News

Litigator Jason Katz has joined the Carrington Coleman as a partner, bolstering the firm’s Litigation & Insolvency practice groups.

“We are very pleased to welcome a lawyer as accomplished as Jason to our firm,” said Carrington Coleman Managing Partner Bruce Collins. “His broad range of experience will complement our existing litigation and bankruptcy practices and enable us to expand the work we are doing.”

Mr. Katz joins the firm from Hiersche, Hayward, Drakeley & Urbach. He represents clients in bankruptcy proceedings and a diverse range of complex business litigation matters in federal and state courts.

He has represented debtors and creditors in a number of high-profile bankruptcy cases, including Chapter 11 reorganizations, complicated judgment collection cases and receivership proceedings. He has worked with banks to resolve various matters such as loan modifications and workouts, fraud and deficiency actions, foreclosures of security interests in both real and personal property, and perfecting security interests. He also represents corporate clients in breach of contract cases, employment disputes, construction litigation, agency disputes and fraud claims.

His practice includes:

• Commercial Litigation
• Business Litigation/Corporate and Partnership Litigation
• Banking and Finance Litigation
• Employment Litigation
• Bankruptcy, Receivership & Insolvency

To learn more about Mr. Katz, visit his bio.

His work has earned him recognition in the Texas Rising Stars edition of Super Lawyers Magazine and an AV Preeminent ranking from Martindale-Hubbell. A graduate of the University of Arkansas School of Law, he was an associate editor of the Arkansas Law Review and a member of the National Moot Court Traveling Team. He earned his undergraduate degree from the University of Georgia and an MBA from the University of Arkansas-Fayetteville.

Dallas and San Antonio recently passed city laws mandating paid sick leave. The status of these municipal ordinances remains unclear. That is because the Texas Supreme Court is currently considering whether municipal paid sick leave ordinances violate Texas law, and the Court has stayed enforcement of a similar Austin sick leave ordinance while it considers whether to strike down the ordinance. Most employers assumed the Court’s ruling would be an interesting after-thought because the expectation was that the Texas legislature would ban this type of municipal ordinance. But the legislative session ended without passing the required legislation. Therefore, the Supreme Court will decide the question without the benefit of the promised legislation. The bad news is that the Supreme Court likely will not issue a ruling until after the effective date of the Dallas and San Antonio ordinances. The good news is that a ruling likely will be issued before either city imposes penalties under the ordinance.

While the Dallas and San Antonio laws could still be challenged in court (apart from the Austin appeal), the short timeframe before the laws go into effect suggests that there may not be enough time to block the new laws before their August 1, 2019, effective date. Therefore, employers should begin planning for compliance.

When do the laws go into effect?
The ordinances will take effect for all employers with more than five employees on August 1, 2019. For employers with five or fewer employees, the law takes effect August 1, 2021.

What are the penalties for not complying, and when do they take effect?
Employers are subject to fines up to $500 for failing to comply with the ordinance, but those penalties generally will not go into effect until April 1, 2020. Penalties for violations of the retaliation provisions, however, can be assessed immediately. So, some employers may take the risk of delaying changes until after the Texas Supreme Court’s ruling.

Even where a violation is found, employers will be given the opportunity to comply voluntarily with the ordinance before a penalty is collected. Only if the employer fails to achieve compliance within 10 business days after receipt of written notice of non-compliance will the employer be liable for the penalty.

What are the basic requirements of the ordinances?
The Dallas and San Antonio ordinances are mostly identical in substance. The ordinances apply to all employers, including private employers, other than the United States, Texas, and city governments.

The Dallas and San Antonio ordinances require that employers with more than 15 employees provide employees with up to 64 hours (8 days) of paid sick leave per year, which must accrue at a rate of 1 hour per every 30 hours worked in the respective city (Dallas or San Antonio). Both ordinances provide for yearly caps of 64 hours for employers with 15 or more employees. For employers with 15 or fewer employees, the yearly cap is 48 hours.

Leave will accrue at the commencement of employment or the effective date of the ordinances, whichever is later.

Who is eligible for paid sick leave?
Employees are eligible for paid sick leave if they work 80 or more hours per year within the respective cities. This means that the ordinance applies to part-time and full-time, exempt and non-exempt employees. The ordinances also apply to employees who perform services through a temporary or employment agency, but not to individuals who are independent contractors or unpaid interns.

