Publications

TEXAS LEGISLATURE PASSES LAW PROVIDING HEIGHTENED PROTECTION FOR PARTIES AFFECTED BY PANDEMIC

By: Rodney H. Lawson

During the 2021 legislative session, in response to Covid-19, the Texas Legislature passed Senate Bill 6.  SB 6 is designed to provide greater protection for health care providers, first responders, certain product manufacturers and suppliers, educational institutions, and other persons whose conduct or product was affected by, or provided in connection with, a pandemic.  However, the retroactive application of this new law raises a viable question as to its constitutionality.

Except in a case of “reckless conduct or intentional, wilful or wanton misconduct,” a physician, other health care provider, or first responder is not liable for injury arising from care or treatment “relating to or impacted by a pandemic disease or a disaster declaration related to a pandemic,” provided the defendant proves the pandemic was a producing cause of the care or treatment that caused the injury or proves that the injured person was diagnosed or reasonably suspected to be infected with a pandemic disease at the time of the care or treatment.  The legislation provides similar protection to any person who may have caused injury to another by exposing the injured party to a pandemic disease during a pandemic emergency.

With respect to product manufacturers and supplies, those who design, manufacture, sell or donate certain products, such as clothing, equipment, medical devices, drugs, diagnostic tests, or cleaning/sanitizing products, during a pandemic emergency are not liable for injury caused by the product unless (i) they had actual knowledge of a product defect or acted with malice, and (ii) the product presented an unreasonable risk of substantial harm.  The law also protects product distributors, protects persons for failure to warn, and protects anyone who injures another by their use of the product.

Under the new law, educational institutions are not liable for damages arising from a cancellation or modification of a course or program or activity if the cancellation or modification arose during a pandemic emergency and was caused in whole or in part by the emergency.

The law became effective June 14, 2021, but applies to “an action commenced on or after March 13, 2020, for which a judgment has not become final before the effective date of this Act.”  Notwithstanding the inclusion of extensive language that seeks to justify its passage and retroactive application, this law will unquestionably face challenges as to its constitutionality under Article I, Section 16 of the Texas Constitution, which provides that “[n]o bill of attainder, ex post facto law, retroactive law, or any law impairing the obligation of contracts, shall be made.”  The enrolled version of SB 6 can be accessed here.

By: Tyler C. Wright

During the 2021 Legislative Session, the Texas Legislature passed two blockchain technology‑related bills that were signed into law by Governor Greg Abbott and will become effective September 1, 2021. The bills received strong support from both parties as the Senate voted unanimously in favor of both bills and the House overwhelmingly passed both.

HB 1576, the “Blockchain Work Group Bill”, establishes a 16‑person blockchain committee comprised of six legislators and government representatives and ten members of the public who have blockchain knowledge and experience or who represent an industry that would benefit from blockchain technology. The law tasks the committee with developing a master plan over the next two years for the expansion of the blockchain industry in Texas and recommending policies and state investments in connection with blockchain technology. Establishing the blockchain committee is a major step by Texas toward educating its governing body about the advantages and applications blockchain technology can offer.

The second bill, HB 4474 – the “Virtual Currencies Bill” – makes Texas the second state, after Wyoming, to recognize cryptocurrencies in its state Uniform Commercial Code. Cryptocurrencies will be added to the list of items in which a UCC security interest can created and perfected by filing or control.  The law formally defines “virtual currency” and provides the means by which control may be established. The new law makes clear that a person can perfect a lien by control even when it shares management of the cryptocurrency.

Notably, the week after Abbott signed the bills into law, the Texas Department of Banking issued a notice putting to rest any question of whether Texas state‑chartered banks may provide custody services to customers for virtual currency. The notice clarified that these banks already had such custodial authority under Texas Finance Code § 32.001.

Many blockchain enthusiasts and investors have considered Wyoming the most crypto‑friendly jurisdiction in the United States since it passed its Digital Assets Bill in 2019. By passing the Blockchain Work Group Bill and Virtual Currencies Bill, Texas has positioned itself at the forefront of that conversation.

The enrolled version of HB 1576 can be accessed here and of HB 4474 here.

By: Debrán O’Neil

Under Texas Civil Practice and Remedies Code (CPRC) Section 74.351, claimants who file a health care liability claim (HCLC) against a health care provider are required to serve a preliminary expert report that explains how the health care provider contributed to the alleged injuries by failing to satisfy the standard of care applicable to that provider. This statute, aimed at early dismissal of meritless malpractice claims, requires that the trial court dismiss with prejudice any HCLC for which the claimant failed to timely serve a complying expert report within 120 days after the defendant’s answer is filed.

