Fair Notice of Pleadings

2 minute read

Hyde v. GACP Finance Co., LLC 

Dallas Court of Appeals, No. 05-23-00873-CV

Justices Reichek, Nowell (Opinion, available here), and Wright

Kelli Hinson

The “fair notice of pleadings” doctrine requires that the parties’ pleadings give adverse parties notice of their claims and defenses, as well as notice of the relief sought. Plaintiff GACP learned that lesson the hard way when the Dallas Court of Appeals reversed a $1.8 million judgment in its favor and rendered judgment for the Defendants. 
The GACP sued Defendants Hyde and Winspear alleging fraud in connection with a Credit Agreement. The parties to the Credit Agreement were Excel as the borrower, GACP as the “administrative agent and collateral agent,” and GACP, L.P. (“GACP Lender”). GACP alleged that Defendants, who were principals of Excel, paid themselves deferred compensation in violation of the Credit Agreement. On the third day of trial, Defendants argued that GACP did not have capacity to seek its requested damages. GACP admitted that the damages alleged were suffered by GACP Lender, but it argued it was pursuing those damages “as the agent on behalf of the lender.”  The trial court asked where that was stated in the Petition, and GACP was at a loss. It pointed to one reference in the Factual Allegations section to its capacity “as agent for various Lenders.” Although the trial court recognized this was a case-dispositive issue, it allowed the trial to continue and ultimately entered a judgment in favor of GACP for more than $1.8 million.
The Court of Appeals reversed and rendered. Texas Rule of Civil Procedure 301 requires the trial court’s judgment to be supported by the pleadings. This “fair notice” pleading standard “looks to whether the opposing party can ascertain from the pleading the nature and basic issues of the controversy and what testimony will be relevant.” The Court of Appeals held that GACP’s “passing reference” to its role as agent was not sufficient to give Defendants notice it was seeking damages on behalf of GACP Lender as its agent. Defendants were not required to raise this issue before trial through special exceptions or a verified denial because they were entitled to rely on GACP’s pleading asserting it was seeking its own damages. Because GACP admitted it had not suffered any damages of its own, it did not have standing to pursue claims against the Defendants.  

Wade’s Health Law Highlights for October 29, 2024

4 minute read

Eli Lilly Targets Compounding Kits

Eli Lilly has filed a lawsuit against Pivotal Peptides, a drug vendor in Washington state, accusing them of selling do-it-yourself kits for making knockoff versions of their weight-loss and diabetes drugs, Zepbound and Mounjaro.

Pivotal Peptides allegedly sold these kits without requiring a prescription or medical consultation, labeling the ingredients as “research chemicals” not intended for human use. The company ignored a cease-and-desist letter from Lilly and continued operations under a guise, using coded language to sell their products.

The lawsuit alleges serious safety issues, as these untested and non-pharmaceutical-grade drugs could be ordered by anyone.

Lilly’s legal actions are part of a broader effort to address the sale of illicit tirzepatide versions amid ongoing legal debates over compounded drug formulations.

The FDA had previously declared a shortage of tirzepatide, allowing licensed pharmacies to legally compound the drug, but is now reconsidering this decision following lawsuits from compounding pharmacies. Eli Lilly emphasizes the significant risks posed to patient safety by the sale of these unapproved and potentially harmful drugs.

Anti-Discrimination

  • The Department of Health and Human Services’ final rule implementing Section 1557 of the Affordable Care Act prohibits discrimination in healthcare and requires covered entities to appoint coordinators, post nondiscrimination notices, and implement policies and procedures by specific deadlines. Covered entities must also ensure patient care decision support tools are used non-discriminatorily and provide language assistance and auxiliary aids by May 1, 2025.

Blockchain

  • The global “Blockchain Technology in Healthcare” market is projected to grow significantly, driven by its potential to enhance security, efficiency, and transparency in healthcare services. Blockchain technology offers secure storage of electronic health records, streamlines data management, and improves drug traceability. Recent developments highlight the ongoing integration of blockchain in healthcare, with companies like IBM and Patientory Inc. making strides in the field.