For what reasons can an employee use paid sick leave?
Employees in both Dallas and San Antonio can use paid sick leave for many purposes, including the employee’s own or their family member’s physical or mental illness, physical injury, preventive medical or health care, or health condition. Paid sick leave may also be used for the employee’s or their family member’s need to seek medical attention, seek relocation, obtain services of a victim services organization, or participate in legal or court-ordered action related to an incident of victimization from domestic abuse, sexual assault, or stalking involving the employee or the employee’s family member. A family member includes an employee’s spouse, child, parent, or any other individual related by blood. It also includes “any other individual whose close association to an employee is the equivalent of a family relationship.”

Employers must allow an employee to use sick leave as soon as it is accrued. One exception is that you can prohibit an employee from using paid sick leave during his or her first 60 days of employment only if that employee has a term of employment lasting at least one year. Because most employees in Texas work on an at-will basis, this exception will rarely apply.

What are the requirements for requesting leave?
Both the Dallas and San Antonio ordinances require that an employee must make a “timely” request to use earned paid sick time before his or her scheduled work time. However, employers may not prevent an employee from using earned paid sick time for an unforeseen qualified absence that meets the requirements of the laws. You cannot require employees to find replacements to cover their absences under either ordinance.

Both ordinances allow you to adopt a reasonable verification procedure for any employee requests for paid sick time longer than three consecutive days. However, even when verification is allowed, you may not adopt verification procedures that would require an employee to explain the nature of the domestic abuse, sexual assault, or stalking.

Does paid sick leave carry over from one year to the next?
Generally, yes. Both ordinances require you to allow all available earned but unused paid sick time to be carried over to the following year, subject to the yearly caps. However, employers are given the option to avoid this requirement by “front-loading” paid sick time. If you make all 64 hours (8 days) of paid sick leave available to your employees at the beginning of the year (rather than accruing 1 hour per 30 hours worked), then you do not need to allow employees to carry any unused leave over into the next year.

What if an employer already provides paid time off benefits?
The Dallas and San Antonio ordinances both state that they do not require an employer who already makes paid time off available to an employer under conditions that meet the purpose, accrual, yearly cap, and usage requirements of the laws to provide additional earned paid sick time. In other words, if your company’s policy already provides at least 64 hours (8 days) of paid time off (or 48 hours if you have less than 15 employees) that employees can use for medical purposes, you do not have to give them additional time under the sick leave laws.

How should employers notify their employees of the new paid sick leave requirements?
If you have an employee handbook, the ordinances require you to include an explanation of the paid sick leave ordinance in that document. Since the ordinances are going into effect in the middle of the year when you may not be updating handbooks, you may want to consider issuing a handbook addendum to distribute to your employees.

Additionally, you are required to provide employees with a monthly statement showing the amount of available earned paid sick time. You are also required to post a sign in a conspicuous place (such as a break room bulletin board) explaining the requirements of the new ordinances.

What else should employers know?
You are prohibited from retaliating against employees who request or use earned paid sick time, report a violation of the ordinances, or participate in any investigation or proceeding relating to the ordinances.

Both the Dallas and San Antonio ordinances allow leave for mental illness. However, unlike San Antonio, the Dallas ordinance does not specifically allow leave for mental injuries. This means that where an employee or family member suffers a mental injury without suffering a mental illness (such as a concussion), that leave may be covered in San Antonio but not in Dallas.

If you have additional questions about the new ordinances, please contact Carrington Coleman Employment attorneys Mike Birrer, mbirrer@ccsb.com, 214.855.3113 or Maria Garrett, mgarrett@ccsb.com, 214.855.3020.

The Supreme Court’s Decision in Mission Product Holdings, Inc. v. Tempnology

Many Chapter 11 debtors have reorganization plans that reject contracts in droves and they never look back.  Why?  Rejection is part of the debtor’s “fresh start”.  A debtor “monetizes” its old contracts into prepetition claims, often paying only cents on the dollar in damages.  But where does that leave counterparties?  If that contract was a trademark license, the licensee might be in the catbird seat.

