  breach of contract by failing to pay the invoices. Thus, the
favor of StarTex on its breach of contract claim. The trial
                                                                  burden shifted to Triton to respond to the motion for
court awarded StarTex summary judgment on both
                                                                  summary judgment and present evidence raising a fact
grounds of StarTex's breach of contract claim against
                                                                  issue on at least one of the elements of StarTex's claim or
Triton: that Triton breached (1) by failing to pay the in-
                                                                  to present a valid defense. See Willrich, 28 S.W.3d at 23.
voices for electricity provided and (2) by wrongfully
terminating the contract early.
                                                                  2. Triton's Response
B. Summary Judgment on StarTex's Breach of Con-                        In its fourth [**30] issue, Triton argues that it pre-
tract Claim for Triton's Failure to Pay for Invoiced              sented summary judgment evidence controverting
Electricity                                                       StarTex's evidence and raising genuine issues of material
                                                                  fact as to one or more elements of StarTex's breach of
     In its first and second issues, Triton argues [**28]
                                                                  contract claim. Triton does not dispute that StarTex pro-
that the trial court erred in granting summary judgment
                                                                  vided electricity to its buildings throughout the term of the
because it misinterpreted and misapplied the law appli-
                                                                  contract up until Triton terminated the agreement. Neither
cable to StarTex's breach of contract claim and to Triton's
                                                                  does Triton dispute that it did not pay amounts invoiced
defenses. In its third issue, Triton argues that StarTex's
                                                                  by StarTex for the electricity provided. However, Triton
summary [*56] judgment evidence did not establish
                                                                  disputes (1) the terms of the contract as presented by
that it was entitled to judgment as a matter of law.
                                                                  StarTex, alleging that the parties orally modified their
                                                                                                                      Page 9
                                    411 S.W.3d 42, *; 2013 Tex. App. LEXIS 10090, **


agreement; (2) StarTex's satisfactory performance under               "An unambiguous contract will be enforced as writ-
the contract and its own excuse from performance by              ten, and parol evidence will not be received for the pur-
StarTex's prior material breach; (3) the sufficiency of          pose of creating an ambiguity or to give the contract a
StarTex's evidence to support the amount of damages              meaning different from that which its language imports."
awarded by the trial court; and (4) the trial court's implicit   David J. Sacks, P.C. v. Haden, 266 S.W.3d 447, 450 (Tex.
determination that it was not entitled to any offsets or         2008). Whether a contract is ambiguous is a question
credits.                                                         [**33] of law. Id. at 451. We may not use extrinsic evi-
                                                                 dence to contradict or vary the meaning of the explicit
(a) The alleged oral modification of the contract                language of a written contract. Nat'l Union Fire Ins. Co. v.
                                                                 CBI Indus., Inc., 907 S.W.2d 517, 521 (Tex. 1995).
     Triton argues that, according to Gary's affidavit tes-
timony, the agreement between the parties was orally                  Here, the Second Amendment expressly provided
modified by representations Bejger made prior to execu-          that, except for the extension of the term of the contract
tion of the Second Amendment that invoices based on              and the pricing scheme outlined in paragraph one, the
[**31] estimated usage would no longer be used. Gary             ESA "shall remain in full force and effect as written." This
testified that he [*57] represented to Bejger that the           includes the "Customer Acknowledgments" section of the
practice of estimating electricity usage for several con-        ESA, which expressly stated that StarTex's "ability to
secutive months was causing damage to Triton because             invoice Customer is dependent on the [TDSP's] ability to
Triton could not bill its tenants based on estimated billing     furnish . . . meter readings" and that StarTex "may invoice
and that Triton would not continue the business relation-        Customer based on estimated meter reading." As matter of
ship with StarTex if it continued to use estimations and         law, we conclude that the Second Amendment is not
make errors in the monthly invoices. Gary averred that           ambiguous. It extended the terms of the ESA, including
Bejger represented that the errors would be corrected, that      the express provision allowing StarTex to invoice Triton
StarTex was attempting to resolve the allegations that           based on estimated meter readings, to the new 36-month
CenterPoint did not have access to Triton's meters, and          term.
"that StarTex's previous practice of estimating usage of
                                                                      Triton failed to establish that the parties orally mod-
consecutive months would not continue." Gary stated that
                                                                 ified the contract.
Triton entered into the Second Amendment based on
these representations by Bejger. Thus, on appeal, Triton
                                                                 (b) Triton's entitlement to be excused from performing
argues that it agreed to the Second Amendment "only after
                                                                 under the contract
receiving assurances that the billing errors and repeated
use of estimated billing would be addressed and corrected            Triton also argues it was excused from performance
by [StarTex]."                                                   under the ESA and the subsequent [*58] amendments
                                                                 by StarTex's prior [**34] material breach.
     A written agreement not required by law to be in
writing may be modified by a later oral agreement. Dou-               "[T]he contention that a party to a contract is excused
ble Diamond, Inc. v. Hilco Elec. Coop., Inc., 127 S.W.3d         from performance because of a prior material breach by
260, 267 (Tex. App.--Waco 2003, no pet.); [**32]                 the other contracting party is an affirmative defense. . . ."
Mar-Lan Indus., Inc. v. Nelson, 635 S.W.2d 853, 855 (Tex.        See City of The Colony v. N. Tex. Mun. Water Dist., 272
App.--El Paso 1982, no writ). However, this principle            S.W.3d 699, 746 (Tex. App.--Fort Worth 2008, pet.
does not apply here. The statements Gary related in his          dism'd). The burden of proving an affirmative defense is
affidavit as being made by Bejger and orally modifying           on the party asserting it. See Am. Petrofina, Inc. v. Allen,
the contract were made before the parties entered into the       887 S.W.2d 829, 830 (Tex. 1994). Thus, Triton had to
Second Amendment. Thus, the statements Triton asserts            present evidence raising a fact question on each element
as oral modifications are, at most, extraneous evidence of       of its defense to defeat StarTex's motion for summary
negotiations prior to entering a written contract, which         judgment. See id. (holding, where "response was in the
constitutes parol evidence.2                                     nature of an affirmative defense," that party asserting
                                                                 defense "could only have defeated summary judgment
        2 StarTex also presented Bejger's affidavit tes-         with sufficient evidence to raise a fact question for each of
        timony that he did not make the representations          the elements" of defense).
        alleged by Gary. Triton objected to this evidence
        in the trial court, but it is not clear whether Triton        "It is a fundamental principle of contract law that
        is arguing on appeal that Bejger's affidavit should      when one party to a contract commits a material breach of
                                                                 that contract, the other party is discharged or excused
        not be considered. However, it is unnecessary for
                                                                 from further performance." Mustang Pipeline Co. v.
        us to consider Bejger's testimony as the terms of
                                                                 Driver Pipeline Co., 134 S.W.3d 195, 196 (Tex. 2004). A
        the contract are established as a matter of law.
                                                                 breach of contract occurs when a party fails to perform an
                                                                                                                 Page 10
                                   411 S.W.3d 42, *; 2013 Tex. App. LEXIS 10090, **


act that it has expressly or impliedly promised [**35] to           StarTex provided the affidavit of Robert Verhage,
perform. Henry v. Masson, 333 S.W.3d 825, 835 (Tex.            who averred [**37] that, on several occasions, it had to
App.--Houston [1st Dist.] 2010, no pet.). The materiality      rely on estimated usage because CenterPoint did not pro-
of a breach--the question of whether a party's breach of a     vide Triton's actual meter usage. The summary judgment
contract will render the contract unenforceable--generally     evidence also contained an e-mail from a CenterPoint
presents a dispute for resolution by the trier of fact. Id.    representative stating that Triton was to blame for
Here, however, because we determine that StarTex's ac-         CenterPoint's failure to obtain actual meter readings. This
tions did not breach the contract as a matter of law, we       e-mail shows that CenterPoint acknowledged that it pro-
need not consider whether Triton raised a fact issue on        vided StarTex with estimated usage rather than actual
materiality.                                                   readings on several occasions and that StarTex was not at
                                                               fault for CenterPoint's inability to access and read the
     To raise a material fact issue on every element of its
                                                               meters.
affirmative defense, Triton had to raise a fact question on
StarTex's prior breach of contract. Triton argues that             The ESA expressly permits invoicing based on es-
StarTex's use of estimated billing was not proper under        timated usage. Triton did not present any summary
the contract because StarTex did not establish that the        judgment evidence that StarTex used estimates in its
conditions precedent to using estimated billing had oc-        invoices on occasions when CenterPoint had provided
curred because StarTex did not prove that CenterPoint          actual meter readings. Thus, this argument is without
was unable to access Triton's meters.                          merit.
    The ESA provides:                                               Triton also argues that, even if StarTex was permitted
                                                               to use estimates in invoicing Triton for its electricity
          Customer Acknowledgments. Cus-                       usage, StarTex was required to reconcile any charges
       tomer acknowledges that [StarTex's] abil-               based on estimated usage on the next bill. However, the
       ity to invoice Customer is dependent on                 plain language of the contract provides that StarTex must
       the [transmission and distribution provider             reconcile the estimated usage with the actual usage "[a]s
       (TDSP)]'s or ERCOT's ability to furnish                 soon as practical, and after receipt of Customer's Energy
       [StarTex] all necessary information in-                 [**38] Consumption and settlement charges from the
       cluding meter readings or recorded data, as             TDSP." Triton's argument that the actual usage was re-
       applicable. In [**36] the absence of such               quired to be reconciled on the next month's bill is not
       information from the TDSP or ERCOT,                     supported by the plain language of the contract.
       [StarTex] may invoice Customer based on
                                                                    Therefore, we conclude that Triton has not raised a
       estimated meter reading according to the
                                                               fact issue on any element of its claim that StarTex com-
       Usage Profile. As soon as practical, and
                                                               mitted a prior material breach of the contract.
       after receipt of Customer's Energy Con-
       sumption and settlement charges from the
                                                               (c) StarTex's alleged failure to prove damages
       TDSP and/or ERCOT, [StarTex] will
       reconcile on the next invoice any differ-                    In its fifth, sixth, and seventh issues, Triton argues
       ence(s) between estimated and actual                    that the invoices relied on by StarTex in establishing the
       consumption and settlement charges.                     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.
      Thus, the plain, unambiguous language of the ESA
provided that StarTex could invoice Triton based on es-             StarTex acknowledges that it used estimates in some
timated usage in the absence of actual meter readings or       of its bills, and we have already concluded that it was
other necessary information from CenterPoint, the TDSP.        permitted to do so by the plain language of the contract.
This contract provision is consistent with the legislatively   Furthermore, StarTex presented the actual invoices it sent
mandated division of business activities in the electric       Triton and Verhage's affidavit stating that the final in-
utility market. See TEX. UTIL. CODE ANN. § 39.051(b)           voice relied on in calculating the amount due and owing
(providing that electricity utilities must separate their      "contained the final, outstanding balance that was recon-
business activities into three units--power generation         ciled to correct all estimated reads."
company, retail electric provider, and transmission and
distribution utility); Tex. Indus. Energy Consumers, 324           Triton presented Gary's affidavit testimony that he
                                                               disputed several invoices [**39] and objected to nu-
S.W.3d at 97-98 [*59] (observing that transmission and
                                                               merous charges. It also presented e-mail correspondence
distribution service providers are responsible for provid-
                                                               between Gary, Triton's property manager, and StarTex, in
ing metering services).
                                                                                                                     Page 11
                                    411 S.W.3d 42, *; 2013 Tex. App. LEXIS 10090, **


which Gary made general objections to several invoices           only if it is "clear, positive and direct, otherwise credible
without providing specific amounts or portions of the            and free from contradictions and inconsistencies, and
invoices that he believed were inaccurate. Triton also           could have been readily controverted" and that conclusory
presented an expert affidavit pointing out general com-          statements by an expert are insufficient to support or
plaints about the invoices without specifying particular         defeat summary judgment).
amounts in controversy.
                                                                      Thus, we conclude that Triton failed to raise a fact
     Triton argues that StarTex was legally obligated to         issue on any element of StarTex's breach of contract claim
address Triton's objections to StarTex's billing practices       against Triton for failure to pay the invoices. The trial
before collecting on the unpaid invoices and that this           court did not err in determining that Triton was entitled to
evidence raises a fact question regarding the amount             summary judgment on this issue as a matter of law.
Triton owed to StarTex.
                                                                 C. Summary Judgment on StarTex's Breach of Con-
     The contract provides a method for disputing charges
                                                                 tract Claim for Triton's Early Termination of the
on invoices. The ESA provides that the "Customer must
                                                                 Contract
provide to [StarTex] written notice setting forth in par-
ticular detail any disputed [*60] amount, including the               In parts of its first through seventh issues, Triton also
calculations with respect to any errors or inaccuracies          argues that the trial court erred in granting summary
claimed." The record contains no evidence that Triton            judgment on StarTex's breach of contract claim for Tri-
complied with this procedure. Neither Gary's and Phillips'       ton's wrongful [**42] early termination of the agree-
affidavit testimony nor the e-mails sent to StarTex contain      ment.
specific amounts or calculations. Triton did not produce
any evidence that it provided [**40] StarTex with writ-          1. Evidence Establishing Elements of StarTex's Claim
ten notice articulating the particular disputed amount or
                                                                      As we have discussed, StarTex established the ex-
calculations regarding claimed inaccuracies.
                                                                 istence of a valid contract between itself and Triton, and it
     Thus, Triton failed to present evidence raising a fact      established that it performed under that contract. StarTex
issue on the accuracy of the invoices StarTex used to            provided a copy of the Second Amendment, which pro-
support its claim for the unpaid amounts for electricity         vided that the parties agreed to extend the ESA through
usage.                                                           May 2011.
                                                                     The ESA contained the following early termination
(d) Triton's entitlement to offsets and credits
                                                                 provision:
     Triton also argues that it was entitled to $97,000 in
offsets and credits, based on Phillips' affidavit.                          Early Termination Fee. In the event
                                                                         that Customer terminates this agreement
     "The right of offset is an affirmative defense." Brown
                                                                         [*61] or Customer defaults as described
v. Am. Transfer & Storage Co., 601 S.W.2d 931, 936 (Tex.
                                                                         [in the ESA], then an Early Termination
1980). Triton must show its entitlement to an offset and
                                                                         Fee will be assessed. The Early Termina-
the amount. See id. (holding that party asserting right of
                                                                         tion Fee shall be equal to the greater of a)
offset bears burden of pleading offset and proving facts
                                                                         the three months highest bills for Customer
necessary to support it). Thus, Triton must present evi-
                                                                         or b) any mark to market costs.
dence raising a fact question on its offset defense to defeat
StarTex's motion for summary judgment. See Am. Petro-
fina, 887 S.W.2d at 830.
                                                                      StarTex presented Verhage's affidavit testimony that
     Triton presented Phillips' affidavit, in which Phillips,
                                                                 Triton terminated the agreement on October 10, 2008,
as an electricity engineer, stated that the invoices con-
                                                                 approximately thirty-one months earlier than the Second
tained errors entitling Triton to offsets and credits worth at
                                                                 Amendment's contractual termination date of May 2011,
least $97,000. However, as we have already stated, Triton
                                                                 and Triton's final invoice reflecting a termination date in
did not provide a proper challenge to any particular
                                                                 the middle of October 2008.
[**41] charge or invoice. Phillip's conclusory statements
in his affidavit, by themselves, do not support Triton's              StarTex likewise provided Madden's affidavit testi-
claim for offsets and credits. See TEX. R. CIV. P. 166a(f)       mony that StarTex was harmed by Triton's early termina-
(providing that supporting affidavit must set forth facts        tion. Madden averred that when StarTex entered into the
that would be admissible in evidence); Wadewitz v.               [**43] Second Amendment extending the terms of the
Montgomery, 951 S.W.2d 464, 466 (Tex. 1997) (holding             ESA through May 2011, it contracted with its electricity
that expert's testimony will support summary judgment            producer "to purchase enough power to service the entire
                                                                                                                   Page 12
                                   411 S.W.3d 42, *; 2013 Tex. App. LEXIS 10090, **


