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TEXAS SUPREME COURT DITCHES LONG-STANDING PRECEDENT TO HOLD CONSPIRACY IS A DERIVATIVE CLAIM GOVERNED BY THE STATUTE OF LIMITATIONS FOR THE UNDERLYING TORT

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.

https://www.law.com/texaslawyer/2019/04/10/texas-supreme-court-ditches-long-standing-precedent-to-hold-conspiracy-is-a-derivative-claim-governed-by-the-statute-of-limitations-for-the-underlying-tort/

OPPOSITE RULINGS REFINE SCOPE OF TEXAS SOVEREIGN IMMUNITY

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.

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https://www.law360.com/articles/1141005

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.

SIX CARRINGTON COLEMAN ATTORNEYS NAMED 2019 RISING STARS

Congratulations to the six Carrington Coleman attorneys named to the 2019 Super Lawyers Texas “Rising Stars.” Parker Graham was recognized for his strength in Employment & Labor, Amy Lott for Securities & Corporate Finance, and Alex More for Securities Litigation. Debrán O’Neil, Sara Romine, and Brent Rubin were recognized for Business Litigation.

Sara Romine had the additional distinction of being named to the Top 50 Female Up-and-Coming and the Up-and-Coming 100 lists.

Carrington Coleman 2019 Rising Stars

The Rising Stars list recognizes no more than 2.5 percent of attorneys in each state. To be eligible for inclusion in Rising Stars, a candidate must be either 40 years old or younger, or in practice for ten years or less.

TEXAS ETHICS ALERT – 2018 IN REVIEW

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.

CARRINGTON COLEMAN RANKED AS 2019 U.S. NEWS – BEST LAWYERS® “BEST LAW FIRM”

Carrington Coleman has been recognized for its legal expertise and quality of law practice by U.S. News & World Report and Best Lawyers. For 2019, the Firm is ranked nationally in 5 areas and in 19 areas for the Dallas/Fort Worth metropolitan area. Sixteen Carrington Coleman attorneys were recognized in the 2019 Edition of The Best Lawyers in America®.

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