Data Breaches

Health Data

HIPAA

Reproductive Health

Weight Loss

Wade’s Healthcare Privacy Advisor

4 minute read

Legislation

Security Practices

LLMs

LItigaton

Online Tracking

Regulation

Threat Vector

Opinion

Wade’s Health Law Highlights

3 minute read

Litigation

Security Standards

Quality of Care

Fraud & Abuse

Out-of-Network

Ransomware

Telemedicine

  • The Texas Medical Board has proposed new telemedicine regulations. The new rules would require a full license to provide telemedicine services, reaffirms that telemedicine services be performed in compliance with the Texas Occupations Code and the Medical Practice Act, and establishes requirements for prescribing for chronic pain via telemedicine.
  • The DEA is expected to extend telemedicine prescribing flexibilities for controlled substances through 2025, following pressure from Congress and the White House. Without an extension, the flexibilities that have increased access to healthcare for rural and underserved communities will expire, potentially leaving thousands of patients without access to critical medications. Stakeholders are urging the DEA to extend the flexibilities and create a taskforce to provide feedback on a new proposed rule for telemedicine prescribing of controlled substances.

CMS

M&A

Insurer’s Proposed Permissive Interlocutory Appeal Rejected: Won’t Materially Advance Ultimate Termination of Litigation

2 minute read

Zurich Am. Ins. Co. v. MB2 Dental Solutions, LLC

Dallas Court of Appeals, No. 05-24-00288-CV (September 20, 2024)

Justices Molberg (Opinion, linked here), Pedersen, III, and Carlyle 

After Zurich denied coverage under three insuring agreements for MB2’s losses arising from COVID-19 pandemic government orders, MB2 sued Zurich, asserting breach-of-contract and extra-contractual claims. Three years into the suit, the parties filed cross-motions for partial summary judgment on one of the insuring agreements, which covered interruption-by-communicable-disease (“ICD”). After briefing, a hearing, and more briefing, the trial court issued an omnibus order granting and denying in part each party’s motion, ruling that civil-authority orders triggered coverage by prohibiting access to MB2’s locations only in a subset of the implicated states and localities. Zurich sought leave to pursue a permissive appeal, which the trial court granted.

The court of appeals denied the petition, however, ruling Zurich had not satisfied the requirements for permissive interlocutory appeal under section 51.014(d) of the Texas Civil Practice and Remedies Code. Section 51.014(d) provides that a trial court may permit an appeal from an interlocutory order if: “(1) the order to be appealed involves a controlling question of law as to which there is a substantial ground for difference of opinion; and (2) an immediate appeal from the order may materially advance the ultimate termination of the litigation.” Then, the court of appeals may accept the appeal if the appealing party timely files “an application for interlocutory appeal explaining why an appeal is warranted under Subsection (d).” 
In Texas, appeals generally are limited to final judgments. Statutes providing for interlocutory appeal are strictly construed. Applying these rules, the court concluded that Zurich failed to establish an appeal from the partial summary judgment order would materially advance the ultimate termination of the litigation. The court pointed out that the appeal could only determine contractual liability for one of the three coverage grants in dispute. MB2’s breach-of-contract claims under the other two coverage provisions would remain pending, as would its extra-contractual claims. The outcome of the proposed interlocutory appeal would not affect any of these remaining claims. While a party seeking interlocutory appeal under section 51.014(d) need not establish that such an appeal would completely resolve the litigation, it must show that an appeal “may materially advance” termination of the litigation. Here, because issues and claims would remain unresolved and unaffected by resolution of ICD coverage alone on appeal, an interlocutory appeal would not materially advance the ultimate termination of the litigation.

Arbitration and Not-So-Evident Partiality

2 minute read

Aspen Strategic Holdings, LLC v. Transitus Capital, L.L.C.