thirty-six (36) month term of the Second Amendment and          S.W.3d at 664. To enforce a liquidated damages clause,
the purchases were tailored to fit Triton's particular          the court must find that (1) the harm caused by the breach
'shape'." After Triton unilaterally terminated the contract     is incapable or difficult of estimation and (2) the amount
on October 10, 2008, StarTex was still obligated to con-        of liquidated damages called for is a reasonable forecast
tinue to purchase power from its supplier through May           of just compensation. Phillips, 820 S.W.2d at 788; GPA
2011 "in Triton's particular 'shape,'" even though StarTex      Holding, Inc. v. Baylor Health Care Sys., 344 S.W.3d 467,
no longer had a customer to whom to sell it. Madden             475 (Tex. App.--Dallas 2011, pet. denied). The party
testified that it was almost impossible to sell that elec-      asserting that the provision is unenforceable bears the
tricity to another customer because StarTex "would have         burden of proof. GPA Holding, 344 S.W.3d at 475.
to find a new customer who not only wants an MCPE
                                                                     Triton argues that the harm caused by its breach is not
contract, but has the exact same term and volume re-
                                                                incapable or difficult of estimation. Triton argues that
quirements and 'shape' as Triton." According to Madden,
                                                                StarTex "could determine the amount of electricity that
these particular characteristics of a MCPE payment ar-
                                                                would have been purchased by Triton but for the pur-
rangement made it very difficult to calculate the
                                                                ported breach . . . and determine what the electricity was
mark-to-market losses because StarTex had no way of
                                                                sold for to an alternate customer versus [**46] what it
knowing what the exact cost of the future electricity
                                                                would have been sold for to Triton." However, StarTex's
would be. StarTex thus calculated its liquidated damages
                                                                Senior Vice-President of Supply, Stephen Madden, pro-
as $197,323.25 based on the sum of Triton's three highest
                                                                vided affidavit testimony that it is almost impossible to
monthly bills.
                                                                know what the cost of Triton's future energy use would
                                                                have been because of the constantly fluctuating prices
2. Triton's response
                                                                involved in the MCPE pricing structure. He averred that
     Triton does not contest [**44] that it terminated the      the price of electricity changes as often as every fifteen
contract in October 2008, approximately thirty-one              minutes, that StarTex committed to buy electricity in
months before the termination date provided in the Se-          fifteen minute increments to meet its obligation to provide
cond Amendment. Triton again argues that its early ter-         electricity conforming to Triton's unique "shape" of en-
mination was excused by StarTex's prior breach by billing       ergy consumption, and thus it would be very difficult to
based on estimated usage. We have already concluded             find another consumer to use that energy. Accordingly, it
that StarTex did not breach the ESA when it invoiced            was not possible to determine, at the time of Triton's early
Triton based on its estimated usage.                            termination, the cost of the energy that would have been
                                                                purchased by Triton but for the breach, and it was also
     Triton also raises several issues specific to the early
                                                                very difficult for StarTex to predict whether it would find
termination clause and the trial court's award of liquidated
                                                                another consumer to purchase the electricity according to
damages. In its ninth issue, Triton argues that the early
                                                                Triton's unique usage pattern, and if so, how much such a
termination fee clause is unenforceable as an impermis-
                                                                consumer would pay.
sible penalty. Triton argues in its tenth and eleventh issues
that even if the early termination fee clause is enforceable         Triton did not present any evidence regarding the
as a matter of law, StarTex did not present summary             parties' ability to estimate actual damages when the con-
judgment evidence establishing the amount of the early          tract was formed, and it did not controvert [**47]
termination fee in compliance with the contract's terms.        Madden's description of the pricing model applicable to
                                                                the ESA and Second Amendment. Thus, we conclude that
(a) Enforceability of early termination clause                  it was impossible to determine the actual harm that would
                                                                be caused by early termination. See Phillips, 820 S.W.2d
     Triton argues that the early termination fee clause
                                                                at 788.
constitutes an impermissible penalty. Triton argues that it
is impermissible both under the common law standard set              Triton also appears to argue that the amount of the
out in Phillips v. Phillips, 820 S.W.2d 785 (Tex. 1991),        liquidated damages was not a reasonable forecast of
and under the Texas Business and Commerce [**45]                StarTex's actual damages because it was unreasonably
Code.                                                           large. The ESA provided that the early termination fee
                                                                "shall be equal to the greater of a) the three months
     Whether a contractual provision is an enforceable
                                                                highest bills for Customer or b) any mark to market
liquidated damages provision or an unenforceable penalty
                                                                costs." In this instance, due to the length of the term re-
is a question of law for the court to decide. Dorsett, 164
                                                                maining on the terminated contract and the uncertainties
S.W.3d at 664 (citing Phillips, 820 S.W.2d at 788). Valid
                                                                of pricing, the "mark to market costs" could not be cal-
liquidated damages clauses "fix in advance the compen-
                                                                culated. Thus, Madden testified that StarTex calculated its
sation to a party accruing from the failure to [*62]
                                                                damages based on Triton's three highest monthly bills,
perform specified contractual obligations." Dorsett, 164
                                                                which totaled $197,323.25.
                                                                                                                     Page 13
                                    411 S.W.3d 42, *; 2013 Tex. App. LEXIS 10090, **


     Triton did not present any evidence regarding what a        trial court by written motion, answer or other response
reasonable forecast of damages would have been at the            shall not be considered on appeal as grounds for rever-
time the contract was formed, nor did it present any evi-        sal."); City of Houston v. Clear Creek Basin Auth., 589
dence of StarTex's actual damages. Thus, we conclude             S.W.2d 671, 678 (Tex. 1979) (holding that nonmovant
that, when viewed as of the time the contract was exe-           could not raise for first time on appeal additional fact
cuted, the ESA's method for calculating the amount of            issue that was not raised in its response).
liquidated damages [**48] provided a reasonable fore-
                                                                      We hold that the trial court did not err in granting
cast of just compensation. See id.
                                                                 summary judgment and awarding StarTex $105,034.18 on
     This same reasoning also demonstrates that Triton           its claim that Triton failed to pay for electricity provided
failed to show that the early termination fee violated           under the ESA and $197,323.25 as liquidated damages on
Business and Commerce Code section 2.718. Section                its claim for Triton's early termination of the ESA as
2.718 provides that a liquidated damages clause is unen-         extended by the Second Amdendment.
forceable if (1) the [*63] agreed amount is unreasona-
                                                                      We overrule Triton's first through seventh, ninth,
ble in light of the anticipated or actual harm caused by
                                                                 tenth, and eleventh issues.
breach, (2) the proof of actual harm is not difficult, (3)
obtaining an adequate remedy for breach is not incon-
                                                                 Attorney's Fees
venient or not feasible, or (4) the agreed amount is un-
reasonably large. See TEX. BUS.& COM. CODE ANN. §                     In its twelfth issue, Triton argues that the trial court
2.718 (Vernon 2009). As we have already discussed, the           erred in awarding StarTex $12,000 in attorney's fees be-
proof of actual harm is difficult, and obtaining an ade-         cause that amount was not properly proven and was ex-
quate remedy for breach is not feasible because StarTex          cessive and unreasonable. Triton also argues that StarTex
could not have calculated the future cost of the electricity,    was not entitled to recover attorney's fees because it made
nor could it predict the extent to which it could mitigate its   an excessive demand prior to filing this lawsuit.
damages. And, the agreed amount was not unreasonably
large or unreasonable in light of the anticipated or actual      A. Standard of Review
harm. StarTex was obligated to buy thirty-one months'
worth of electricity that it had no ability to resell. In that        The prevailing party in a breach of contract suit is
light, liquidated damages calculated from Triton's three         entitled to attorney's fees. TEX. CIV. PRAC.& REM. CODE
                                                                 ANN. § 38.001(8) [**51] (Vernon 2008); Haden v.
highest monthly invoices are not [**49] unreasonable.
                                                                 [*64] David J. Sacks, P.C., 332 S.W.3d 503, 510 (Tex.
     Triton failed to raise a fact question on its claim that    App.--Houston [1st Dist.] 2009, pet. denied). An award of
the early termination fee clause constituted an impermis-        attorney's fees must be supported by evidence that the fees
sible penalty.                                                   are reasonable and necessary. See Stewart Title Guar. Co.
                                                                 v Sterling, 822 S.W.2d 1, 10 (Tex. 1991). A trial court
(b) StarTex's proof of liquidated damages                        determines the reasonableness of an attorney's fees award
                                                                 by considering the factors enumerated in Arthur Andersen
    Triton also argues that StarTex failed to prove the
                                                                 & Co. v. Perry Equipment Corp. 945 S.W.2d 812, 818
amount of liquidated damages permitted under the ESA.
                                                                 (Tex. 1997) (holding that evidence of contingency fee
Several of Triton's arguments on this issue again chal-
                                                                 agreement alone does not support award of reasonable and
lenge the accuracy of StarTex's billing and StarTex's use
                                                                 necessary attorney's fees and that trial court must still
of estimates in its invoices. However, we have already
                                                                 consider other factors). The reasonableness of attorney's
determined that Triton has failed to raise a fact question
                                                                 fees is generally a fact issue. Haden, 332 S.W.3d at 512.
regarding the accuracy or propriety of StarTex's invoices.
                                                                 We review attorney's fees awards for an abuse of discre-
Thus, we do not address those arguments again.
                                                                 tion. Ridge Oil Co., Inc. v. Guinn Invs., Inc., 148 S.W.3d
     Triton argues that StarTex failed to identify which         143, 163 (Tex. 2004).
three invoices it relied on in calculating the liquidated
                                                                      An attorney's affidavit constitutes expert testimony
damages. It also argues that no three invoices from the
                                                                 that will support an award of attorney's fees in a summary
term of the Second Amendment add up to $197,323.95,
                                                                 judgment proceeding. Haden, 332 S.W.3d at 513; see TEX.
and, thus, StarTex improperly used invoices dated prior to
                                                                 R. CIV. P. 166a(c); Gensco, Inc. v. Transformacions
the execution of the Second Amendment to calculate the
                                                                 Metalurgicias Especiales, S.A., 666 S.W.2d 549, 554 (Tex.
early termination fee. However, the early termination fee
                                                                 App.--Houston [14th Dist.] 1984, writ dism'd). [**52]
provision did not limit the time period from which the
                                                                 Civil Practice and Remedies Code section 38.003 pro-
three highest bills could be taken, and Triton failed to
                                                                 vides that "usual and customary attorney's fees" are pre-
present these arguments to the trial court. See TEX. R. CIV.
                                                                 sumed to be reasonable. TEX. CIV. PRAC. & REM. CODE
P. 166a(c) ("Issues [**50] not expressly presented to the
                                                                 ANN. § 38.003 (Vernon 2008). Although the statutory
                                                                                                                    Page 14
                                   411 S.W.3d 42, *; 2013 Tex. App. LEXIS 10090, **