Over the past several years, courts throughout Texas have issued varying interpretations of what claims constitute an HCLC, and therefore, are subject to the expert report requirement.  Senate Bill 232, passed in the 2021 Texas legislative session, aims to alleviate some of the uncertainty created by these differing opinions and prevent the dismissal of potentially meritorious claims where claimants fail to serve an expert report not realizing that their claim is an HCLC.

Effective September 1, 2021, new CPRC Section 74.353 will provide a statutory process that allows trial courts to make a preliminary determination of whether a plaintiff’s claim is an HCLC that requires a Section 74.351 expert report, and it specifies a time after that determination for the claimant to serve an expert report, if it is required. The statute also allows for an interlocutory appeal of the trial court’s determination as to whether the claim is a HCLC. While this new mechanism potentially gives plaintiffs more comfort and clarity, it still requires the plaintiff to seek a ruling from the trial court by filing a motion within 30 days of the defendant’s answer.  The enrolled version of SB 232 can be accessed here.

By: Theodore R. Harrington

There are three power grids in the lower 48 states – The Eastern Interconnection, the Western Interconnection, and Texas. Ninety percent (90%) of Texas’s electric load is managed by a grid operator, the Electric Reliability Council of Texas (ERCOT), that keeps the grid beyond the jurisdiction of the federal government. On February 14, 2021, this “electric freedom” came with severe consequences, as historic low temperatures swept across Texas, causing property damage and leaving roughly 70% of all Texans without running water or electricity during a six-day stretch of inclement weather.

Governor Greg Abbott was quick to call for reform to ERCOT, citing a lack of meaningful change following similar storm-related power outages and rolling blackouts in 2011. This Spring, the Texas Legislature and Governor Abbott worked to enact three key bills that lawmakers hope will aid in the oversight and management of Texas’s power grid:

Senate Bill 2

Senate Bill 2 (SB 2) modifies the governance of ERCOT. ERCOT board members will now be chosen by a newly established, three person ERCOT Board Selection Committee, composed of one member selected by each of the Governor, Lieutenant Governor, and the Texas Speaker of the House. The ERCOT Board will be reduced from 16 to 11, with eight members selected by the new selection committee. These eight members must be individuals with executive-level experience in related industries, such as finance, engineering, risk management or electric market design.  SB 2 became effective immediately upon being signed by Governor Abbott on June 8, 2021.  The enrolled version of SB 2 can be accessed here.

Senate Bill 3

Senate Bill 3 (SB 3) requires the Public Utility Commission of Texas (PUCT) to set compliance standards, implement measures that ensure electric providers prepare their generation assets to withstand weather emergencies, and confirm such facility improvements are carried out. ERCOT will be responsible for routine inspections of generator facilities for compliance. Critics of this bill note that there is no deadline set to complete facility and generation asset weatherization, leading many to believe such improvements will be delayed several years. Also included in SB 3 is the creation of a statewide emergency weather notification system.  SB 3 became effective immediately upon being signed by Governor Abbott on June 8, 2021.  The enrolled version of SB 3 can be accessed here.

House Bill 16

House Bill 16 (HB 16) prohibits energy providers from offering wholesale energy products (that pass costs down to customers) to residential and small business customers. Soaring natural gas prices during the storm caused now-bankrupt Griddy Energy to issue electric bills in excess of $10,000 to customers. This prohibition seeks to prevent residential customers, who are not in the business of commercial energy trading, from experiencing wildly volatile energy bills. HB 16 will become effective on September 1, 2021.  The enrolled version of SB 2 can be accessed here.

These bills are a first step in curbing the effects of future weather calamities. HB 16 should be effective in protecting residential customers from the wild price swings seen last Spring, but whether SB 2 and SB 3 will result in meaningful change remains to be seen.

The Covid-19 pandemic forced many patients and practitioners to find new ways to connect. The most obvious tool is telehealth, the use of audio-visual platforms to allow practitioners to assess and communicate with patients remotely. Patients and practitioners both were encouraged by how beneficial and flexible telehealth can be. Federal and state governments alike are rushing to loosen restrictions to usher in wider adoption of telehealth tools. The 2021 Texas Legislature passed, and Governor Abbott signed, two telehealth bills that aim to provide greater access to care with telecommunication technology.

Senate Bill 40, which became effective on June 3, expands the Texas Occupations Code to make permanent certain waivers granted by Governor Abbott during the pandemic. For practitioners regulated by the Texas Department of Licensing and Regulation (TDLR), the definition of “direct” patient observation now allows the use of telehealth platforms. It also allows TDLR to adopt rules governing telehealth services that are provided by its regulated professionals.  The enrolled version of SB 40 can be accessed here.