This week, the United States Supreme Court issued an opinion with potentially far-reaching implications in the field of bankruptcy and trademark licenses.  The Supreme Court’s decision in Mission Product Holdings, Inc. v. Tempnology, LLC, 587 U.S. ____ (2019) (Kagan, J.) resolves a circuit split between the First and Seventh Circuits.  In Mission Product, the Supreme Court found that a debtor’s rejection breaches a contract but does not rescind it.  All rights that would survive a breach of contract outside of bankruptcy remain in place.

The Debtor, Tempnology, LLC, manufactured apparel designed to stay cool when used in exercise and marketed those products under the trademarked brand name “Coolcore”.  Tempnology entered into a license agreement with Mission Product Holdings, Inc., wherein Tempnology gave Mission a license to use Coolcore trademarks worldwide.  Thereafter, Tempnology filed for Chapter 11 bankruptcy and sought to reject the Mission licensing agreement pursuant to Section 365 of the Bankruptcy Code.

Section 365 of the Bankruptcy Code is a powerful tool for debtors, which allows a debtor, subject to court approval, to “cherry pick” which executory contracts it will seek to assume and which it will seek to reject.  A contract is “executory” if there is material performance due and owing by parties on each side of the contract.  Essentially, Section 365 allows the debtor to make a value determination with respect to each of its contracts, and decide which to assume (and accept all the rights and burdens of the contract) and which to reject (and monetize the damages into a general unsecured claim that is unlikely to be paid in full in most Chapter 11 bankruptcies).

The bankruptcy court approved Tempnology’s rejection of the Mission agreement.  The parties agreed that the rejection of the contract allowed Tempnology to stop performing and for Mission to file a claim.  However, Tempnology also sought to terminate Mission’s right to use the Coolcore trademark.  Tempnology argued that that are several provisions in Section 365 that allow a counterparty to specific kinds of agreements to continue exercising contractual rights after rejection. See, e.g., §365(h) (real property leases) and §365(n) (intellectual property licenses).  Given there is no specific provision in the Bankruptcy Code covering trademarks, Tempnology argued that the debtor’s rejection must extinguish the rights that the agreement had conferred on the trademark licensee. The Bankruptcy Court agreed with Tempnology.

The Bankruptcy Appellate Panel (BAP) reversed, relying heavily on a decision from the Seventh Circuit about the effects of rejection on trademark licensing agreements. See Sunbeam Products, Inc. v. Chicago Am. Mfg., LLC, 686 F.3d 372 (7^th Cir. 2012).  Rather than focus on what Section 365 did not say, the BAP focused on Section 365(g) of the Bankruptcy Code, which plainly states that rejection of a contract constitutes a “breach”.  Given that a breach does not equate to a termination of a contract outside of bankruptcy, the BAP found that Mission could continue to use the Coolcore trademark.

However, the First Circuit reversed the BAP and reinstated the Bankruptcy Court decision terminating Mission’s license. See In re Tempnology, LLC, 879 F. 3d 389 (2018).  While adopting the Bankruptcy Court’s inference that there was no specific provision in Section 365 maintaining the counterparty’s rights, the First Circuit also looked more closely at trademark law.  The First Circuit recognized that a trademark owner’s failure to monitor and exercise quality control over goods associated with its trademark could jeopardize the continued validity of its trademark rights.  Thus, if a licensee can keep using a trademark after an agreement is rejected, the debtor-licensor will need to carry on its monitoring activities, which would frustrate Congress’s principal aim in providing for rejection: to release the debtor’s estate from burdensome obligations.

This decision left the First and Seventh Circuit in direct conflict.  The Supreme Court sided with the Seventh Circuit.  The Court held that both Section 365’s text and fundamental principles of bankruptcy law command that “a rejection has the same consequence as a contract breach outside bankruptcy: It gives the counterparty a claim for damages, while leaving intact the rights the counterparty has received under the contract.”  The Court relied not only on Section 365(g)’s plain language that rejection constitutes a breach, but on the over-arching general bankruptcy rule that the bankruptcy estate cannot possess any more rights than the debtor did outside of bankruptcy.