presumption that usual and customary fees are reasonable        StarTex made an excessive demand on Triton prior to
is rebuttable, see id., once triggered by an attorney's         filing suit. See Kurtz v. Kurtz, 158 S.W.3d 12, 21 (Tex.
supporting affidavit, the presumption of reasonableness         App.--Houston [14th Dist.] 2004, pet. denied). When a
remains in effect when there is no evidence submitted to        claimant makes an "excessive" demand and will not ac-
challenge the affidavit proof of the summary judgment           cept a lesser amount, the claimant is not entitled to at-
movant. Haden, 332 S.W.3d at 513.                               torney's fees expended in litigation thereafter, even if it
                                                                prevails on its breach of contract claim. See, e.g.,
B. Analysis                                                     McMillin v. State Farm Lloyds, 180 S.W.3d 183, 209 (Tex.
                                                                App.--Austin 2005, pet. denied) (citing Findlay v. Cave,
     In its motion for summary judgment, StarTex sought
                                                                611 S.W.2d 57, 58 (Tex. 1981)). Demand is not excessive
$75,589.36 in attorney's fees, and its attorney, Rodney
                                                                [**55] simply because it is greater than the amount
Drinnon, submitted an affidavit in support of an award for
                                                                eventually awarded. See Findlay, 611 S.W.2d at 58. The
attorney's fees. Drinnon averred that the contingency fee
                                                                dispositive question is whether the claimant acted un-
agreement awarding twenty-five percent of damages
                                                                reasonably or in bad faith in making the demand. See
recovered from any successful trial award constituted
                                                                Standard Constructors, Inc. v. Chevron Chem. Co., 101
usual and customary attorney's fees; he provided a list of
                                                                S.W.3d 619, 627-28 (Tex. App.--Houston [1st Dist.] 2003,
specific tasks he and his law practice undertook during the
                                                                pet. denied).
course of representing StarTex; and he stated that his fee
was supported by several, listed Arthur Andersen factors.            StarTex's demand letter requested $105,034.18 as
Drinnon's description was "'clear, positive, and direct,        principal on the unpaid invoices, $14,290.98 in interest
otherwise credible' and [was] neither internally [**53]         and fees, $197,323.95 in liquidated damages, and
inconsistent nor [contradictory]" and could have been           $68,329.82 in attorney's fees. It stated that Triton should
readily controverted by Triton. See id. at 514. Based on        pay the listed amounts within thirty days or make ar-
Drinnon's affidavit, submitted as evidence in support of        rangements to satisfy the debt. Thus, the amounts de-
the request for attorney's fees, StarTex was entitled to the    manded by StarTex prior to filing suit were not so much
statutory presumption that its attorney's usual and cus-        greater than the amount it was eventually awarded as to be
tomary fees were reasonable. See TEX. CIV. PRAC. & REM.         "excessive" or to indicate that the demand was made in
CODE ANN. § 38.003; see also Haden, 332 S.W.3d at 514           bad faith. Triton presented no evidence that StarTex
(holding attorney's affidavit sufficient to warrant sum-        would have refused tender of the $314,358.13 awarded by
mary judgment when it (1) contained recitals establishing       the trial court. Triton has failed to establish that this ex-
attorney's competency to swear to facts stated and other        ception to StarTex's statutory right to attorney's fees is
requirements of Rule of Civil Procedure 166a(f), (2) de-        met. See Findlay, 611 S.W.2d at 58; McMillin, 180 S.W.3d
scribed work encompassed by the fees sought, and (3)            at 209.
specified factors that formed basis of his statement that
                                                                    We hold that the trial court did not err in awarding
amount claimed was reasonable and necessary, tracking
                                                                StarTex $12,000 in attorney's fees.
seven of eight Arthur Andersen factors).
                                                                    We [**56] overrule Triton's twelfth point of error.
     Triton filed a written objection to Drinnon's affidavit,
arguing that it failed to describe the time required to
                                                                Other Issues
prosecute StarTex's claim, to provide counsel's hourly
rate, and to discuss two of the Arthur Andersen factors.
                                                                A. PUC Rules and Procedures for Disputed Charges
We have already concluded that Drinnon's affidavit was
sufficient [*65] to support StarTex's claim for attor-               In its eighth issue, Triton argues that its pending
ney's fees. See Haden, 332 S.W.3d at 514. Triton [**54]         claim against StarTex before the PUC acted to stay the
did not file a controverting affidavit or any other evidence    judgment and enforcement of the judgment. In its brief,
disputing Drinnon's evidence. Because Triton did not            Triton also argues that StarTex failed to properly inves-
present any controverting evidence, Triton cannot over-         tigate Triton's complaints according to the PUC's rules
come the presumption of reasonableness accorded to              and procedures. However, Triton did not present these
Drinnon's affidavit in support of an award of attorney's        arguments to the trial court. Furthermore, the only indi-
fees. See id. at 514-16 (holding that because nonmovant         cation before this Court that Triton actually filed a com-
"did not controvert [attorney's] affidavit or otherwise         plaint with the PUC is Triton's statement in its appellate
dispute the law firm's evidence, the law firm was . . .         brief. We conclude that these complaints are not properly
entitled to the statutory presumption that the requested        presented for our review. See TEX. R. CIV. P. 166a(c);
amount was both reasonable and necessary").                     Marek v. Tomoco Equip. Co., 738 S.W.2d 710, 712 (Tex.
                                                                App.--Houston [14th Dist] 1987, no writ) ("The trial court
    Triton also argues that StarTex is not entitled to at-
                                                                considers the record only as it properly appears when the
torney's fees on the basis of its affirmative defense that
                                                                                                               Page 15
                                  411 S.W.3d 42, *; 2013 Tex. App. LEXIS 10090, **


motion for summary judgment is heard."); see also TEX. R.     entitled to immediate relief from the order appointing a
APP. P. 33.1(a) (providing that, "[a]s a prerequisite [*66]   receiver and the turnover order, including return of all
to presenting a complaint for appellate review, the record    records and revenues turned over to or seized by the re-
must show that . . . the complaint was made to the trial      ceiver. We have already concluded that the trial court did
court by a timely request, objection or motion").             not err in granting summary judgment. Therefore, this
                                                              argument fails.
    We overrule Triton's eighth issue.
                                                                  We overrule Triton's thirteenth and fourteenth issues.
B. Receivership [**57] and Turnover Order
                                                              Conclusion
     In its thirteenth and fourteenth issues, Triton argues
that, because the trial court erred in granting summary           We affirm the judgment of the trial court.
judgment, the trial court also erred in appointing a re-
                                                                  Evelyn V. Keyes
ceiver and in ordering Triton to turn over to the receiver
confidential records and all proceeds and revenues gen-           Justice
erated by its businesses. Thus, Triton argues that it is
                                                                                                                     Page 1




                 URBAN TELEVISION NETWORK CORPORATION, Appellant v. CREDITOR
                               LIQUIDITY SOLUTIONS, L.P., Appellee

                                                    No. 05-07-01629-CV

                          COURT OF APPEALS OF TEXAS, FIFTH DISTRICT, DALLAS

                                       277 S.W.3d 917; 2009 Tex. App. LEXIS 850


                                            February 6, 2009, Opinion Issued

PRIOR HISTORY: [**1]                                                      7. Early Termination Liability. In the
  On Appeal from the 162nd District Court, Dallas                      event that Customer [appellant] terminates
County, Texas. Trial Court Cause No. 06-10753-I.                       Service prior to the expiration of the Term
                                                                       specified on the appropriate [**2] Ser-
                                                                       vice Agreement or other request for Ser-
COUNSEL: For APPELLANT: Kevin S. Wiley, Jr., Law                       vice other than for cause, or in the event
Offices of Kevin S. Wiley, Jr., Dallas, TX.                            that Company [Westar] terminates this
                                                                       Agreement as a result of Customer's fail-
For APPELLEE: Todd Alan Hoodenpyle, Singer &                           ure to abide by the terms and conditions
Levick, P.C., Addison, TX.                                             herein, Customer shall pay a termination
                                                                       charge equal to 100% of the monthly
JUDGES: Before Justices Bridges, Richter, and Mazzant.                 charges multiplied by the number of
Opinion By Justice Mazzant.                                            months remaining on the Term of the
                                                                       Service Agreement or any additional re-
OPINION BY: AMOS L. MAZZANT                                            quests for Service, as applicable.

OPINION
                                                                In 2007, appellant defaulted on its obligations under the
     [*918] Opinion By Justice Mazzant
                                                                agreement. Westar terminated the agreement and sued
    Urban Television Network Corporation appeals the            appellant for breach of contract seeking an award of
summary judgment rendered against it in the breach of           damages under paragraph 7. In response to Westar's mo-
contract suit brought by Westar Satellite Services, L.P.        tion for summary judgment, appellant admitted it de-
Westar subsequently transferred its interest in the judg-       faulted on the agreement, but it asserted that paragraph 7
ment to Creditor Liquidity Solutions, L.P. Appellant            was an unenforceable penalty. The trial court granted
brings one issue, asserting the trial court erred in granting   Westar's motion for summary judgment and awarded
Westar's motion for summary judgment on the liquidated          Westar damages pursuant to paragraph 7. 1
damages provision of the contract because that provision
was an unenforceable penalty. We affirm the trial court's              1 Besides its default on the Master Services
judgment.                                                              Agreement, appellant also defaulted on a prom-
                                                                       issory note payable to Westar. Westar sued for
     In 2005, appellant and Westar entered into a five-year            breach of the promissory note as well breach of the
Master Services Agreement in which appellant promised
                                                                       agreement, and Westar sought foreclosure of its
to pay Westar $ 8800 each month and Westar promised to
                                                                       security interest in appellant's property. The trial
provide appellant satellite uplink services for local tele-
                                                                       court granted Westar's [**3] motion for sum-
vision programming and distribution. Paragraph 7 of the
                                                                       mary judgment on the breach of the note and
agreement contained a liquidated damages provision:                    foreclosure of the collateral. Appellant's issue and
                                                                                                                   Page 2
                                   277 S.W.3d 917, *; 2009 Tex. App. LEXIS 850, **


       argument on appeal do not assert error in the ren-      were reasonable. Appellant, not Westar, had the burden of
       dition of judgment on those claims.                     presenting evidence that the liquidated damages provision
                                                               was a penalty, and appellant presented no evidence
      To prevail on a summary judgment motion brought
                                                               showing the damages were not uncertain or that the stip-
under Texas Rule of Civil Procedure 166a(c), a movant
                                                               ulated damages were unreasonable. See Murphy, 923
must show that there is no genuine issue as to any material
                                                               S.W.2d at 665-66.
fact 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           Appellant also argues the liquidated damages provi-
Justice, 148 S.W.3d 374, 381 (Tex. 2004). If the movant        sion is a penalty on its face because, appellant asserts, it
establishes a right to summary judgment, the burden shifts     "applies to breach of any covenant of the agreement, and
to the nonmovant to raise a genuine issue of material fact     not merely to payment provisions." Appellant cites Bethel
in order to defeat summary judgment. Teter v. Comm'n for       v. Butler Drilling Co., 635 S.W.2d 834 (Tex. Civ.
Lawyer Discipline, 261 S.W.3d 796, 798 (Tex.                   App.--Houston [14th Dist.] 1982, writ ref'd n.r.e.), which
App.--Dallas 2008, no pet.). A plaintiff who establishes       stated that a liquidated damages provision is a penalty as a
entitlement to judgment as a matter of law on its cause of     matter of law when "it applied equally to any breach of
action will not be prevented from obtaining summary            any provision of the contract by appellee irrespective of
judgment merely because the defendant has asserted an          the importance or triviality of such breach." Id. at 837.
affirmative defense. Wilson v. Gen. Motors Acceptance          The [**6] court observed that "[u]nder the liquidated
Corp., 897 S.W.2d 818, 823 (Tex. App.--Houston [1st            damage clause as written, appellant would be entitled to
Dist.] 1994, no writ). An affirmative defense will prevent     the full amount of monthly payments for the full term of
summary judgment only if each element of the defense is        the contract irrespective of the nature of the breach or
raised [**4] by evidence that would be admissible at           appellant's actual loss or damage." Id.
trial. Id. (citing Brownlee v. Brownlee, 665 S.W.2d 111,
                                                                    We disagree, however, with appellant's assertion that
112 (Tex. 1984)).
                                                               the liquidated damages provision applied to any breach of
     [*919] We review the trial court's granting of a          the agreement, no matter how trivial. Paragraph 7 permits
motion for summary judgment de novo. Tex. Mun. Power           Westar to recover the liquidated damages when Westar
Agency v. Pub. Util. Comm'n, 253 S.W.3d 184, 192 (Tex.         terminates the agreement for appellant's failure to abide
2007); Teter, 261 S.W.3d at 799. We take as true all evi-      by the terms of the agreement. Paragraphs 13 and 14
dence favorable to the nonmovant, and we indulge every         define the types of defaults for which Westar could ter-
reasonable inference and resolve any doubts in the             minate the agreement. Paragraph 13 authorizes termina-
nonmovant's favor. Provident Life & Accident Ins. Co. v.       tion when appellant fails to make full and timely pay-
Knott, 128 S.W.3d 211, 215 (Tex. 2003).                        ments under the agreement. Paragraph 14 authorizes
                                                               termination for an "Other Default," that is, a default other
    An assertion that a liquidated damages provision is a
                                                               that a failure to pay the amounts due. However, Paragraph
penalty is an affirmative defense that the defendant has
                                                               14 defines "Other Default" as occurring when "either
the burden of pleading and proving. Murphy v. Cintas
                                                               party fails to perform or observe any material term or
Corp., 923 S.W.2d 663, 665-66 (Tex. App.--Tyler 1996,
                                                               obligation . . . ." (Emphasis added.) This requirement of
writ denied); see TEX. R. CIV. P. 94; see also Fluid
                                                               breach of a "material term or obligation" before termina-
Concepts, Inc. v. DA Apartments Ltd. P'ship, 159 S.W.3d
                                                               tion may occur distinguishes this agreement from the
226, 231 (Tex. App.--Dallas 2005, no pet.). Thus, to avoid
                                                               contract [**7] in Bethel.
summary judgment, appellant had to present some evi-
dence showing the liquidated damages provision was a                 [*920] Appellant has not established that the liq-
penalty. See Wilson, 897 S.W.2d at 823; see also Fluid         uidated damages provision is unenforceable on its face or
Concepts, Inc., 159 S.W.3d at 231.                             presented evidence raising a genuine issue of material fact
                                                               as to its enforceability. We overrule appellant's issue on
     A liquidated damages provision is enforceable and is
                                                               appeal.
not a penalty when the damages are uncertain and [**5]
the stipulated damages are reasonable. Phillips v. Phillips,       We affirm the trial court's judgment.
820 S.W.2d 785, 788 (Tex. 1991) (quoting Stewart v.
                                                                   AMOS L. MAZZANT
Basey, 150 Tex. 666, 669, 245 S.W.2d 484, 486 (1952)).
Appellant argues the trial court erred in granting summary         JUSTICE
judgment because Westar presented no evidence showing
the damages were uncertain or that the stipulated damages
                                                                                                              Page 1




                   VALENCE OPERATING COMPANY, PETITIONER, v. ELMAGENE W.
                                   DORSETT, RESPONDENT

                                                    NO. 03-0836

                                         SUPREME COURT OF TEXAS

                164 S.W.3d 656; 2005 Tex. LEXIS 392; 48 Tex. Sup. J. 671; 162 Oil & Gas Rep. 511

                                           September 29, 2004, Argued
                                             May 20, 2005, Delivered