House Bill 4, which became effective on June 15, expands the Government Code and the Health and Safety Code to give practitioners more flexibility to use telehealth services with Medicaid, CHIP, and other public benefit program recipients. Health and Human Services Commission (HHSC) is tasked with implementing greater telehealth integration by the end of this year. Medicaid Managed Care Organizations (MCOs) are granted greater flexibility to conduct assessments and provide coordination of care services through telecommunication technology. Rural access hospitals and federally qualified health centers (FQHCs) are also eligible for reimbursements of telehealth fees.  The enrolled version of HB 4 can be accessed here.

By: Catherine Bright Haws and Ashley E. McMillan

Texas has always required that property interests passing to beneficiaries in trust must “vest” (unconditionally belong to the beneficiaries) in accordance with the common law rule against perpetuities, which imposes a time limit of twenty-one years after the death of specified persons who are already living at the time the interest in trust was created, plus a period of gestation (if applicable).   This “lives-in-being plus 21 years” rule has resulted in trusts that can currently be expected to last perhaps 100 years or longer, due to medical advancements that have increased human longevity over time. But now, after nine prior failed attempts to increase the duration of trusts that are governed by Texas law, the Texas Legislature has passed and the governor has signed House Bill 654, which permits interests in trusts to last for 300 years before vesting must occur.

The new law will apply only to trusts that become irrevocable on or after September 1, 2021 although it permits some trusts that are already irrevocable on that date to last just as long if special provisions are included in the governing document.  The new statute applies only to trusts and does not apply in any other contexts.  Charitable trusts, which may be perpetual, continue to be an important exception to the rule against perpetuities.

Other states have already extended the permissible duration of trusts beyond the “lives-in-being plus 21 years” rule, with some even permitting perpetual trusts.  Presumably in response to this trend, recent U.S. administrations have proposed imposing wealth transfer taxes on trusts every 90 years, regardless of how long they exist, in order to capture the assets of long-lasting trusts in the transfer tax system.  So far, advocates of the current tax system have prevailed and many trusts are able to shelter assets from wealth transfer taxes during their entire existence.

The extension of the permissible duration of Texas trusts to 300 years presents an opportunity for high net worth individuals to create a financial dynasty that can provide benefits to descendants for hundreds of years into the future without the trust assets being subject to the 40% federal estate and generation-skipping transfer taxes (which apply after factoring in available exclusions and deductions, including the current exclusion of assets worth $11.7 million).

Some Texas attorneys believe the new law may not be consistent with our Texas Constitution, which prohibits “perpetuities” without specifically defining the term, thus leaving it potentially open to challenge.  Anyone considering the possibility of creating a very long-lasting trust in Texas should consider not only the significant potential tax benefits (a window of opportunity that might someday close) but also non-tax factors such as the uncertain legal environment and the practical difficulties associated with creating a trust that is irrevocable yet flexible enough to make sense centuries into the future.

The enrolled version of HB 654 can be accessed here.

Effective September 1, 2021, Senate Bill 219 adds Chapter 59 to the Texas Business and Commerce Code.  SB 219 places Texas in the company of only three other states – California, Louisiana, and North Dakota – that impose nonwaivable constraints on the freedom of construction project owners to contractually transfer certain design risks to their contractors. While certain industries are exempted from the restrictions, the vast majority of construction projects in Texas will be impacted by the legislative changes.

Proponents presented SB 219 as a move to bring Texas in line with federal contracting and the other 49 states as it relates to who, between a construction contractor or the owner, is responsible for any deficiencies in the design documents for the project when the contract is silent. Under the federal Spearin doctrine and the common law of almost every other state, parties are allowed to contract by written agreement around the default rule, which puts the burden of design responsibility on the project owner.

The Texas Supreme Court has long recognized the importance of allowing sophisticated parties to freely allocate risks like these on construction projects. Rather than simply flipping the default rule regarding implied responsibilities for defects to align with the federal rule, however, SB 219 makes a significant shift in public policy and prohibits parties from making express agreements regarding those responsibilities.  Outside the exempt industries, the only exceptions to the prohibition are projects where the construction firm contracts directly with a design professional such as design build agreements, engineering procurement contracts, and delegated design for specialized trades.

What does this sea-change mean for your construction project? Most importantly, owners and developers (and their lenders) will need to revise standard contract language, improve procurement processes, reconsider project delivery methods, and retool risk assessments in light of the new restrictions.  Owners and lenders will need to plan for the additional financial risk they can no longer shift to contractors, who had the ability to spread the cost of design risks across multiple projects.

