Rule 165a(3) Motion to Reinstate: "Verified" Really Does Mean What It Says

2 minute read

In re Briseno

Dallas Court of Appeals, Nos. 05-22-01174-CV (December 14, 2022)
Before Justices Myers, Nowell (Opinion), and Goldstein 

Rule 165a(3) states that a motion to reinstate after dismissal for want of prosecution must be “verified by the movant or his attorney.” The Dallas Court of Appeals applied that requirement literally (and some might say harshly) in In re Briseno. There, following a dismissal for want of prosecution, plaintiff’s counsel timely filed a motion to reinstate within 30 days explaining that he failed to appear for the dismissal hearing due to a “calendaring error.” And he attached a “Verification” swearing that the facts in the motion were “true and correct.” But, the “purported verification d[id] not reflect it was made in the presence of an authorized officer such as a notary public.” Nevertheless, the trial court granted the motion and reinstated the case.

The Court of Appeals ruled that the trial court’s order granting the motion to reinstate was void for lack of jurisdiction because it was not properly verified and did not extend the court’s plenary power beyond 30 days of the judgment. A verification must be sworn to before an authorized officer. In addition, the “verification” here did not meet the requirements of an unsworn declaration under CPRC § 132.001, such as containing the declarant’s birthdate and address. Accordingly, the Court granted mandamus relief and ordered the trial court to set aside the case’s reinstatement.
Morale of the story: Follow the rules, especially when dismissal is on the line.

SCOTx Establishes Protocol for Compelled Disclosure of Cell-Phone Use

2 minute read

In re Kuraray America, Inc.

Supreme Court of Texas, No. 20-0268 (December 9, 2022)
Per Curiam Opinion (linked here)

A chemical reactor at Kuraray’s manufacturing plant became over-pressurized and released ethylene vapor that caught fire, resulting in multiple injuries. In a lawsuit based on that incident, plaintiffs alleged that the ethylene-vapor release may have been caused in part by “cell phone usage and abuse by board operators” who monitored the reactor. In response to a motion to compel, the trial court ordered Kuraray to produce usage data for the company-issued cell phones of five such employees, for periods ranging from six weeks to four months before the incident. On mandamus, the SCOTx held this to be an overly intrusive abuse of discretion. It articulated “key principles that should guide trial courts’ careful management of cell-phone-data discovery,” and a two-step process for dealing with requests for such data: 

First, to be entitled to production of cell-phone data, the party seeking it must allege or provide some evidence of [i] cell-phone use by the person whose data is sought [ii] at a time when it could have been a contributing cause of the incident on which the claim is based. If the party seeking the discovery satisfies this initial burden, the trial court may order production of cell-phone data, provided its temporal scope is tailored to encompass only the period in which cell-phone use could have contributed to the incident. In other words, a trial court may not, at this stage, order production of a person’s cell-phone data for a time at which his use of a cell phone could not have been a contributing cause of the incident.

The Court then went on to explain step two of the process: “Only if this initial production indicates that cell-phone use could have contributed to the incident may a trial court consider whether additional discovery regarding cell-phone use beyond that timeframe may be relevant”—for example, to show the employer’s negligent supervision or training. 
Here, the record before the trial court actually negated, or at best did not demonstrate, that cell-phone use by the five employees was a contributing factor to the accident. The SCOTx therefore directed the trial court to vacate its order compelling production of the requested cell-phone usage data.

Latin Selected by D CEO as Dallas 500 Leader

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Congratulations to Carrington Coleman Managing Partner, Monica Latin for being named as one of the top 500 most significant leaders in North Texas by D CEO magazine. D CEO’s annual special edition publication, Dallas 500, features business, civic, and nonprofit leaders in the Dallas-Fort Worth area. Monica was selected under Law-Managing Partners. There are 189 new additions as well as 311 returning leaders to the list. The Dallas 500 lead 441 outstanding businesses and organizations from North Texas.

Preserving Objections to Arbitration, and the Limited Scope of the FAA Exemption for “Workers Engaged in Foreign or Interstate Commerce”

2 minute read

Gordon v. Trucking Resources, Inc.

Dallas Court of Appeals, No 05-21-00746-CV (November 15, 2022)
Justices Myers (Opinion, linked here), Pedersen III, and Garcia 

Gordon and Trucking Resources compete in recruiting truck drivers for transportation companies. Two of Trucking Resources’ employees—each of whom had signed a non-compete that included an arbitration agreement—resigned and went to work for Gordon’s competing company. Trucking Resources sued the employees for breach of their agreements and sued their new employer, Gordon and his company, for tortious interference and conspiracy. It then moved to compel arbitration of that dispute. One of the former employees objected, but Gordon and his company did not. The trial court granted the motion to compel arbitration. After the arbitrator ruled for Trucking Resources, Gordon and his company asked the trial court to vacate the arbitration award, arguing (1) Section 1 of the FAA expressly exempted this dispute from arbitration and (2) Gordon and his company could not be compelled to arbitrate because they were not signatories to the arbitration agreement. But the Court of Appeals rejected both challenges.