PRIOR HISTORY:            [**1] ON PETITION FOR
                                                                 [*658] In this case we construe the meaning of
REVIEW FROM THE COURT OF APPEALS FOR THE
                                                           certain notice provisions of a commonly used oil and
SIXTH DISTRICT OF TEXAS.
                                                           [**2] gas operating agreement. Working interest owner
Dorsett v. Valence Operating Co., 111 S.W.3d 224, 2003
                                                           Elmagene Dorsett sued Valence Operating Company in a
Tex. App. LEXIS 5009 (Tex. App. Texarkana, 2003)
                                                           dispute arising from a joint operating agreement. The trial
                                                           court granted partial summary judgment against Dorsett
                                                           on her breach of contract claims, finding that Dorsett
COUNSEL: For APPELLANT Valence Operating
                                                           failed to consent to participate in the wells at issue, and
Company: Mr. Michael E. Warwick, Mr. Thomas A.
                                                           that a contractual non-consent penalty for that failure was
Zabel, Abney & Warnick, Marshall, TX.
                                                           enforceable against her. The court of appeals reversed and
                                                           rendered judgment in favor of Dorsett, holding that Va-
For RESPONDENT Elmagene W. Dorsett: Mr. Edwin E.
                                                           lence breached contract provisions that required Valence
Buckner, Law Offices of Edwin E. Buckner, Jr., Marshall,
                                                           to give notice to Dorsett before commencing drilling
TX.
                                                           operations. 111 S.W.3d 224. The determinative issue
                                                           before us is whether the agreement requires a thirty-day
For AMICUS CURIAE Texas Oil and Gas Association:
                                                           notice period to expire before the operator can commence
Mr. Edward A. Marseglia, Burn Wooley Marseglia &
                                                           work on the proposed operations. Because the
Zabel, L.L.P., Houston, TX.
                                                           non-consent penalty is enforceable and because we find
                                                           nothing in the agreement prohibiting Valence from
For AMICUS CURIAE Citation Oil & Gas Corp: Mr.
                                                           commencing work on the proposed operations before the
Morgan L. Copeland, Jr., Vinson & Elkins, L.L.P., Hou-
                                                           expiration of the notice period, we reverse the court of
ston, TX. Ms. Catherine B. Smith, Vinson & Elkins,
                                                           appeals and render judgment in favor of Valence.
L.L.P., Houston, TX., Ms. Ara L. Ayles, Vinson & Elkins,
L.L.P., Houston, TX., Mr. Gary C. Johnson, Senior Vice
                                                           I. Factual and Procedural Background
President & General Contractor, Houston, TX., Mr.
Thomas A. Zabel, Burns Wooley Marseglia & Zabel,                Elmagene Dorsett is a 4.05391 percent working in-
L.L.P. Houston, TX.                                        terest [**3] owner in 677.04666 acres in the Mobley Gas
                                                           Unit in Harrison County, Texas. In 1981, Dorsett, with
JUDGES: JUSTICE WAINWRIGHT delivered the                   three other minority working interest owners, and TXO
opinion of the Court. JUSTICE BRISTER delivered a          Production Corporation, as operator and majority working
concurring opinion. JUSTICE JOHNSON did not par-           interest owner, executed a modified 1977 American As-
ticipate in the decision.                                  sociation [*659] of Petroleum Landmen Form 610
                                                           Model Form Operating Agreement. 1 The Model Form
OPINION BY: J. Dale Wainwright                             Agreement is a contract between oil and gas lease owners
                                                           and interest holders for the exploration and development
OPINION                                                    of designated oil and gas within the geographical area
                                                                                                                          Page 2
                                        164 S.W.3d 656, *; 2005 Tex. LEXIS 392, **;
                                         48 Tex. Sup. J. 671; 162 Oil & Gas Rep. 511

described in the Agreement. A.A.P.L. Form 610-1977,                    benefits of this article, the party or parties
preamble (1977). The Model Form Agreement designates                   giving the notice and such other parties as
a single party as "operator" who is responsible for the                shall elect to participate in the operation
management and control of drilling, development, and                   shall, within sixty (60) days after the ex-
production activities. Id. preamble, art. V., VI.A., C. All            piration of the notice period of thirty (30)
other parties are designated "non-operators." Id. pream-               days . . . actually commence work on the
ble. The parties to the Agreement have the option on each              proposed operation and complete it with
project to share operating costs and liabilities, to own               due diligence. . . .
equipment, and, if exercised, to then benefit by sharing in
                                                                            ....
production revenues in proportion to their respective
percentages of ownership. In such cases, these partici-                     . . . Upon commencement of opera-
pants are called "consenting parties." Id. art.                        tions for the drilling, completing, rework-
                                                                       ing, deepening or plugging back of any
       1 The parties modified several provisions of the                such well by Consenting Parties in ac-
       Model Form Agreement, but none of the changes                   cordance with the provisions of this Arti-
       affect the outcome of this case.                                cle, each Non-Consenting Party shall be
                                                                       deemed to have relinquished to Consent-
      [**4] I.G., VI.B. Parties who elect not to partici-
                                                                       ing Parties, and the Consenting [*660]
pate in a proposed operation, called "non-consenting
                                                                       Parties shall own and be entitled to receive,
parties," are subject to a "non-consent penalty" which
                                                                       in proportion to their respective interests,
operates as a temporary relinquishment of the interest
                                                                       [**6] all of such Non-Consenting Party's
owner's share of production revenue from the project to
                                                                       interest in the well and share of production
the consenting parties. 2 Id. art. I.H., VI.B. After the
                                                                       there from until the proceeds of the sale of
consenting parties recoup their investment costs and re-
                                                                       such share, calculated at the well, or mar-
ceive a limited return on their investments, the
                                                                       ket value thereof if such share is not sold
non-consenting parties share in production revenues in
                                                                       (after deducting production taxes, royalty,
proportion to their ownership interests. Id.
                                                                       overriding royalty and other interests ex-
    The relevant portion of the Model Form Agreement is                isting on the effective date hereof, payable
Article VI.B. on Subsequent Operations:                                out of or measured by the production from
                                                                       such well accruing with respect to such
           1. Proposed Operations: Should any                          interest until it reverts) shall equal the total
       party hereto desire to drill any well on the                    of the following:
       Contract Area . . ., the party desiring to
                                                                             (a)    100%       of     each     such
       drill . . . shall give the other parties written
                                                                       Non-Consenting Party's share of the cost
       notice of the proposed operation, specify-
                                                                       of any newly acquired surface equipment
       ing the work to be performed, the location,
                                                                       beyond the wellhead connections (includ-
       proposed depth, objective formation and
                                                                       ing, but not limited to, stock tanks, sepa-
       the estimated cost of the operation. The
                                                                       rators, treaters, pumping equipment and
       parties receiving such a notice shall have
                                                                       piping), plus 100% of each such
       thirty (30) days after receipt of the notice
                                                                       Non-Consenting Party's share of the cost
       within which to notify the parties wishing
                                                                       of operation of the well commencing with
       to do the work whether they elect to par-
                                                                       first production and continuing until each
       ticipate in the cost of the proposed opera-
                                                                       such Non-Consenting Party's relinquished
       tion . . . [**5] . Failure of a party re-
                                                                       interest shall revert to it under other pro-
       ceiving such notice to reply within the pe-
                                                                       visions of this Article, it being agreed that
       riod above fixed shall constitute an elec-
                                                                       each Non-Consenting Party's share of such
       tion by that party not to participate in the
                                                                       costs and equipment will be that interest
       cost of the proposed operation. Any notice
                                                                       which would have been chargeable to each
       or response given by telephone shall be
                                                                       Non-Consenting Party had it participated
       promptly confirmed in writing.
                                                                       in the well from the beginning of [**7]
            2. Operations by Less than All Parties:                    the operation; and
       If any party receiving such notice as pro-
                                                                           (b) 300% of that portion of the costs
       vided in Article VI.B.1. or VI.E.1. elects
                                                                       and expenses of drilling reworking,
       not to participate in the proposed opera-
                                                                       deepening, or plugging back, testing and
       tion, then, in order to be entitled to the
                                                                                                                      Page 3
                                       164 S.W.3d 656, *; 2005 Tex. LEXIS 392, **;
                                        48 Tex. Sup. J. 671; 162 Oil & Gas Rep. 511

        completing, after deducting any cash con-                non-consent penalty described in the Model [**9] Form
        tributions received under Article VIII.C.,               Agreement.
        and 300% of that portion of the cost of
                                                                      Dorsett disputed the imposition of the non-consent
        newly acquired equipment in the well (to
                                                                 penalty. Specifically, Dorsett contended that the Model
        and including the wellhead connections),
                                                                 Form Agreement [*661] required Valence to allow the
        which would have been chargeable to such
                                                                 thirty-day notice period to elapse before commencing
        Non-Consenting Party if it had partici-
                                                                 work on proposed operations. She argued that Valence's
        pated therein.
                                                                 failure to do so constituted a breach of contract, thereby
            ....                                                 preventing enforcement of the non-consent penalty. She
                                                                 also contended that the non-consent penalty was an un-
             If and when the Consenting Parties
                                                                 enforceable liquidated damages provision. In 2000,
        recover from a Non-Consenting Party's
                                                                 Dorsett sued Valence for breach of contract, specific
        relinquished interest the amounts provided
                                                                 performance, and conversion. She asserted causes of
        for above, the relinquished interests of
                                                                 action for damage to the surface of her land stemming
        such Non-Consenting Party shall auto-
                                                                 from Valence's failure to accommodate surface use and
        matically revert to it, and, from and after
                                                                 negligence; she also requested a declaratory judgment of
        such reversion, such Non-Consenting
                                                                 her rights under the Agreement and a full accounting.
        Party shall own the same interest in such
        well, the material and equipment in or                        The parties filed cross-motions for partial summary
        pertaining thereto, and the production                   judgment. Dorsett moved for partial summary judgment
        therefrom as such Non-Consenting Party                   on the breach of contract, accounting, and declaratory
        would have been entitled to had it partic-               judgment claims and requested severance of her surface
        ipated in the drilling, completing rework-               damage claims. Valence moved for partial summary
        ing, deepening or plugging back of said                  judgment on the contract claims as well. The trial court
        well. Thereafter, such Non-Consenting                    granted Valence's motion for partial summary judgment
        Party shall be charged with and shall pay                on the [**10] breach of contract claims, finding that
        its proportionate part of the further costs of           Dorsett failed to elect to participate in the eight wells and
        the operation of said well in accordance                 that the non-consent penalty was enforceable against her.
        with the terms of this agreement and [**8]               The trial court then severed the contract claims. The court
        the Accounting Procedure, attached here-                 of appeals reversed and rendered judgment in favor of
        to.                                                      Dorsett, holding that Valence failed to comply with the
                                                                 Model Form Agreement provisions for notice of proposed
                                                                 operations, thus making the non-consent penalty inap-
                                                                 plicable to Dorsett. 111 S.W.3d at 235.

        2 We do not agree that this non-consent penalty          II. Standard of Review
        is, as its name suggests, a forfeiture or punitive
                                                                      We review the trial court's summary judgment de
        provision, but we will use the industry's nomen-
                                                                 novo. Provident Life & Accident Ins. Co. v. Knott, 128
        clature.
                                                                 S.W.3d 211, 215, 47 Tex. Sup. Ct. J. 174 (Tex. 2003).
    A.A.P.L. Form 610-1977, art. VI.B. (1977).                   When reviewing a summary judgment, we take as true all
                                                                 evidence favorable to the nonmovant, and we indulge
     In 1981, TXO drilled the initial test well, Mobley
                                                                 every reasonable inference and resolve any doubts in the
Well No. 1. In 1994, Valence acquired ownership of
                                                                 nonmovant's favor. Knott, 128 S.W.3d at 215; Sci. Spec-
94.28446 percent of the working interest in the unit from
                                                                 trum, Inc. v. Martinez, 941 S.W.2d 910, 911, 40 Tex. Sup.
Marathon Oil Company (successor to TXO) and became
                                                                 Ct. J. 438 (Tex. 1997). When both parties move for partial
unit operator. From 1996 to 2001, Valence drilled eight
                                                                 summary judgment on the same issues and the trial court
more gas wells in the unit. Valence provided Dorsett with
                                                                 grants one motion and denies the other, as here, the re-
written notice of its intent to drill each of the eight wells,
                                                                 viewing court considers the summary judgment evidence
as required by the Model Form Agreement, but in each
                                                                 presented by both [**11] sides, determines all questions
case began preparatory work, and in some cases drilling,
                                                                 presented, and if the reviewing court determines that the
before thirty days had elapsed after Dorsett's receipt of the
                                                                 trial court erred, renders the judgment the trial court
notice. Dorsett received the notices but did not consent to
                                                                 should have rendered. See FM Props. Operating Co. v.
and did not contribute to any of the costs incurred in
                                                                 City of Austin, 22 S.W.3d 868, 872, 43 Tex. Sup. Ct. J. 835
drilling the wells. Valence then imposed on Dorsett the
                                                                 (Tex. 2000).
                                                                                                                           Page 4
                                        164 S.W.3d 656, *; 2005 Tex. LEXIS 392, **;
                                         48 Tex. Sup. J. 671; 162 Oil & Gas Rep. 511