The Court also rejected Tempnology’s argument based on “negative inference” that there was no specific section of the Bankruptcy Code saving a trademark licensee’s rights upon rejection as there are with respect to real property leases, timeshare interests, and intellectual property agreements, for example.  In fact, the Court pointed out that these specific provisions in the Code resulted from discrete problems, but all reflected Congress’ view that contractual rights survive rejection.

The Court also rejected Tempnology’s trademark-specific argument that allowing Mission’s rights to survive rejection would impede a debtor’s ability to reorganize.  While recognizing that trademark-specific concerns exist, the Court pointed out that nothing in the Bankruptcy Code protected these contracts from the general rules of rejection and that to treat them differently “would allow the tail to wag the Doberman”.  Rejection gives the debtor an ability to escape its future contract obligations, without having to pay much of anything in return.  However, it does relieve a debtor of the need to make “economic decisions” concerning its preservation of estate value.

In sum, Mission Products underscored the previously settled rule of bankruptcy law that rejection does not equal termination.  However, it also puts bankruptcy debtors on relatively uneven footing as to what can and should be done with “rejected” contracts post-rejection, which only serves to heighten the importance of a debtor’s initial “valuation” decision as to whether to reject the agreement.

Article written by Michelle Larson. Michelle is a partner with Carrington Coleman in the Bankruptcy, Receivership & Insolvency practice group.

Carrington Coleman is pleased to announce that Monica Latin has been chosen as the firm’s Managing Partner-elect. Elected unanimously by the firm’s partners, she will succeed Bruce Collins as the firm’s fifth Managing Partner on May 1, 2020, becoming the first woman to lead the firm in its 49-year history.

“One of the most important responsibilities of this job is to plan for the future, and that means making sure the right people are at the helm,” said Mr. Collins. “Monica is committed to this firm and is most certainly the right person to lead Carrington Coleman into its next phase of growth.”

Ms. Latin joined Carrington Coleman in 1994 and has served on the Executive Committee since 2013. She currently chairs the firm’s Business Litigation Practice. A legal triple threat, she is a litigator and appellate lawyer who serves as an arbitrator for the American Arbitration Association. She was recently named among the Dallas 500 by D CEO magazine.

“I look to the previous leaders, such as Jim Coleman, who built this into one of the most respected firms in Texas and I am honored to continue this tradition. I have been fortunate to spend my entire career at Carrington Coleman, and I’m excited by what the future holds,” said Ms. Latin.

“I am honored by the trust and confidence my partners have placed in me by electing me to this important position,” she added.

“I have greatly enjoyed serving as Managing Partner of Carrington Coleman and look forward to working with Monica over the next year to ensure a smooth transition,” Mr. Collins said. “We are all excited to see Monica take on this new role and look forward to continued growth and success under her leadership.”

Firm partners have also elected Mike Birrer to join the firm’s Executive Committee, effective May 1, 2019. A respected labor and employment attorney, Mr. Birrer’s practice focuses on ERISA, benefits, compensation, discrimination, trade secrets, regulatory, immigration, and policy matters. He has been honored on the 2019 Best Lawyers in America listing and D Magazine’s Best Lawyers in Dallas list in 2012, 2017 and 2018.

Attorneys from Carrington, Coleman, Sloman & Blumenthal, L.L.P. have won a complete victory for reality television star Camille Grammer in a defamation and malicious prosecution lawsuit filed by her ex-boyfriend after she reported that he assaulted her in 2013.

A jury of five women and three men issued the unanimous verdict on April 24 in the U.S. District Court for the Northern District of Texas before the Hon. Karen Gren Scholer.

Best known for her role in the popular television series “The Real Housewives of Beverly Hills,” Ms. Grammer was represented by a team of attorneys from Dallas-based Carrington Coleman, including partner Richard A. Rohan and associate Thomas S. Conner, with assistance from partner Kelli M. Hinson, as well as Ashley R. Yeargan of Russ August & Kabat in Los Angeles.

Ms. Grammer was sued in 2014 by her ex-boyfriend, Dimitri Charalambopoulos, after she reported that he assaulted her in her hotel room on the morning of October 16, 2013. She counterclaimed for his assault of her, and for defamation after Mr. Charalambopoulos claimed in a TV interview that she made up the story about his attacking her.