The enrolled version of SB 219 can be accessed here.

A number of other statutes effective September 1, 2021, also impact construction projects, including a shortened statute of repose for claims against contractors and design professionals on public projects; revisions to lien laws; restrictions on retainage for public projects; limits on duty to defend for design professionals, building code updates, and others. For a detailed listing of those statutes and advice regarding changes to your construction contracts in light of the new laws, please contact the author.

By: Brent Rubin

The Federal and Texas Rules of Civil Procedure both contain detailed rules addressing whether and how a lawsuit may proceed as a class action. When an arbitration agreement applies to a dispute, and one party seeks to proceed as a class action, additional questions must be answered: First, who decides whether the arbitration can proceed on a class basis—the court or the arbitrator? Second, can the arbitration proceed on a class basis, in light of the parties’ arbitration agreement? The Supreme Court of Texas substantially clarified these two issues recently in Robinson v. Home Owners Management Enterprises, Inc., 590 S.W.3d 518 (Tex. 2019). The upshot of Robinson, and U.S. Supreme Court decisions on the same issue, is that it will be quite difficult for consumers subject to an arbitration agreement to arbitrate on a class basis.

The Robinsons initially sued their home warranty company—HOME—on an individual basis for failing to promptly and properly correct construction defects. Over the Robinsons’ opposition, the trial court sent the parties to arbitration because their agreement with HOME required “unresolved warranty issues” to be arbitrated. Shortly before the arbitration final hearing (the arbitration equivalent to a trial), the Robinsons sought to add class-action claims, alleging HOME routinely demanded overbroad releases as a precondition to fulfilling its warranty obligations. HOME objected to the arbitrator that class claims were not arbitrable. The arbitrator denied HOME’s objections, but bifurcated the class claims from the Robinsons’ individual claims.

In the trial court, HOME again raised the question of whether the Robinsons could proceed with their class claims in arbitration. The court first decided the court, not the arbitrator, should determine class arbitrability, because the parties had not clearly provided that the arbitrator should decide the issue in their arbitration agreement. The court then determined that the arbitration agreement did not permit class arbitration.

The trial court’s decision on “who decides” class arbitrability ran counter to the Texas Supreme Court’s 2004 decision in In re Wood, 140 S.W.3d 367 (Tex. 2004). In Wood, the Court determined that when an agreement submits all disputes to the arbitrator, the arbitrator, not the court, has the power to address class certification issues.

In Robinson, the Texas Supreme Court reconsidered Wood’s determination of who decides class arbitrability. Wood had read Green Tree Financial Co. v. Bazzle, a 2003 U.S. Supreme Court case, to require this issue to be submitted to the arbitrator. (U.S. Supreme Court cases were controlling here because the Federal Arbitration Act applied to this arbitration agreement.)  But in later cases, the U.S. Supreme Court clarified that Bazzle left the question open. Most courts to consider the issue after this clarification determined that unless the arbitration agreement contains “clear and unmistakable” language delegating the issue to the arbitrator, the question of class arbitrability goes to the court.

The Court in Robinson overruled Wood and held that class arbitrability is a question for the court unless it had been delegated to the arbitrator by agreement. Because the agreement between the Robinsons and HOME made no mention of delegating arbitrability issues to the arbitrator, the trial court correctly determined that it had to decide whether the arbitration could proceed on a class basis.

The Texas Supreme Court then turned to whether the trial court properly decided that arbitration could not proceed on a class basis. The U.S. Supreme Court has determined that an arbitration cannot proceed on a class basis unless the parties’ contract demonstrates that they agreed to do so. An agreement that is silent or ambiguous on class arbitration does not allow a court to compel arbitration on a class basis. This is because the significant differences between individual and class arbitration cast doubt on an agreement to arbitrate on a class basis. Therefore, for a court to order class arbitration, an agreement must expressly reference class arbitration. In Robinson, the agreement was silent on class arbitration, so the Texas Supreme Court concluded the parties had not agreed to arbitrate on a class basis.

Finding no help under their agreement, the Robinsons argued HOME’s conduct demonstrated its consent to class arbitration. The Robinsons focused on HOME’s decision to first object to class arbitration in the arbitration, only to re-raise the objections in the trial court after the arbitrator ruled against it. The Supreme Court disagreed, explaining that HOME consistently objected to both arbitration on a class basis and the arbitrator’s power to determine the issue. The Court emphasized that the Robinsons tried to add their class claims at the “eleventh hour,” so objecting to the arbitrator first was reasonable. A different result might obtain if it were feasible to present objections to class arbitration to the court in the first instance but a party failed to do so.