III. Notice Period                                                       which to notify the parties wishing to do
                                                                         the work whether they elect to participate
     Dorsett argues that because Valence did not satisfy
                                                                         in the cost of the proposed operation . . . .
the Agreement's notice requirements, her share of new
                                                                         Failure of a party receiving such notice to
production could not be reduced pursuant to the penalty.
                                                                         reply within the period above fixed shall
Dorsett interprets the Model Form Agreement to require
                                                                         constitute an election by that party not to
Valence to deliver notice at least thirty days before the
                                                                         participate in the cost of the proposed op-
commencement of proposed operations. Valence argues
                                                                         eration. . . .
that the Agreement requires notice of proposed subse-
quent operations to be given to working interest owners,                      ....
who then have thirty days to elect to participate in the
                                                                              . . . [I]n order to be entitled to [impose
drilling of the well. Under Valence's construction, the
                                                                         the non-consent penalty], the party or par-
operator may commence work on the proposed operations
                                                                         ties giving the notice and such other parties
during the thirty-day notice period or even before the
                                                                         as shall elect to participate in the operation
thirty-day notice period begins. To support this interpre-
                                                                         shall, within sixty (60) days after the ex-
tation, Valence argues that the phrase stating that the
                                                                         piration of the notice period of thirty (30)
operator "shall, within sixty (60) days after the expiration
                                                                         days . . [**14] . actually commence
of the notice period of thirty (30) days . . . actually com-
                                                                         work on the proposed operation and com-
mence work on the [**12] proposed operation and
                                                                         plete it with due diligence.
complete it with due diligence" illustrates that the provi-
sion's purpose is not to prohibit the early commencement
of work, but to ensure that work is not unreasonably de-
                                                                  A.A.P.L. Form 610-1977, art. VI.B.1.-2. (1977).
layed after the [*662] consent deadline. A.A.P.L. Form
610-1977, art. VI.B.2. (1977).                                         We agree with Valence that this provision places no
                                                                  temporal limitation on Valence's ability to commence
     In construing a written contract, the primary concern
                                                                  work on the proposed projects. The Agreement clearly
of the court is to ascertain the true intentions of the parties
                                                                  states that "[t]he parties receiving such a notice shall have
as expressed in the instrument. J.M. Davidson, Inc. v.
                                                                  thirty (30) days after receipt of the notice within which to
Webster, 128 S.W.3d 223, 229, 47 Tex. Sup. Ct. J. 196
                                                                  notify the parties wishing to do the work whether they
(Tex. 2003); Gulf Ins. Co. v. Burns Motors, Inc., 22
                                                                  elect to participate in the cost of the proposed operation."
S.W.3d 417, 423, 43 Tex. Sup. Ct. J. 647 (Tex. 2000);
                                                                  Id. art. VI.1. This plain language in the Agreement de-
Coker v. Coker, 650 S.W.2d 391, 393, 26 Tex. Sup. Ct. J.
                                                                  scribes Dorsett's right to receive notice of proposed op-
368 (Tex. 1983). To achieve this objective, courts should
                                                                  erations and to elect to participate in those operations. It
examine and consider the entire writing in an effort to
                                                                  places no restrictions on when Valence may commence
harmonize and give effect to all the provisions of the
                                                                  drilling or preparations for drilling. Dorsett does not
contract so that none will be rendered meaningless. J.M.
                                                                  dispute that she received notice of all of the proposed
Davidson, Inc., 128 S.W.3d at 229; Coker, 650 S.W.2d at
                                                                  operations, nor does she contend that she elected to par-
393. Contract terms are given their plain, ordinary, and
                                                                  ticipate in the drilling of Mobley Wells 2 through 9. Her
generally accepted meanings unless the contract itself
                                                                  undisputed failure to consent to the proposed operations
shows them to be used in a technical or different sense.
                                                                  within thirty days was a "[f]ailure . . . to reply within the
Heritage Res., Inc.v. NationsBank, 939 S.W.2d 118, 121,
                                                                  period above fixed" and "constitut[ed] an election by that
39 Tex. Sup. Ct. J. 537 (Tex. 1996); [**13] W. Reserve
                                                                  party not to participate in the cost [**15] of the proposed
Life Ins. Co. v. Meadows, 152 Tex. 559, 261 S.W.2d 554,
                                                                  operation," thus making the non-consent penalty appli-
557 (Tex. 1953); see also Knott, 128 S.W.3d at 219.
                                                                  cable to Dorsett. Id.
    The notice provision of the Model Form Agreement
                                                                       In short, the thirty-day notice period sets a deadline
provides:
                                                                  for Dorsett to decide whether to participate in proposed
                                                                  operations. Nothing in the language of the Agreement
           [T]he party desiring to drill, complete,
                                                                  forbids the operator from commencing [*663] work
        rework, deepen or plug back such a well
                                                                  before the end of the notice period. However, there is a
        shall give the other parties written notice
                                                                  temporal limit in the Agreement on Valence that sets a
        of the proposed operation, specifying the
                                                                  deadline, not a required start date, on Valence's com-
        work to be performed, the location, pro-
                                                                  mencement of work. The Agreement requires the operator
        posed depth, objective formation and the
                                                                  to commence work no later than sixty days after the ex-
        estimated cost of the operation. The parties
                                                                  piration of the thirty-day notice period. A.A.P.L. Form
        receiving such a notice shall have thirty
                                                                  610-1977, art. VI.B.2. (1977). The distinction between the
        (30) days after receipt of the notice within
                                                                                                                      Page 5
                                      164 S.W.3d 656, *; 2005 Tex. LEXIS 392, **;
                                       48 Tex. Sup. J. 671; 162 Oil & Gas Rep. 511

two notice periods in the Agreement retains the working               proceeds of the sale of such share, calcu-
interest owner's right to thirty days notice before being             lated at the well, or market value thereof if
required to make a decision, while also requiring the                 such share is not sold . . . shall equal the
operator to commence work no later than ninety days after             total of the following:
formally proposing the operation to the interest owners. 3
                                                                            (a)    100%        of      each   such
                                                                      Non-Consenting Party's share of the cost
       3 The resolution of this case does not require us
                                                                      of any newly acquired surface equipment .
       to determine whether the phrase "actually com-
                                                                      . . plus 100% of each such Non-Consenting
       mence work," as used in the Model Form
                                                                      Party's share of the cost of operation of the
       Agreement, requires the commencement of drill-
                                                                      well commencing with first production
       ing or the commencement of other preparatory
                                                                      and continuing until each such
       work no later than ninety days after formally
                                                                      Non-Consenting Party's relinquished in-
       proposing the operation. Therefore, we express no
                                                                      terest shall revert to it under other provi-
       opinion on this issue.
                                                                      sions of this Article . . .; and
      [**16] This interpretation effectuates the written
                                                                           (b) 300% of that portion of the costs
agreement of the parties. We recognize that this inter-
                                                                      and expenses of drilling reworking,
pretation allows an operator to commence a new operation
                                                                      deepening, or plugging [**18] back,
before the thirty-day notice period has expired; however,
                                                                      testing and completing, after deducting
potential benefits may accrue to the owners for an oper-
                                                                      any cash contributions received under Ar-
ator's "early" commencement. For example, an early start
                                                                      ticle VIII.C., and 300% of that portion of
may avoid detrimental occurrences such as the draining of
                                                                      the [*664] cost of newly acquired
an oil field by a neighboring operator or the expiration of
                                                                      equipment in the well . . ., which would
an oil and gas lease. Moreover, the risk of early com-
                                                                      have     been     chargeable    to    such
mencement of such operations falls entirely on the oper-
                                                                      Non-Consenting Party if it had partici-
ator because if none of the working interest owners con-
                                                                      pated therein."
sent to participation within thirty days, the operator bears
the full cost of operations. The parties do not identify any
negative consequences to the working interest owners that
                                                               A.A.P.L. Form 610-1977, art. VI.B.2. (1977). This clause
arise from commencement of operations within the thir-
                                                               allows consenting parties to recoup up to 100 percent of
ty-day notice period.
                                                               the non-consenting party's share of the costs of any new
                                                               surface equipment and operation of the well and up to 300
IV. Non-Consent Penalty
                                                               percent of the non-consenting party's share of the costs
    Dorsett received notice of each of the proposed sub-       and expenses of drilling and new equipment in the well,
sequent operations. She acknowledges that she did not          subject to deductions. After the consenting parties have
consent to any of the proposed operations within thirty        recouped these costs, then the non-consenting party re-
days of receiving notice. She therefore is a                   turns to sharing in production revenues in proportion to
non-consenting party under Article VI.B.1. of the Model        his or her ownership interest. Id.; see also Nearburg v.
Form Agreement, and the non-consent penalty [**17]             Yates Petroleum Corp., 1997 NMCA 69, 123 N.M. 526,
applies to her.                                                943 P.2d 560, 565 (N.M. Ct. App. 1997) (explaining op-
                                                               eration of the Model Form Agreement's non-consent
    The relevant portion of the Model Form Agreement
                                                               penalty provision).
provides:
                                                                    Whether a contract term is a liquidated damages
          "Upon commencement of operations                     provision is a question of law for the court to decide.
       for the drilling, completing, reworking,                Phillips v. Phillips, 820 S.W.2d 785, 788, 35 Tex. Sup. Ct.
       deepening or plugging back of any such                  J. 220 (Tex. 1991) [**19] (citing Farrar v. Beeman, 63
       well by Consenting Parties in accordance                Tex. 175, 181 (1885)). Dorsett contends that the
       with the provisions of this Article, each               non-consent penalty is an unenforceable liquidated
       Non-Consenting Party shall be deemed to                 damages provision. We disagree. This clause is different
       have relinquished to Consenting Parties,                from a liquidated damages clause. Liquidated damages
       and the Consenting Parties shall own and                clauses fix in advance the compensation to a party ac-
       be entitled to receive, in proportion to their          cruing from the failure to perform specified contractual
       respective interests, all of such                       obligations, whereas non-consent penalties reward con-
       Non-Consenting Party's interest in the well             senting parties for undertaking a defined risk. See
       and share of production therefrom until the             Nearburg, 943 P.2d at 567 ("[T]he non-consent penalty is
                                                                                                                    Page 6
                                       164 S.W.3d 656, *; 2005 Tex. LEXIS 392, **;
                                        48 Tex. Sup. J. 671; 162 Oil & Gas Rep. 511

the agreed-upon reward to [a consenting party] for taking       fact, the incentives would strongly [**22] favor not
the risk . . . . As a contractual arrangement, the carried      consenting because, under Dorsett's approach, a
interest is subject to negotiation and modification, and the    non-consenting party would be able to reap the rewards of
parties' rights and obligations depend upon their con-          new operations without incurring any expense. The
tract."); RESTATEMENT (SECOND) OF CONTRACTS §                   non-consent penalty is designed to allow reasonable
356 (1981) ("Damages for breach by either party may be          compensation for working interest owners who undertake
liquidated in the agreement but only at an amount that is       the risk of developing new wells. See Phillips, 820 S.W.2d
reasonable in the light of the anticipated or actual loss       at 788. Other terms sometimes used to describe the
caused by the breach and the difficulties of proof of           non-consent penalty--"sole risk clause" and "risk charg-
loss."). The non-consent penalty provision in this oil and      es"--more accurately convey this rationale. See 111
gas operating agreement is the mechanism utilized to            S.W.3d at 226 n.1.
allow [**20] the consenting parties the opportunity to
recover their investments and receive defined returns           V. Conclusion
from future operations. For such operations, they under-
                                                                    We conclude that Valence provided timely notice to
take a financial risk that the non-consenting parties do not.
                                                                Dorsett of its proposed subsequent operations; conse-
Here, the non-consenting party is not being punished for
                                                                quently, Valence did not breach the Agreement. The
breaching a contract; she simply agreed not to participate
                                                                non-consent penalty is not an unenforceable liquidated
in a return on an investment she did not make. Indeed,
                                                                damages provision and is enforceable against Dorsett.
after the provision's requirements are met, she receives
                                                                Therefore, we reverse the court of appeals' judgment and
additional revenues from new wells for which she paid
                                                                render judgment that Dorsett take nothing.
nothing. One Texas court of appeals, in its consideration
of whether a non-consent penalty was enforceable, char-             J. Dale Wainwright, Justice
acterized the penalty as a liquidated damages clause and
decided that it was enforceable against the non-consenting      CONCUR BY: Scott Brister
working interest owner. Hamilton v. Tex. Oil & Gas
Corp., 648 S.W.2d 316, 321 (Tex. App.--El Paso 1982,            CONCUR
writ ref'd n.r.e.). While Hamilton reached the correct
result, we disapprove of its treatment of the non-consent           JUSTICE BRISTER, concurring.
penalty as a liquidated damages provision.                           Casual readers may not understand how a court could
                                                                possibly hold that a "non-consent penalty" is not a "pen-
     There is a second reason why Dorsett's assertion is
                                                                alty." Although fully joining the Court's opinion and
unpersuasive. Assuming, arguendo, that Dorsett was
                                                                judgment, I write briefly [**23] to explain.
correct in claiming that the non-consent penalty is a liq-
uidated damages clause, her argument [**21] still fails              The Court discloses in a footnote that "non-consent
because, traditionally, liquidated damages are recoverable      penalty" is industry vernacular. 164 S.W.3d at 659 n.2.
only where there has been a failure to perform contractual      The term does not appear in the Operating Agreement,
obligations. Phillips, 820 S.W.2d at 788; Rio Grande            and interpretation of that contract is a question of law for
Valley Sugar Growers, Inc. v. Campesi, 592 S.W.2d 340,          the Court. Lee Lewis Constr., Inc. v. Harrison, 70 S.W.3d
342 n.2, 23 Tex. Sup. Ct. J. 142 (Tex. 1979). As the court      778, 783, 45 Tex. Sup. Ct. J. 232 (Tex. 2001). What the
in Nearburg noted, "a non-consent election cannot con-          parties call a clause is parol evidence, and thus inadmis-
vincingly be characterized as a [*665] breach. . . .            sible unless a contract is ambiguous. Friendswood De-
Therefore, we do not regard the non-consent penalty             velopment Co. v. McDade + Co., 926 S.W.2d 280, 283, 39
provision as involving liquidated damages or an unen-           Tex. Sup. Ct. J. 874 (Tex. 1996) (per curiam). This one is
forceable penalty." Nearburg, 943 P.2d at 566. We have          not.
held that Valence complied with the terms of the Agree-
ment by properly sending notices to Dorsett. Dorsett                 Generally, a liquidated damages provision providing
failed to consent to the proposed operations. Neither party     for a multiple of actual damages is an unenforceable
breached the contract.                                          penalty. Phillips v. Phillips, 820 S.W.2d 785, 789, 35 Tex.
                                                                Sup. Ct. J. 220 (Tex. 1991). But while the clause here is
     To interpret the provision as Dorsett suggests would       certainly liquidated, 1 it is not a liquidated-damages
not only contradict its plain language, but would vanquish      clause. 2
the incentive for parties to consent and incur costs and
liabilities for new projects. If all working interest owners           1 See BLACK'S LAW DICTIONARY 494 (8th
shared equally in production revenues from subsequent                  ed. 2004) ("liquidated, adj. 1. (Of an amount or
projects, whether they consented or not, none would                    debt) settled or determined, esp. by agreement.").
consent because there would be no incentive to do so. In
                                                                                                               Page 7
                                     164 S.W.3d 656, *; 2005 Tex. LEXIS 392, **;
                                      48 Tex. Sup. J. 671; 162 Oil & Gas Rep. 511