Ms. Grammer’s attorneys did not ask for any specific amount of money damages, but jurors nevertheless awarded her $1,000 in actual damages arising from the assault and $25 in nominal damages based on their finding that she was defamed by her ex in the earlier TV interview. Jurors also awarded Ms. Grammer an additional $35,000 after determining that Mr. Charalambopoulos had acted with malice and gross negligence. The jury completely rejected his request for more than $25 million in damages against Ms. Grammer.

“We are grateful to the jury for their diligence and careful attention before reaching the right result that completely vindicates our client,” says Mr. Rohan. “Camille has been steadfast in her assertions, and I’m proud our firm was able to help her finally find justice.”

Dirty Harry Callahan once warned, “A man’s got to know his limitations.” Last Friday, the Supreme Court of Texas helped us out on that front.

In Agar v. Electro Circuits Int’l, No. 17-0630, 2019 WL 1495211 (Tex., April 5, 2019), the Supreme Court of Texas conclusively established how limitations will operate with respect to civil conspiracy claims here in Texas, and in the process rejected decades of precedent on the subject from the state’s intermediate courts of appeals.

In a unanimous opinion written by Justice John Devine (with newly minted Justice Brett Busby not taking part), the court held that “civil conspiracy is a derivative claim that takes the limitations period of the underlying tort that is the object of the conspiracy,” rather than being governed by a fixed statute of limitations.

The court first resolved a threshold issue on which it acknowledged prior case law (including decisions from the Supreme Court, itself) had left “Texas’s position … arguably unclear.” It confirmed that “civil conspiracy is a theory of vicarious liability and not an independent tort.” Then, “[h]aving determined that civil conspiracy is not an independent tort,” the court explained, “it follows that the claim does not have its own statute of limitations.” Instead, “a civil conspiracy claim is connected to the underlying tort and survives or fails alongside it.”

The ruling brings Texas in line with the majority of other jurisdictions throughout the country that have considered the question. The court noted that the highest courts in four other states had held civil conspiracy to be “a theory of derivative liability that shares a limitations period with that of its underlying tort.” And it observed that the intermediate courts of appeals of at least six other states, including New York, California, and Illinois, had done so as well.

But reaching this conclusion required the Supreme Court to disapprove the decisions of every Texas intermediate court of appeals to have addressed the issue. All 12, the court said, had held a conspiracy to be governed by the two-year statute of limitations in Texas Civil Practice & Remedies Code §16.003, applicable to most torts in Texas.

Invoking the previously unbroken chain of Texas intermediate appeals court precedent, Electro Circuits International protested that the court “should not overturn the court of appeals’ decades-long uniform application of the two-year limitations period to civil conspiracy.”

But the Supreme Court made clear it was not constrained by those prior decisions, observing that “a long history of mistaken application alone is insufficient to counsel against correcting the error.” Nor, the court said, was the Legislature’s failure to clarify or amend the statutes of limitations in the face of that prior precedent to be taken as “evidence that those decisions are in line with the statutory scheme.”

The Supreme Court also went on to hold that a conspiracy claim accrues, and the limitations period begins to run, along with the underlying tort. It rejected a separate “last overt act” accrual rule for conspiracy.

On the issue of accrual—unlike the main issue regarding which limitations period applies to conspiracy—the court observed that the law in other jurisdictions is not entirely uniform, with some states having adopted the rule that a claim for conspiracy “does not accrue until the last overt act of the conspiracy.” But the somewhat limited precedent in Texas aligned with those jurisdictions that “treat[ed] each underlying tort of the conspiracy as having its own limitations which runs from the time the act is committed” and the resulting injury occurs, and the Supreme Court agreed with that approach.

The court explained that, where a claimant alleges a conspiracy to commit multiple torts, this can lead to a somewhat odd result: with the conspiracy claim accruing and limitations running separately with respect to each underlying tort, there may be multiple potential points of accrual and therefore different limitations deadlines for such a single, but multifaceted, conspiracy claim.

In its ruling on the case, the Houston Fourteenth Court of Appeals had stayed the course uniformly established by Texas precedent to that point (including its own prior decision in Mayes v. Stewart, 11 S.W.3d 440 (Tex. App. – Houston [14th Dist.] 2000, pet. denied), holding conspiracy to be governed by the two-year statute of limitations in §16.003.