Dallas Court of Appeals, No. 05-23-00249-CV (August 27, 2024)

Justices Partida-Kipness (Opinion, here), Pedersen III, and Carlyle

A court will vacate an arbitration award where there is “evident partiality” of the arbitrator. See, e.g., Tex. Civ. Prac. & Rem. Code § 171.088(a)(2)(A). The Supreme Court of Texas has explained that a “neutral arbitrator … exhibits evident partiality if he or she does not disclose facts which might, to an objective observer, create a reasonable impression of the arbitrator’s partiality.” Burlington Northern Railroad Co. v. TUCO, Inc., 960 S.W.2d 629, 636 (Tex. 1997). Further, “evident partiality is established from the nondisclosure itself, regardless of whether the nondisclosed information necessarily establishes partiality or bias.” Id. But according to the Dallas Court of Appeals, that test isn’t quite as simple as it may seem.
Aspen secured an arbitration award against Transitus and sought to have that award confirmed by a district court. Transitus, however, moved to vacate because (a) it discovered that one of Aspen’s attorneys in the arbitration had appeared before the arbitrator in another arbitration several years earlier, and (b) the arbitrator had not disclosed that prior appearance as required by the applicable AAA rules. The trial court granted the motion to vacate based solely on that nondisclosure. 
But the appeals court reversed, ruling that the trial court had “stopped too soon.” Although the facts of the prior appearance and the arbitrator’s nondisclosure were not contested, analysis under the TUCO standard does not end there, the Court explained. Instead, “the proper question then becomes whether the undisclosed facts might, to [an] objective observer, create a reasonable impression of the arbitrator’s partiality. …  Only by evaluating the facts of the specific case can the trial court conclude that the undisclosed facts were sufficiently material to meet the evident impartiality [sic] standard.” The appeals court therefore reversed and remanded for the trial court to revisit the motion to vacate under that second prong of the TUCO standard. It also overturned the trial court’s order quashing Aspen’s “subpoena calling for the arbitrator to testify concerning the circumstances or reasons for the nondisclosure.” The appeals court considered that testimony (a) to be potentially important to determining “whether an objective observer might form a reasonable impression that the arbitrator was partial,” and (b) not to be forbidden by “either AAA rules or the Civil Practice and Remedies Code.”

Substantial Invocation of the Judicial Process Waives Arbitration under the FAA Even Without a Showing of Prejudice

2 minute read

Dallas Excavation Systems, Inc. v. Orellana

Dallas Court of Appeals, No. 05-23-01149-CV (August 21, 2024)

Justices Molberg (Opinion, here), Nowell, and Kennedy (Dissenting, here)

In a case arising from an arbitration agreement governed by the Federal Arbitration Act, the Texas Supreme Court has held that, “[A] party waives an arbitration clause by [1] substantially invoking the judicial process [2] to the other party’s detriment or prejudice.” Perry Homes v. Cull, 258 S.W.3d 580, 589-90 (Tex. 2008). More recently, however, the United States Supreme Court has said that under the FAA, it is “wrong to condition a waiver of the right to arbitrate on a showing of prejudice.” Morgan v. Sundance, 596 U.S. 411, 417 (2022).
Dallas Excavation Systems (“DES”) commenced two separate but related lawsuits against Orellana and others. After those cases were consolidated, and only 48 days before trial, DES moved to compel arbitration pursuant to an arbitration clause in one of the contracts at issue. That clause provided for arbitration under the FAA, 9 U.S.C. § 1 et seq. The trial court denied the motion to compel, ruling that DES had waived arbitration by “substantially invoking the judicial process.” A divided panel of the Dallas Court of Appeals affirmed, finding that DES’s actions in the trial court, viewed “together as a whole,” “evidence[d] an election to litigate, not arbitrate.” The majority further held that, even though the Texas Supreme Court has not yet considered the issue, “the second Perry Homes factor—prejudice to the nonmovant—… no longer applies, at least in cases involving arbitration agreements governed by the FAA.”
Justice Nancy Kennedy dissented, arguing that DES had not sufficiently “invoked the judicial process”—i.e., had not “actively tried, but failed, to achieve a satisfactory result through litigation before turning to arbitration”—to be deemed to have waived its right to arbitrate. As a result, she would not have reached the question whether the second Perry Homes factor, prejudice to the party resisting arbitration, has been eliminated in Texas for FAA cases, based on intervening SCOTUS precedent. 