       2 See id. ("liquidated-damages clause. A con-                4    See id. at 416 ("damages, n. pl. Money
       tractual provision that determines in advance the            claimed by, or ordered to be paid to, a person as
       measure of damages if a party breaches the                   compensation for loss or injury the plaintiff seeks
       agreement.").                                                $ 8,000 in damages from the defendant).
     [**24] The parties' contract provides unambigu-              I recognize that in some situations receiving less is
ously that Dorsett is not required to contribute to subse-   the economic [**25] equivalent of paying more. But
quent operations. Thus, there is no breach of contract if    bonuses for a star athlete or salesman are not intended to
she opts out.                                                penalize their employers, but to increase returns for all
                                                             concerned. Unless an oilfield can be completely emptied
      [*666] The contract also provides unambiguously
                                                             from existing wells, further development is not a ze-
that those who do not consent nevertheless get additional
                                                             ro-sum game.
revenues (after recoupment by those who do), for which
they pay nothing. This is not a penalty but a bonus. 3           Those in the oil industry widely use and rely on
                                                             clauses like the one here, and certainly consider them
       3 See id. at 134 ("bonus. 1. A premium paid in        enforceable. See John R. Reeves & J. Matthew Thomp-
       addition to what is due or expected <<year-end        son, The Development of the Model Form Operating
       bonus>.").                                            Agreement: An Interpretive Accounting, 54 Okla. L.R.
                                                             211, 254-55 (2001). Dorsett provides precedent in neither
     The contract also provides unambiguously that those
                                                             law nor logic suggesting that liquidated bonus clauses
who do consent get 300% recoupment of certain costs, for
                                                             should be unenforceable, nor why she should get a bonus
which nonconsenting parties again pay nothing. These are
                                                             for a risk she never took. Accordingly, this is not a
not damages. 4
                                                             "non-consent penalty."
                                                                 Scott Brister, Justice
                                                                                                                    Page 1




               WESTERNGECO, L.L.C. AND SCHLUMBERGER TECHNOLOGY CORPORA-
                        TION, Appellants v. INPUT/OUTPUT, INC., Appellee

                                                 NO. 14-06-00357-CV

                  COURT OF APPEALS OF TEXAS, FOURTEENTH DISTRICT, HOUSTON

                                     246 S.W.3d 776; 2008 Tex. App. LEXIS 480


                                     January 24, 2008, Judgment Rendered
                            January 24, 2008, Majority and Concurring Opinions Filed

PRIOR HISTORY: [**1]                                         Inc. ("Input") and former Schlumberger employees
  On Appeal from the 164th District Court, Harris            working for Input. Schlumberger sought damages and
County, Texas. Trial Court Cause No. 04-67890.               also asked the court to permanently enjoin Input from (1)
                                                             using or disclosing Schlumberger's confidential [**2]
                                                             information and (2) soliciting for employment any
COUNSEL: For APPELLANTS: Kendall Matthew                     Schlumberger employee who is involved in the design of
Gray, Joel W. Mohrman, Houston, TX.                          seismic data acquisition systems or who has been exposed
                                                             to confidential Schlumberger information regarding
For APPELLEES: Charles S. Baker, Houston, TX.                seismic data acquisition systems. To resolve the 1998
                                                             lawsuit the parties entered into a settlement agreement in
JUDGES: Panel consists of Justices Frost, Seymore, and       November 1998 ("Settlement Agreement"). The material
Guzman. (Guzman, J., concurring).                            terms are as follows:

OPINION BY: Kem Thompson Frost                                         This Settlement Agreement is made by
                                                                    and among Schlumberger Technology
OPINION                                                             Corporation ("Schlumberger"), a Texas
                                                                    corporation . . ., acting on behalf of itself
 [*778] MAJORITY OPINION                                            and its Affiliates; Input/Output, Inc.
                                                                    ("I/O"), a Delaware corporation . . ., acting
     This case arises out of a dispute over the terms of a
                                                                    on behalf of itself and its Affiliates; and
settlement agreement between business competitors. One
                                                                    the following individuals: Rex K. Reavis,
party brought a declaratory judgment action seeking
                                                                    James "Jerry" Iseli, and Kambiz Afkhami
various declarations regarding the terms of the settlement
                                                                    (these three individuals collectively re-
agreement. The trial court granted the plaintiff's motion
                                                                    ferred to herein as the "Individual De-
for summary judgment, impliedly making the three dec-
                                                                    fendants").
larations sought in the motion. The defendants never
sought declaratory relief; rather, they asserted in a                    WHEREAS, the Geco-Prakla division
cross-motion for summary judgment that all of the re-               of Schlumberger ("Geco-Prakla") provides
quested declarations should be denied as a matter of law.           seismic services to the oil industry, and I/O
We reverse and render in part and affirm in part.                   supplies seismic equipment and systems to
                                                                    various companies, including Schlum-
FACTUAL AND PROCEDURAL BACKGROUND                                   berger, that provide such seismic services
                                                                    (such seismic services and seismic
    In 1998, appellant Schlumberger Technology Cor-
                                                                    equipment and systems referred to herein
poration ("Schlumberger") filed suit asserting various
                                                                    as "Seismic Field"); . . .
contract and tort claims against appellee Input/Output,
                                                                                                                      Page 2
                                   246 S.W.3d 776, *; 2008 Tex. App. LEXIS 480, **


            . [**3] . .                                          After WesternGeco threatened to sue Input to enforce
                                                             the above paragraph 4 of the Settlement Agreement
           4. I/O agrees that it will not offer em-
                                                             (hereinafter "Paragraph 4"), Input filed this lawsuit
       ployment to or engage as a consultant any
                                                             against Schlumberger and WesternGeco (hereinafter the
       current or former employee [*779] of
                                                             "Schlumberger Parties") asking the court to make various
       Schlumberger who is working or has
                                                             declarations regarding the proper construction of Para-
       worked in the Seismic Field unless at least
                                                             graph 4 and also seeking attorney's fees. 2 The Schlum-
       two (2) years have passed from the date
                                                             berger [**5] Parties never asserted a counterclaim for
       such employee or former employee either
                                                             declaratory relief; they simply argued that, as a matter of
       ceased working for Schlumberger in the
                                                             law, Input was not entitled to the relief it sought.
       Seismic Field or has left Schlumberger.
            ...                                                      2 Although the parties often refer generally to
                                                                     the Settlement Agreement, it is clear that the im-
            13. This Agreement is binding upon
                                                                     plied declarations before this court on appeal
       and shall inure to the benefit of the parties
                                                                     pertain only to Paragraph 4.
       hereto and their respective successors in
       interest and legal representatives.                         Input filed a motion for summary judgment seeking a
                                                             declaration that the Settlement Agreement is void on the
            ...
                                                             alleged grounds that it is (1) an illegal restraint of trade,
            15. As used herein, "Affiliate" means            and (2) a covenant not to compete that violates section
       any present or future corporation that di-            15.50 of the Texas Business and Commerce Code. The
       rectly or indirectly controls, is controlled          trial court denied this motion.
       by, or is under common control with either                Input filed a second motion for summary judgment
       party, where "control" means the owner-               asserting that the trial court should render a summary
       ship, direct or indirect, of at least 50% of
                                                             judgment making the following declarations:
       voting securities of such corporation.
                                                                         (1) Because Paragraph 4 is silent as to
                                                                     its duration, either party may terminate it at
     Approximately two years later, in September 2000,               will.
Schlumberger and Baker Hughes, Inc. entered into a
                                                                          (2) Alternatively, any implied rea-
Master Formation Agreement, in which Schlumberger
                                                                     sonable time period during which Para-
transferred to a joint venture all of its seismic business
                                                                     graph 4 was not terminable at will [*780]
assets, including but not limited to, contracts, claims
                                                                     already has expired so that Paragraph 4 is
against third parties, intellectual property, and infor-             now terminable at will.
mation technology. The summary-judgment evidence
does not show whether appellant [**4] WesternGeco,                        (3) Paragraph 4 applies to Schlum-
L.L.C. ("WesternGeco") is the joint venture to which this            berger employees who are within its scope
transfer was made, and it does not reflect whether                   but not to WesternGeco employees.
WesternGeco is an affiliate of Schlumberger. 1 For the
purposes of this appeal, we presume, without deciding,
that Schlumberger and Baker Hughes created                   Input also sought attorney's fees. In its second [**6]
WesternGeco to handle their seismic business and that        motion, Input did not seek a final summary judgment
WesternGeco is an "Affiliate" of Schlumberger, as de-        because, even if the trial court granted all the relief sought
fined in the Settlement Agreement.                           in this motion, Input still had pending requests in its peti-
                                                             tion for additional declaratory relief. The Schlumberger
       1 The trial court struck two paragraphs from the      Parties filed a cross-motion for summary judgment, in
       affidavit of Dale Gaudier, in which Gaudier stated    which they argued that, as a matter of law, the trial court
       that WesternGeco is the successor-in-interest to      should deny all of the requests for declaratory relief in
       Schlumberger's seismic business and that              Input's petition and award Chapter 37 attorney's fees to
       Schlumberger owns at least 50% of the voting          the Schlumberger Parties. In this cross-motion the
       securities in WesternGeco. Although Schlum-           Schlumberger Parties did seek a final judgment.
       berger and WesternGeco challenge this eviden-
                                                                 After a hearing on these cross-motions, the trial court
       tiary ruling on appeal, we need not address this
                                                             signed an interlocutory order in which it granted Input's
       issue to adjudicate this appeal.
                                                             motion and did not mention the Schlumberger Parties'
                                                             motion. Input then filed a motion to modify the sum-
                                                                                                                       Page 3
                                     246 S.W.3d 776, *; 2008 Tex. App. LEXIS 480, **


mary-judgment order. Input asked the trial court to mod-         cause each party was a movant, the burden for each was
ify its order to (1) deny the Schlumberger Parties' motion,      the same: to establish entitlement to a summary judgment
(2) deny Input's request for Chapter 37 attorney's fees, and     by conclusively proving all the elements [**9] of the
(3) deny all of Input's claims the court did not expressly       claim or defense as a matter of law. Id.
grant in the partial summary judgment in its favor. The
                                                                      III. ISSUES AND ANALYSIS A. Is there a justi-
trial court granted this motion and rendered a final judg-
                                                                 ciable case or controversy to support this court's ju-
ment as requested. Even though in its motion for summary
                                                                 risdiction?
judgment Input sought [**7] alternative and inconsistent
declarations, the trial court did not make any declarations           The Schlumberger Parties have filed a motion to
in its judgment. Instead, the court simply stated that it        dismiss this appeal for lack of jurisdiction asserting that
granted Input's second motion for summary judgment. No           there is no case or controversy. The Texas Declaratory
party has complained about the form of the trial court's         Judgment Act is a remedial statute whose purpose is to
judgment; therefore, we need not address the omission of         afford relief from uncertainty and insecurity with respect
express declarations in the court's declaratory judgment.        to rights, status, and other legal relations. See TEX. CIV.
We treat the trial court's judgment as having impliedly          PRAC. & REM. CODE ANN. § 37.002(b) (Vernon 1997);
made the three declarations requested in the motion. The         Bonham State Bank v. Beadle, 907 S.W.2d 465, 467 (Tex.
Schlumberger Parties have appealed from the trial court's        1995). We must construe and administer this statute lib-
final judgment. 3 Input has not appealed.                        erally. See TEX. CIV. PRAC. & REM. CODE ANN. §
                                                                 37.002(b); Bonham State Bank, 907 S.W.2d at 467. A
        3 The Schlumberger Parties seek a reversal of            court of record, acting within its jurisdiction, has power to
        the trial court's judgment for lack of a justiciable     declare rights, status, and other legal relations whether or
        controversy, or in the alternative, a reversal and       not further relief is or could be claimed. TEX. CIV. PRAC.
        rendition of judgment based on their cross-motion.       & REM. CODE ANN. § 37.003(a). A person with an
        No party has sought a reversal and remand to the         interest in a written contract may ask a court to determine
        trial court.                                             any question of construction or validity arising under the
                                                                 contract and obtain a declaration of rights, status, or other
II. STANDARDS OF REVIEW                                          legal relations thereunder. Id. § 37.004(a). [**10] A
                                                                 contract may be construed either before or after a breach.
     In a traditional motion for summary judgment, if the
                                                                 Id. § 37.004(b).
movant's motion and summary-judgment evidence fa-
cially establish its right to judgment as a matter of law, the        A declaratory judgment is appropriate only if a jus-
burden shifts to the nonmovant to raise a genuine, mate-         ticiable controversy exists as to the rights and status of the
rial fact issue sufficient to defeat summary judgment.           parties and the controversy will be resolved by the dec-
M.D. Anderson Hosp. & Tumor Inst. v. Willrich, 28                laration sought. Bonham State Bank, 907 S.W.2d at 467.
S.W.3d 22, 23 (Tex. 2000). [**8] In our de novo review           For a justiciable controversy to exist, there must be a real
of a trial court's summary judgment, we consider all the         and substantial controversy involving a genuine conflict
evidence in the light most favorable to the nonmovant,           of tangible interests and not merely a theoretical dispute.
crediting evidence favorable to the nonmovant if rea-            Id. The Schlumberger Parties have described Input as a
sonable jurors could, and disregarding contrary evidence         "business competitor" who had been "poaching"
unless reasonable jurors could not. Mack Trucks, Inc. v.         Schlumberger employees in 1998 in an effort to have
Tamez, 206 S.W.3d 572, 582 (Tex. 2006). The evidence             these employees work on seismic systems that would
raises a genuine issue of fact if reasonable and                 compete directly with the systems on which they had
fair-minded jurors could differ in their conclusions in          worked at Schlumberger, making disclosure of Schlum-
light of all of the summary-judgment evidence. Goodyear          berger's confidential information inevitable. Schlum-
Tire & Rubber Co. v. Mayes, 236 S.W.3d 754, 756 (Tex.            berger filed suit against Input and others, and the parties
2007).                                                           settled that case in 1998 by means of the Settlement
                                                                 Agreement. The summary-judgment evidence contains
     We may review the trial court's denial of the
                                                                 the affidavit of Input's Vice President and General
Schlumberger Parties' motion because in it they sought a
                                                                 Counsel, in which he testifies as follows:
final summary judgment. See CU Lloyd's of Texas v.
Feldman, 977 S.W.2d 568, 569 (Tex. 1998). When both
                                                                            It is [Input's] belief that it has fully
parties move for summary judgment, each party must
                                                                         performed all of its obligations under the
carry its own burden, and neither can prevail because of
                                                                         Settlement Agreement, [**11] and the
the failure of the other to discharge its [*781] burden.
                                                                         terms thereof, including Paragraph 4, are
INAC Corp. v. Underwriters at Lloyd's, 56 S.W.3d 242,
                                                                         no longer in force. [WesternGeco], on the
247 (Tex. App.--Houston [14th Dist.] 2001, no pet.). Be-
                                                                         other hand, has represented to [Input] that
                                                                                                                      Page 4
                                   246 S.W.3d 776, *; 2008 Tex. App. LEXIS 480, **