But when the court of appeals denied rehearing en banc, Chief Justice Kem Thompson Frost issued a concurring opinion in which she explained at some length why the vicarious- or derivative-liability theory of conspiracy limitations is the “better” and “sounder” rule.

Chief Justice Frost declined to dissent from the denial of en banc review at the appeals-court level, concerned about creating a rift with the First Court of Appeals with which her court shares jurisdiction. But she used her concurrence to urge the Supreme Court of Texas to “clarify the law in this murky area and announce this new rule for applying the statute of limitations to civil conspiracy” in Texas, i.e., the rule the Supreme Court pronounced in Agar, thereby establishing that “sounder rule” as the uniform standard to be applied throughout the state.
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Article was originally written by Carrington Coleman partner, Ken Carroll for Texas Lawyer. Reprinted with permission from the April 10, 2019 edition of Texas Lawyer. ©2019 ALM MediaProperties, LLC. All rights reserved. Further duplication without permission is prohibited.

The Texas Supreme Court issued two opinions on March 15, 2019, dealing with breach-of-contract lawsuits in which two different cities sought to have the suits dismissed because of sovereign — or governmental — immunity. The court found immunity had been waived in one case, but not the other.

In Texas, as in most other common law jurisdictions, the state and other governmental entities are immune from suit unless the legislature or the entity itself has expressly waived that immunity. Absent a waiver, therefore, a governmental entity cannot be sued for breaching a contract. To prevent the injustice inherent in such a situation while protecting the public fisc against unlimited contractual liability, the Texas legislature adopted the Local Government Contract Claims Act,[1] which provides in Section 271.052:

A local governmental entity that is authorized by statute or the constitution to enter into a contract and that enters into a contract subject to this subchapter waives sovereign immunity to suit for the purpose of adjudicating a claim for breach of contract, subject to the terms and conditions of this subchapter.

City of Denton v. Rushing[2] involved a claim against the city for alleged breach of an employment contract based on a policy referenced in the city’s employment manual that promised pay for “on-call” services, although the manual expressly disclaimed that its provisions were contractual. Such claims are not unique to local governments; private companies often face claims that certain provisions in an employee handbook impose contractual obligations on the employer and seek to avoid liability with similar disclaimers.

Plaintiffs in Rushing were full-time, hourly paid employees in the city’s utilities department. Their job descriptions required them periodically to be “on call,” i.e., prepared “to return to work for operational requirements that may develop outside normally scheduled work hours.”[3] A 2013 amendment to the employee manual deleted an earlier provision stating on-call time was uncompensated and added an explicit pay schedule for on-call time.

When the employees learned in 2015 they would not in fact be paid for on-call shifts, they sued the city for breach of contract. The city countered by citing the manual’s general disclaimer, which stated:

“The contents of the manual do not in any way constitute the terms of a contract of employment and should not be construed as a guarantee of continued employment.”[4]

The issue in Rushing was whether the claim was encompassed by the waiver of immunity provided in Local Government Code Section 271.052, quoted above.

Specifically, the core issue was whether the employment manual was a “contract subject to this subchapter,” which the statute defined as “a written contract stating the essential terms of the agreement for providing goods or services to the local governmental entity that is properly executed on behalf of the … entity.”[5]

The district court denied the city’s plea to the jurisdiction, and the Second Court of Appeals affirmed, holding that the “unilateral contract” reflected in the employment manual was a contract subject to the statute, and that the disclaimer was intended only to preserve an employee’s at-will status.[6]

The Texas Supreme Court reversed, holding that the city’s policy did not create an enforceable contract because the disclaimer effectively negated any intent to do so.[7] The court cited several cases enforcing similar disclaimers in private-company employee handbooks.