When a Non-Solicitation Agreement Applies Even If There’s No Solicitation

2 minute read

Bain & Schindele Tax Consulting, LLC  v. EW Tax and Valuation Group, LLP

Dallas Court of Appeals , No. 05-23-00560-CV (August 7, 2024) 

Justices Molberg, Nowell (Opinion, linked here), and Kennedy

Sarah Schindele sold the assets of her tax and bookkeeping business (“BSTC”) to EW Tax for a little over $800,000—$162,500 up front and a note for the balance that called for 60 monthly payments of $7300 and a sizeable balloon payment at the end of the payout period. As part of the arrangement, Schindele agreed that for a five-year “Restrictive Period”she would not (a) solicit work from any of BSTC’s clients listed in the sales agreement or (b) accept work from any of them. The agreement set the fair market value of that non-solicitation provision at $300,000.

Just over a year after the deal closed, Schindele started a new business and began providing tax services for several former BSTC clients. Upon learning of this, EW Tax stopped making its monthly payments under the note and sued for breach of contract; BSTC counterclaimed for the payments remaining under the note. After a bench trial, the district court found Schindele had materially breached the parties’ agreement by accepting work from BSTC clients within the non-soliciation period. But it nevertheless awarded BSTC about $275,000—the note balance minus (a) the payments EW Tax had already made and (b) the value of that portion of the “Restrictive” non-solicitation period lost to EW Tax by virtue of Schindele’s breach. 
The Dallas Court of Appeals reversed and rendered judgment that BSTC take nothing on its claim. Although Schindele argued she had not solicited former BSTC clients, saying they had approached her, she and BSTC did not contest the trial court’s finding that she accepted work and payment from those former BSTC clients during the Restrictive Period. That was enough to support the trial court’s finding of material breach of this particular agreement, which expressly barred her from accepting work from former BSTC clients, as well as from soliciting such work. “It is a fundamental principle of contract law that when one party to a contract commits a material breach of that contract, the other party is discharged or excused from further performance,” the appeals court observed. It therefore held Schindele’s material breach discharged EW Tax from its obligation to make any payments after the breach—even though those were obligations under the note, rather than the sales agreement itself.

Online Tracking Technologies and HIPAA Misconceptions

less than a minute

Summary of article from IAPP, by John Haskell:

Misconceptions persist about the use of online tracking technologies (OTTs) for marketing under HIPAA compliance. HIPAA mandates that covered entities must obtain explicit authorization from individuals before using or disclosing their personal health information (PHI) for marketing purposes. Simply signing a Business Associate Agreement (BAA) does not ensure compliance, particularly when PHI is involved. The U.S. Department of Health and Human Services (HHS) has clarified that disclosures of PHI to tracking technology vendors without proper authorizations are impermissible. Additionally, business associates are prohibited from using PHI for their own purposes, such as marketing campaigns. Compliance with HIPAA requires obtaining valid authorizations and adhering to specific guidelines, rather than relying solely on BAAs. Understanding these requirements is crucial to avoid regulatory issues.

People Are Overdosing on Off-Brand Weight-Loss Drugs, FDA Warns

less than a minute

Summary of article from Ars Technica, by Beth Mole:

The FDA has issued a warning about overdoses related to off-brand versions of the weight-loss drug semaglutide, commonly known as Wegovy and Ozempic. Due to high costs and supply shortages, patients are turning to compounded versions, which lack standardized dosing and safety assurances. These compounded drugs often come with unclear instructions and improper syringe sizes, leading to significant dosing errors—sometimes up to 20 times the intended amount. Such overdoses have resulted in severe health issues, including nausea, vomiting, and pancreatitis. The FDA emphasizes that compounded drugs carry higher risks and should only be used when absolutely necessary. The agency also noted that healthcare providers have made dosage calculation errors, further exacerbating the problem.