       it is the successor-in-interest to Schlum-             [Input] is threatening to hire any particular current or
       berger's rights under the Settlement                   former Schlumberger employee," and (3) Input has not
       Agreement and is entitled to and intends to            shown that it has "any present or prospective intention to
       enforce the language of Paragraph 4.                   violate the Settlement Agreement." Schlumberger argues
       [WesternGeco] has asserted to [Input] that             that to show a justiciable controversy, Input must identify
       the language of Paragraph 4 prevents, in               in some way a current or former Schlumberger employee
       perpetuity, [Input] from hiring any current            that it wants to hire but cannot hire if Paragraph 4 is still in
       or former employee of [WesternGeco], or                effect. We conclude Input is not required to do so.
       any of its affiliates, who have any connec-
                                                                    This case presents a bona fide, concrete controversy
       tion     to     the     seismic    industry.
                                                              ripe for resolution by way of declaratory judgment. See
       [WesternGeco] has also threatened to
                                                              Bonham State Bank, 907 S.W.2d at 467. The record re-
       bring suit against [Input] to enforce the
                                                              flects a real and substantial controversy involving a gen-
       provision.
                                                              uine conflict of tangible interests and not merely a theo-
                                                              retical dispute. See id.; City of Dallas v. VSC, LLC, 242
                                                              S.W.3d 584, 597, 2008 Tex. App. LEXIS 50, *26, 2008 WL
No summary-judgment evidence contradicts this testi-
                                                              54484, at *8-9 (Tex. App.--Dallas 2008, no pet. h.); Monk
mony. Input also attached to its motion for summary
                                                              v. Pomberg, No. 01-05-00429-CV,            S.W.3d    ,     ,
judgment a prior filing in the trial court in which the
                                                              2007 Tex. App. LEXIS 2513, *17-18, 2007 WL 926491, at
Schlumberger Parties state that Input "declares that it is
                                                              *6 (Tex. App.--Houston [1st Dist.] Mar. 29, 2007, no
suffering from a material [*782] competitive disad-
                                                              pet.). Furthermore, [**14] presuming, without deciding,
vantage in the seismic industry" and has apparently de-
                                                              that it is necessary to show a justiciable controversy, the
termined that it must break its promise [not to solicit for
                                                              evidence mentioned above indicates that Input is threat-
employment any of Schlumberger's employees who
                                                              ening to hire current or former employees of the
worked in the seismic field until two years after they have
                                                              Schlumberger Parties whom the Schlumberger Parties
left the company] . . . ." 4
                                                              claim are covered by Paragraph 4. A justiciable contro-
                                                              versy exists. Therefore, we deny the Schlumberger Par-
       4 The Schlumberger Parties are quoting from an
                                                              ties' motion to dismiss.
       affidavit that Input [**12] filed in support of its
       first motion for summary judgment. This exhibit is
                                                              B. Did the trial court err by concluding that Para-
       not a judicial admission but it is part of the sum-
                                                              graph 4 has been impliedly terminable at will since the
       mary-judgment evidence.
                                                              execution of the Settlement Agreement?
     The undisputed summary-judgment evidence sup-
                                                                   Under their first issue, the Schlumberger Parties
ports a conclusion that Input wants to hire the Schlum-
                                                              challenge the trial court's implied declaration that Para-
berger Parties' employees in the Seismic Field and that
                                                              graph 4 is impliedly terminable at will by either party. In
WesternGeco is threatening to sue Input to prevent it from
                                                              Paragraph 4, Input agreed not to offer employment to or
taking such action. WesternGeco asserts that its employ-
                                                              engage as a consultant any current or former employee of
ees are protected by Paragraph 4 because they constitute
                                                              Schlumberger who is working or has worked in the
"current or former employee[s] of Schlumberger" under
                                                              Seismic Field unless at least [*783] two years have
Paragraph 4. Even though WesternGeco did not exist in
                                                              passed from the date such employee or former employee
1998 when the Settlement Agreement was signed,
                                                              either ceased working for Schlumberger in the Seismic
WesternGeco asserts that Schlumberger entered into the
                                                              Field or has left Schlumberger. The Settlement Agree-
Settlement Agreement on its behalf.
                                                              ment is silent as to the duration of Input's covenant in
     The Schlumberger Parties do not argue that Input         Paragraph 4. The trial court ruled as a matter of law that
must offer employment to or engage as a consultant a          there is an implied contractual [**15] term under which
Schlumberger or WesternGeco employee who has worked           Paragraph 4 is terminable at will by either party.
or is working in the Seismic Field before there can be a
                                                                   There is uncertainty as to the legal standard for de-
justiciable controversy. The Schlumberger Parties
                                                              termining the duration of an agreement that contains no
acknowledge that their construction of the Settlement
                                                              express term. In some cases courts indicate that the im-
Agreement differs significantly from Input's construction;
                                                              plied term should be terminable at will, while in other
however, they contend that this controversy is not justi-
                                                              cases courts state that the implied term should be for a
ciable because (1) "[Input] has not identified -- even
                                                              reasonable time. See Clear Lake City Water Auth. v. Clear
[**13] anonymously -- one current or former Schlum-
                                                              Lake Utilities Co., 549 S.W.2d 385, 390-91 (Tex. 1977). In
berger employee that it would otherwise hire if not for the
                                                              one of the cases upon which Input relies, Clear Lake City
[Settlement Agreement]," (2) "[t]here is no indication that
                                                              Water Authority v. Clear Lake Utilities Co., the Texas
                                                                                                                   Page 5
                                   246 S.W.3d 776, *; 2008 Tex. App. LEXIS 480, **


Supreme Court noted both lines of cases. See id. Howev-        written instrument. See HECI Exploration Co. v. Neel,
er, the Clear Lake City Water Authority court stated that it   982 S.W.2d 881, 888 (Tex. 1998); Fein v. R.P.H., Inc., 68
did not need to decide which line of cases to follow be-       S.W.3d 260, 268 (Tex. App.--Houston [14th Dist.] 2002,
cause the court was required to imply the contract was         pet. denied). In the Settlement Agreement, the parties
terminable at will given that one of the parties was a         settled a lawsuit in which Schlumberger sought a per-
governmental entity incapable of contracting for a rea-        manent injunction [**18] precluding Input from (1)
sonable time for performance. See id. Because the high         using or disclosing Schlumberger's confidential infor-
court's holding was based on one of the parties' status as a   mation [*784] and (2) soliciting for employment at
governmental entity, Clear Lake City Water Authority is        Input any Schlumberger employee who is involved in the
not on point in the case at hand, and the court's statements   design of the seismic data acquisition systems or who has
regarding the two lines of cases are obiter dicta. See id.     been exposed to confidential Schlumberger information
Likewise, [**16] the other statements from cases upon          regarding seismic data acquisition systems. In the Set-
which Input relies for implying a terminable-at-will pro-      tlement Agreement, Input agreed that it would not solicit
vision are either based on one of the parties' status as a     or induce, directly or indirectly, the use or disclosure of
governmental entity or are obiter dicta. 5 Neither the Clear   certain confidential information belonging to Schlum-
Lake City Water Authority opinion nor any other Texas          berger. This covenant remains in effect beyond December
case appears to explain how courts should determine            1, 2001, until that information, as defined in the Settle-
whether to imply that an agreement is terminable at will or    ment Agreement, no longer exists. Part of Input's agree-
to imply that it lasts for a reasonable time. However, we      ment in Paragraph 4 is to not offer employment to any
need not address how this determination should be made         current Schlumberger employee who is working in the
today.                                                         Seismic Field unless at least two years have passed from
                                                               the date the employee either stopped working for
       5 One of these cases is based on one of the par-        Schlumberger in the Seismic Field or left Schlumberger.
       ties' status as a governmental entity. See City of      Implying an agreement that Input's covenant in Paragraph
       Corpus Christi v. Taylor, 126 S.W.3d 712, 722-23        4 is terminable at will is not necessary to effectuate the
       (Tex. App.--Corpus Christi 2004, pet. withdrawn).       purposes of the Settlement Agreement as a whole as
       Others are cited for statements that are obiter         gathered from the written instrument; in fact, it would
       dicta. See Kennedy v. McMullen, 39 S.W.2d 168,          contradict these purposes. [**19] Therefore, we con-
       174 (Tex. Civ. App.--Beaumont 1931, writ ref'd)         clude that the trial court erred by implicitly declaring an
       "overruling appellate contention based on appel-        implied term that Paragraph 4 is terminable at will by
       lants" inability to terminate contract unless they      either party. See HECI Exploration Co., 982 S.W.2d at
       stopped operating a bus line while stating in dicta     888; Fein, 68 S.W.3d at 268. The trial court should have
       that generally a contract that does not specify du-     denied Input's motion in this regard and granted the
       ration may be terminated at will); Farah v.             Schlumberger Parties' motion seeking a take-nothing
       Mafrige & Kormanik, P.C., 927 S.W.2d 663, 678           judgment as a matter of law as to this requested declara-
       (Tex. App.--Houston [1st. Dist.] 1996, no writ)         tion. We sustain the Schlumberger Parties' first issue to
       (stating that contract was [**17] also terminable       this extent.
       at will only after concluding the contract was too
       indefinite to be enforced); Ingram Freezers v.          C. Did the trial court err by concluding that Para-
       Atchison, T & S. F. Ry. Co., 464 S.W.2d 915, 920        graph 4 is terminable at will because any implied
       (Tex. Civ. App.--Dallas 1971, writ ref'd n.r.e.)        reasonable duration has expired as a matter of law?
       (concluding that trial court correctly rendered di-
                                                                    Under their first issue, the Schlumberger Parties also
       rected verdict because there was no agreement to
                                                               challenge the trial court's implied declaration that Input's
       furnish rail service and then stating that another
                                                               covenant under Paragraph 4 is terminable at will because
       reason for affirming the directed verdict is that any
                                                               any reasonable time period during which Paragraph 4 was
       such agreement would have been termina-
                                                               not terminable at will already has expired, so that Para-
       ble-at-will); Tanenbaum Textile Co. v. Sidran, 423
                                                               graph 4 is now terminable at will. Though obiter dicta in
       S.W.2d 635, 637 (Tex. Civ. App.--Dallas 1967,
                                                               Clear Lake City Water Authority suggests such an implied
       writ ref'd n.r.e.) (indicating that agreement was
                                                               duration may be possible, precedent from the Texas Su-
       terminable at will in the course of holding that
                                                               preme Court and this court shows that, if the "reasonable
       contract was not valid for being indefinite because
                                                               duration" rule applies, this court would imply that Para-
       it did not specify a time for performance).
                                                               graph 4 [**20] expires after a reasonable period of time
     To imply a term into an agreement, it must appear         rather than becoming terminable at will after a reasonable
that it is necessary to do so in order to effectuate the       time. Compare Clear Lake City Water Auth., 549 S.W.2d
purposes of the contract as a whole as gathered from the       at 390-91 (stating in dicta that, under one line of cases,
                                                                                                                        Page 6
                                    246 S.W.3d 776, *; 2008 Tex. App. LEXIS 480, **