In Hays Street Bridge Restoration Group v. City of San Antonio,[8] it was undisputed that a contract was formed by a memorandum of understanding between the parties concerning funding for restoration of the Hays Street bridge and creation of a park. When the city decided not to use the property for a park and sold it to Alamo Beer Company, the Restoration Group sued for specific performance of the MOU to “[e]nsure that any funds generated by the Restoration Group … go directly to the approved City … budget … for the Hays Street Bridge project.”[9]

The city claimed immunity, but the trial court rejected that defense and entered judgment requiring the city to comply with the agreement. The Fourth Court of Appeals reversed and rendered judgment for the city.[10]

Before addressing the waiver of immunity issue, the Texas Supreme Court considered whether the contract reflected the city’s “governmental” acts, which are subject to immunity, or “proprietary” acts, which are not. The court, citing its 2016 and 2018 opinions in Wasson Interests Ltd. v. City of Jacksonville,[11] agreed with the lower courts that the restoration of the bridge and revitalization of the surrounding area were governmental functions, so that related claims were subject to immunity if it was not waived.[12]

Both parties relied on the Texas Supreme Court’s 2014 decision in Zachry Construction Corp. v. Port of Houston Auth. of Harris County[13] to support their respective positions on immunity. The court in Zachry held:

“The ‘subject to the terms and conditions’ phrase in Section 271.152 incorporates the other provisions of the Act to define the scope of its waiver of immunity.”[14]

Of particular importance in Zachry was Section 271.153, which limited “the total amount of money awarded in an adjudication brought against a local governmental entity for breach of a contract subject to this subchapter.”[15] The court held that delay damages were a type of consequential damages that could be “due and owed” under a contract.[16] Consequently, the statute waived immunity against such claims.[17]

In Hays Street Bridge, the court of appeals observed that Section 271.153 says nothing about the equitable relief of special performance and concluded the statute did not waive the city’s immunity for such claims. The Texas Supreme Court reached the opposite conclusion, holding that the silence in other sections left the waiver effected by Section 271.152 undisturbed as to specific performance claims.[18]

The Restoration Group thus won the battle but has not yet won the war. The Supreme Court remanded to the court of appeals for consideration of other defenses raised by the city that had not previously been addressed.

In sum, these cases reflect the excruciating parsing of statutory text required to determine whether a particular claim against a municipality or other local government is barred by governmental immunity or is encompassed by a statutory waiver of immunity.

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Article was originally written by Carrington Coleman partner, Lyndon Bittle for Law360.

For a reprint of this article, please contact reprints@law360.com.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] Tex. Loc. Gov’t Code Sections 271.151–.160.

[2] City of Denton v Rushing , 62 Tex Sup Ct J 618 [2019], No. 17-0336, 2019 WL 1212188 (Tex. March 15, 2019).

[3] Id., 2019 WL 1212188 at *1 (quoting manual).

[4] Id.

[5] Tex. Loc. Gov’t Code §271.151(2).

[6] Rushing, 2019 WL 1212188 at *2.

[7] Id. at *3.

[8] Hays St. Bridge Restoration Group v City of San Antonio , 2019 Tex LEXIS 266 [Mar. 15, 2019, No. 17-0423], No. 17-0423, 2019 WL 1212578 (Tex. March 15, 2019).

[9] 2019 WL 1212578 at *4.

[10] Id. at *3

[11] Wasson Interests, Ltd. v. City of Jacksonville , 489 S.W.3d 427 (Tex. 2016), and 559 S.W.3d 142 (Tex. 2018).

[12] Hays Street Bridge, 2019 WL 1212578 at * 6.

[13] Zachry Construction Corp. v. Port of Houston Auth. of Harris County , 449 S.W.3d 98 (Tex. 2014).

[14] Zachry, 449 S.W.3d at 108.

[15] Tex. Loc. Gov’t Code § 271.153(a).

[16] 449 S.W.3d at 112.

[17] Id. at 114.

[18] Hays Street Bridge, 2019 WL 1212578 at * 8.

The Texas Professional Ethics Committee was hard at work this year, issuing several important opinions for Texas attorneys, including opinions regarding the ethical issues involved in on-line discussions groups and cloud storage, conflicting duties to insurers and insureds, departing lawyers, client trust accounts, and the practice of conflicting out potential expert witnesses. For more information on these opinions, please contact Kelli Hinson.

Opinion 669 – The Committee concluded that a defense attorney hired by an insurance company to defend one of the company’s insureds cannot inform the insurance company that the client is failing to cooperate in the defense of the lawsuit. The Committee concluded that the client’s non-cooperation was, at the very least, non-privileged but confidential client information, which cannot be disclosed to third parties without the client’s consent.