courts imply a reasonable duration during which time the        D. Did the trial court err by concluding that Para-
agreement is not terminable at will), with Hall v. Hall, 158    graph 4 applies to Schlumberger employees who are
Tex. 95, 308 S.W.2d 12, 16 (Tex. 1957) (stating that            within its scope but not to WesternGeco employees?
"[w]hen the parties omit an express stipulation as to time,
                                                                     Under their third issue, the Schlumberger Parties also
it is in accord with human experience and accepted
                                                                challenge the trial court's implied declaration that Para-
standards of law for us to assume that they meant what-
                                                                graph 4 applies to Schlumberger employees who are
ever term of days or years might be reasonable in the light
                                                                within its scope but not to WesternGeco employees. 7
of the circumstances before them at the date of the con-
                                                                Input's covenant in Paragraph 4 covers "any current or
tract"); Cheek v. Metzer, 116 Tex. 356, 291 S.W. 860, 864
                                                                former employee of Schlumberger who is working or has
(Tex. 1927) (holding that, in the absence of a stipulation as
                                                                worked in the Seismic Field unless at least two (2) years
to the time for performing the terms of a contract, the law
                                                                have passed from the date such employee or former em-
allows a reasonable time); Hart v. Bullion, 48 Tex. 278,
                                                                ployee either ceased working for Schlumberger in the
289 (Tex. 1877) (stating that, where a contract does not fix
                                                                Seismic Field or has left Schlumberger." In the Settlement
a time for performance, the law allows a reasonable time
                                                                Agreement, "Schlumberger"           [**23] is defined as
for performance); Metromarketing Services, Inc. v. HTT
                                                                "Schlumberger Technology Corporation." WesternGeco
Headwear, Ltd., 15 S.W.3d 190, 195-96 (Tex.
                                                                is a separate corporate entity from Schlumberger, and
App.--Houston [14th Dist.] 2000, no pet.) (stating that
                                                                there has been no pleading or proof of any theory by
when the parties do not fix the time of performance,
                                                                which the corporate veil between these two entities may
[**21] courts imply a reasonable time for performance).
                                                                be pierced. The trial court correctly determined that under
For this reason, the trial court erred in ruling [*785] as
                                                                the unambiguous language of the Settlement Agreement,
a matter of law that Paragraph 4 is terminable at will
                                                                Paragraph 4 applies to Schlumberger employees who are
because any implied reasonable time period during which
                                                                within its scope but not to WesternGeco employees. See
Paragraph 4 was not terminable at will already has ex-
                                                                Humble Explor. Co. v. Amcap Petroleum Associ-
pired. The trial court should have denied Input's motion in
                                                                ates-1977, 658 S.W.2d 860, 862 (Tex. App.--Dallas 1983,
this regard 6 and granted the Schlumberger Parties' motion
                                                                writ ref'd n.r.e.) (applying unambiguous contractual def-
seeking a take-nothing judgment as a matter of law as to
                                                                inition in declaratory-judgment case).
this requested declaration. We sustain the Schlumberger
Parties' first issue to this extent.
                                                                       7    They also argue that Input's affiliates are
                                                                       subject to the Settlement Agreement. However,
       6 In addition, even if the trial court had ruled
                                                                       because the trial court made no such implied
       that any reasonable duration for Input's covenant
                                                                       declaration, that issue is not before us.
       in Paragraph 4 has expired as a matter of law, this
       ruling still would have been error. If a reasonable           The Schlumberger Parties assert that the term
       time is implied, the determination of what is a          "Schlumberger," as used in the Settlement Agreement,
       reasonable time is generally a question of fact that     must include WesternGeco to avoid rendering meaning-
       is based on the circumstances surrounding the            less the language making WesternGeco a party to the
       adoption of the agreement, the situation of the          Settlement Agreement. The Schlumberger Parties base
       parties when they entered into the agreement, and        this argument on the following reasoning:
       the subject matter of the agreement. See Hall, 308
       S.W.2d at 16-17; Cheek, 291 S.W.2d at 864; Hart,                    . The Settlement Agreement defines
       48 Tex. at 289; Metromarketing Services, Inc., 15               "Affiliates" as "any present or future cor-
       S.W.3d at 195-96. Although summary judgment                     poration [**24] that directly or indirectly
       would be possible if the [**22] evidence is un-                 controls, is controlled by, or is under
       controverted regarding these matters, the only                  common control with either party, 'where
       evidence that Input provided the trial court in this            control' means the ownership, direct or
       regard is the Settlement Agreement itself. Lacking              indirect, of at least 50% of voting securi-
       any extrinsic evidence bearing on this issue, the               ties of such corporation."
       trial court could not have determined as a matter of
                                                                             [*786] . WesternGeco is an "affili-
       law that any reasonable duration for Input's cov-
       enant in Paragraph 4 has expired. See Hall, 308                 ate" of Schlumberger because it is a future
       S.W.2d at 16-17; Cheek, 291 S.W.2d at 864; Hart,                corporation that is controlled by Schlum-
                                                                       berger, where "control" means the own-
       48 Tex. at 289; Metromarketing Services, Inc., 15
                                                                       ership, direct or indirect, of at least 50% of
       S.W.3d at 195-96.
                                                                       voting securities of such corporation.
                                                                                                                      Page 7
                                    246 S.W.3d 776, *; 2008 Tex. App. LEXIS 480, **


            . The Settlement Agreement states                          bind an affiliate under agency principles, there
       that it was made by, among other parties,                       must be evidence of conduct by the affiliate that
       "Schlumberger Technology Corporation                            would give rise to actual or apparent authority).
       ("Schlumberger"), a Texas corporation . . .,                    However, any facts that might bind WesternGeco
       acting on behalf of itself and its Affiliates .                 under these theories would not have come into
       . ."                                                            existence until after WesternGeco was created.
                                                                       The trial court's third implied declaration ad-
            . Because Schlumberger entered into
                                                                       dresses the meaning of Paragraph 4 and does not
       the Settlement Agreement on behalf of its
                                                                       address whether, after its creation, WesternGeco
       Affiliates, including WesternGeco, the
                                                                       engaged in acts that would bind it to the Settle-
       term "Schlumberger," as used in the Set-
                                                                       ment Agreement under one of these theories.
       tlement        Agreement,       includes
                                                                       Therefore, we need not address these theories;
       WesternGeco.
                                                                       rather, we are addressing the Schlumberger Par-
            . The Schlumberger Parties' proffered                      ties' argument that we must interpret "Schlum-
       interpretation is necessary to give meaning                     berger" to include WesternGeco, because other-
       to the contractual language making                              wise the language making future affiliates parties
       WesternGeco a party to the Settlement                           to the Settlement Agreement would be rendered
       Agreement because, if "Schlumberger"                            meaningless.
       does not include WesternGeco, then the
                                                                     Furthermore, even presuming that the Settlement
       Settlement Agreement imposes no burden
                                                                Agreement includes WesternGeco as a party, that would
       on WesternGeco and gives no benefit to
                                                                not render the language meaningless [**27] or leave
       WesternGeco. The Schlumberger Parties
                                                                WesternGeco without a burden or benefit, as the
       [**25] assert that this result would render
                                                                Schlumberger Parties urge, because the Settlement
       meaningless the language making
                                                                Agreement still would refer to WesternGeco in stating
       WesternGeco a party to the Settlement
                                                                that the agreement is binding upon and inures to the ben-
       Agreement.
                                                                efit of the parties thereto and that the parties agree that
                                                                Texas law will apply. [*787] The statement that the
                                                                agreement is binding upon WesternGeco could refer to
     The Settlement Agreement contains language under           WesternGeco's binding agreement that Texas law gov-
which Schlumberger purportedly "makes" the agreement            erns. In addition, because the Settlement Agreement seeks
"on behalf of" its future affiliates. However, when             to protect certain confidential information belonging to
Schlumberger entered into the Settlement Agreement in           Schlumberger, these protections could inure to the benefit
1998, WesternGeco, allegedly one of its "future affili-         of WesternGeco.
ates," did not exist. Because WesternGeco and Schlum-
                                                                     In sum, the unambiguous definition of "Schlum-
berger are separate entities, a contract with Schlumberger
                                                                berger" in the Settlement Agreement does not include
is generally not a contract with WesternGeco. See In re
                                                                alleged future affiliates such as WesternGeco, and Para-
Merrilllynch Trust Co. FSB, 235 S.W.3d 185, 191 (Tex.
                                                                graph 4 does not apply to WesternGeco employees. In
2007). Moreover, because a non-existent entity cannot
                                                                addition, even presuming, without deciding, that
enter into a contract, Schlumberger could not and did not
                                                                WesternGeco is an affiliate on whose behalf Schlum-
bind WesternGeco merely by signing a contract in which
                                                                berger entered into the Settlement Agreement, this fact
Schlumberger states that it is acting on behalf of itself and
                                                                would not render any language of the Settlement Agree-
its future affiliates. The Schlumberger Parties' argument
                                                                ment meaningless. Accordingly, we overrule the
fails because they seek to give meaning to language that
                                                                Schlumberger Parties' challenge to the trial court's implied
could not have been effective as to WesternGeco. 8
                                                                declaration that Paragraph 4 applies to Schlumberger
                                                                employees who [**28] are within its scope but not to
       8 Even if Schlumberger stated in the Settlement
                                                                WesternGeco employees. We have addressed all the is-
       Agreement that its non-existent, future affiliates
                                                                sues necessary to the disposition of this appeal. 9
       are parties to the Settlement Agreement, that
       would not bind these future affiliates to the
                                                                       9 Input asserts that the issue of whether Para-
       agreement unless [**26] they are so bound under
                                                                       graph 4 is an illegal restraint of trade is before this
       a legal theory such as piercing the corporate veil,
                                                                       court. We disagree. This issue was a ground in
       agency, estoppel, or ratification. See, e.g.,
                                                                       Input's first motion for summary judgment, which
       CNOOC Southeast Asia Ltd. v. Paladin Res.
                                                                       the trial court denied. The Schlumberger Parties
       (SUNDA) Ltd., 222 S.W.3d 889, 899 (Tex.
                                                                       have not argued on appeal that the trial court erred
       App.--Dallas 2007, pet. denied) (stating that to
                                                                                                                      Page 8
                                    246 S.W.3d 776, *; 2008 Tex. App. LEXIS 480, **


       in denying Input's first motion for summary              and Input, acting on behalf of itself and its Affiliates.
       judgment. The illegal-restraint-of-trade issue was       These parties agreed that the term "Affiliates" would refer
       not a ground in Input's second motion for sum-           to "any present or future corporation that directly or in-
       mary judgment, which the trial court granted.            directly controls, is controlled by, or is under common
       Furthermore, by stating that the grant of its second     control with either party, where 'control' means the own-
       motion and denial of the Schlumberger Parties'           ership, direct or indirect, of at least 50% of voting securi-
       motion "ended the dispute" and by moving the             ties of such corporation." In addition, Input agreed:
       trial court to render a take-nothing judgment as to
       all the declaratory relief sought in Input's petition                [*788] that it will not offer employ-
       but not in its second motion, Input waived all of                ment to or engage as a consultant any
       these requests, including the requested declaration              current or former employee of Schlum-
       that Paragraph 4 is an illegal restraint of trade.               berger who is working or has worked in
       This reality is not altered by the Schlumberger                  the Seismic Field unless at least two (2)
       Parties' appeal of the trial court's final judgment or           years have passed from the date such em-
       by their briefing on appeal in support of the                    ployee or former employee either ceased
       proposition that Paragraph [**29] 4 is not an il-                working for Schlumberger in the Seismic
       legal restraint of trade.                                        Field or has left Schlumberger.

IV. CONCLUSION
                                                                Settlement Agreement, P 4. And in paragraph 13 of the
     We deny the Schlumberger Parties' motion to dismiss
                                                                Settlement Agreement, Schlumberger and Input agreed,
for lack of jurisdiction because a justiciable controversy
                                                                on their own behalf and on behalf of their respective Af-
exists. The trial court erred in impliedly declaring as a
                                                                filiates, that "[t]his Agreement is binding upon and shall
matter of law that (1) Paragraph 4 is terminable at will by
                                                                inure to the benefit of the parties hereto and their respec-
either party and (2) alternatively, Paragraph 4 is termina-
                                                                tive successors in interest [**31] and legal representa-
ble at will because any implied reasonable time period
                                                                tives."
during which Paragraph 4 was not terminable at will
already has expired. Accordingly, we reverse these por-              I agree with the majority that WesternGeco is not
tions of the trial court's judgment and render judgment         encompassed within the parties' agreed definition of the
that Input take nothing as to these two requested declara-      term "Schlumberger," which is instead defined by the
tions. Under the unambiguous language of the Settlement         parties as "Schlumberger Technology Corporation, a
Agreement, the trial court correctly determined that Par-       Texas corporation having a place of business" at a specific
agraph 4 applies to Schlumberger employees who are              address in Sugar Land, Texas. Thus, I agree that Para-
within its scope but not to WesternGeco employees. Ac-          graph 4 of the Settlement Agreement requires Input to
cordingly, we affirm the remainder of the trial court's         refrain from offering employment to current or recent
judgment.                                                       employees of Schlumberger Technology Corporation, but
                                                                does not prohibit Input from hiring WesternGeco's current
    /s/ Kem Thompson Frost
                                                                or recent employees in the Seismic Field.
    Justice
                                                                      For reasons that differ somewhat from those ex-
    Judgment rendered and Majority and Concurring               pressed by the majority, I also agree that it is unnecessary
Opinions filed January 24, 2008.                                to expand the definition assigned by the parties to the term
                                                                "Schlumberger" in order to give full effect to the Agree-
   Panel consists of Justices Frost, Seymore, and Guz-
                                                                ment. The purpose of the Agreement was "to settle and
man. (Guzman, J., concurring).
                                                                compromise the issues raised in the [Fort Bend] Lawsuit .
    Publish -- TEX. R. APP. P. 47.2(b).                         . . ." Thus, the unambiguous language of the Agreement
                                                                manifests the parties' intent to resolve the existing dispute,
CONCUR BY: Eva M. Guzman                                        i.e., the alleged "poaching" of Schlumberger employees
                                                                by Input. The record does not indicate that any issue was
CONCUR                                                          raised in the Fort Bend [**32] Lawsuit concerning In-
                                                                put's recruitment of WesternGeco's present or former
    I join the majority's opinion expressed in sections III.    employees. Although similar, that is a separate dispute not
A, III. B, and [**30] III. C, and concur in the result          addressed in the former lawsuit or in the Settlement
reached in section III. D.                                      Agreement. This construction, which is required by the
    The Settlement Agreement was made between                   plain meaning and the defined terms of the Settlement
Schlumberger, acting on behalf of itself and its Affiliates,
                                                                                                            Page 9
                                  246 S.W.3d 776, *; 2008 Tex. App. LEXIS 480, **


Agreement, does not deprive WesternGeco of any benefit       employees. I therefore concur in the result reached in
actually conferred by the Agreement.                         section III. D.
     Because it is unnecessary to the disposition of the         /s/ Eva M. Guzman
case, I would not address the question of whether the
                                                                 Justice
Agreement binds WesternGeco in the absence of pleading
and proof of legal theories such as piercing the corporate       Judgment rendered and Majority and Concurring
veil, agency, estoppel, or ratification. Regardless of       Opinions filed January 24, 2008.
whether WesternGeco is bound by the Agreement, the
Agreement does not bar Input from hiring WesternGeco