Opinion 670 – The Committee concluded that a lawyer departing a firm may, at his own expense, copy and take with him any client files created by him or to which he had access while personally representing the client at the former firm—even if the lawyer will not be representing the client at the new firm. The departing lawyer must take care, however, to maintain the confidentiality of those documents at his new firm and must not, for example, store the documents in an area accessible by others or on a computer system to which other members of the new firm have access.

Opinion 671 – The Committee concluded that an attorney (either directly or through an agent) may not anonymously contact an anonymous online individual in order to obtain jurisdictional or identifying information sufficient for obtaining a deposition pursuant to Rule 202. The Committee followed the lead of several other ethics committees in finding that failing to identify oneself in the course of an on-line investigation may constitute misrepresentation, dishonesty, deceit, or the omission of a material fact and is not permitted under the ethical rules.

Opinion 672 – The Committee addressed the issue of whether a written communication from a lawyer to employees in a particular position constitutes direct mail solicitation if the communication does not directly offer to represent the recipients of the communication but suggests to the recipients that they have claims because they are similarly situated to the plaintiffs in a pending lawsuit. The concluded that if the communication is made with the intent to seek professional employment, and none of the Rule 7.05(f) exceptions apply, the communication must comply with the advertising rules in Rule 7.05(d).

Opinion 673 – The Committee concluded that a lawyer’s use of on-line discussion groups or informal consultations with lawyers not in his firm is permissible under the ethics rules, provided that no confidential information about the client is revealed. The lawyer should take care that the “hypothetical question” is not so specific that others can infer the identity of the client.

Opinion 674 – The Committee concluded that a lawyer operating under a non-profit 501(c)(3) organization may not solicit prospective clients who have not sought the lawyer’s advice if the services would generate pecuniary gain for the lawyer and the prospective client is not a member of the 501(c)(3) organization to which the lawyer belongs.

Opinion 675 – The Committee concluded that the ethics rules permit a mediator to prepare and provide a proposed written agreement memorializing the terms of the agreement reached by the parties at mediation and may include terms that were not discussed or agreed upon during the mediation. The mediator should take care to make sure all parties understand the proposal is not binding and that she is not providing legal advice on the advisability of signing the agreement.

Opinion 676 – The Committee concluded it is a violation of the ethics rules to retain a “consulting expert” purely for the purpose of disqualifying that expert from testifying for the other side.

Opinion 677 – The Committee concluded that the law partner of a part-time municipal judge may not represent a defendant in a case pending before other judges in that court unless the lawyer reasonably believes the representation will not be materially affected by his relationship with the part-time judge and the client consents in writing.

Opinion 678 – The Committee concluded there was no per se restriction against an attorney serving as both the executor of an estate and as legal counsel for the executor. But the lawyer should evaluate whether the dual role would present a conflict of interest under Rule 1.06.

Opinion 679 – The Committee considered the circumstances under which a lawyer may re-negotiate a flat-fee representation after the representation has begun because the matter becomes more complicated or time consuming than expected. The Committee concluded a lawyer may renegotiate his fee during the course of a representation, but only if the lawyer can prove the modification of the fee agreement is “fair under the circumstances.”

Opinion 680 – The Committee concluded that a lawyer may, consistent with the ethics rules, use a cloud-based electronic data storage system or cloud-based software document preparation system to store client confidential information or prepare legal documents. However, the lawyer must take care to understand the privacy and other features of the cloud-based system and take reasonable precautions to protect the clients’ confidential information.

Opinion 681 – The Committee considered the thorny issue of a lawyer’s duties to disburse or safeguard funds held in the lawyer’s trust account when those funds are subject to conflicting claims, for example, when there are third-party claims to the proceeds of a client’s settlement and the client instructs the lawyer not to honor those claims. The Committee performed a detailed analysis of Rule 1.14 regarding safeguarding client property and provided a very helpful roadmap on how to balance the duties owed to the client and to third parties.

Opinion 682 – The Committee considered the circumstances under which a lawyer—or another lawyer in the first lawyer’s firm—may represent a client in a lawsuit in which the first lawyer is a fact witness and is likely to testify at trial. The Committee discussed various circumstances under which such a representation may or may not be appropriate under Rule 3.08 and the conflict rules.