The FAA states that it does not “apply to contracts of employment of … workers engaged in foreign or interstate commerce.” 9 U.S.C. § 1. Drawing from recent U.S. Supreme Court decisions, the appeals court explained that, for this exemption to apply, the workers in question “must at least play a direct and ‘necessary role in the free flow of goods’ across borders”—they “must be actively ‘engaged in transportation.’” While the truck drivers they recruited likely would fit that description, the recruiters themselves would not. And so the exemption did not apply here.
Beyond that, however, the Court stated that “an objection to arbitration under the 9 U.S.C. § 1 exemption from arbitration must be raised before the trial court rules on a motion to compel arbitration.” Here, Gordon and his company did not raise their objection until after the arbitration had concluded and the award had been confirmed. Because “they did not assert the exemption from arbitration before the arbitration took place, they [did] not preserve[] the argument for appellate review.”
Similarly, the Court explained, the “opportunity for the trial court to cure any error from requiring nonsignatories to arbitrate is before the court rules on the opposing party’s motion to compel arbitration, not after the arbitration proceeding.” Here, Gordon and his company didn’t raise this and other arbitrability arguments until after the arbitrator had rendered his award. Consequently, they failed to preserve error on those issues, and the Court of Appeals could not address them.

Carrington Coleman Earns 26 National, Metro Best Law Firm Honors

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Carrington Coleman has earned national or metropolitan Best Law Firms recognition in 26 unique practice areas from U.S. News & World Report and Best Lawyers in America®.

The firm was ranked among the top firms in the nation – as well as the Dallas/Fort Worth metropolitan area – for both its Regulatory Enforcement (SEC, Telecom, Energy) Litigation and Securities Litigation practices.

The firm earned recognition among the top Dallas/Fort Worth firms in 24 additional practice areas:

METROPOLITAN TIER 1 – Dallas/Fort Worth
Appellate Practice
Bet-the-Company Litigation
Closely Held Companies and Family Businesses Law
Commercial Litigation
Construction Law
Construction Litigation
Employment Law – Management
Family Law
Labor & Employment Litigation
Real Estate Law

METROPOLITAN TIER 2 – Dallas/Fort Worth
Bankruptcy and Creditor Debtor Rights/Insolvency and Reorganization Law
Business Organizations (including LLCs and Partnerships)
Corporate Law
Employment Law – Individuals
Intellectual Property Litigation
Family Law Mediation
Financial Services Regulation Law
Labor Law – Management
Patent Litigation
Product Liability Litigation Defense
Trusts & Estates Law

METROPOLITAN TIER 3 – Dallas/Fort Worth
Environmental Law
Leveraged Buyouts and Private Equity Law
Patent Law

Best Law Firms rankings are based on client and lawyer feedback, practice-specific peer review, and rigorous editorial evaluation. To be eligible for a ranking, a law firm must have at least one lawyer recognized on The Best Lawyers in America© list. Earlier this year 18 Carrington Coleman attorneys were selected to the 2023 edition of the prestigious legal guide. An additional 11 attorneys were recognized on the companion Best Lawyers: Ones to Watch list.

Carrington Coleman Again Earns Place Among “Best Place to Work in North Texas”

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For a second consecutive year, Carrington Coleman has been selected among the “Best Places to Work in North Texas” by the Dallas Business Journal.

Carrington Coleman is one of the very few law firms to be recognized among the 30 companies in the “medium” category, a distinction reserved for those with 50-249 employees.

“This firm was launched in 1970 by attorneys who understood that you can only serve your clients properly when you feel comfortable and supported by those around you. That philosophy has helped create a unique atmosphere of camaraderie among our colleagues and clients,” said Managing Partner Monica Latin.

The annual workplace survey, conducted by Quantum Workplace, solicits anonymous feedback from employees in several key areas of job satisfaction, including trust in leadership, communication, and team dynamics.

Employee input was received from more than 300 companies across North Texas before selecting the top 100 businesses that go above and beyond in creating an enjoyable workplace and a thriving culture for their employees. Winning companies were honored at an Oct. 20 event at the Renaissance Dallas at Plano Legacy West Hotel.

Primer on Proving Up Attorneys’ Fees

2 minute read

Canadian Real Estate Holdings, LP v. Karen F. Newton Revocable Trust

Dallas Court of Appeals, No. 05-20-00747-CV (September 29, 2022)
Justices Pedersen, III (opinion available here), Goldstein, and Smith

The Dallas Court of Appeals provided additional guidance on proving up attorneys’ fees in this declaratory judgment action. After the trial court dismissed the plaintiffs’ claim as moot, it awarded plaintiffs $45,529.13 in incurred attorneys’ fees plus $21,000.00 in conditional attorneys’ fees on appeal. The defendant, Canadian REH, appealed, arguing plaintiffs had failed to prove the amount of reasonable and necessary attorneys’ fees.

Canadian REH first argued that plaintiffs were required to provide “hard” or “disinterested” evidence of a reasonable hourly rate, such as affidavits of other attorneys, the State Bar of Texas Hourly Rate Fact Sheet, or fees awarded in similar cases. But the Court disagreed, noting that the affidavit of plaintiffs’ counsel, who testified he was “familiar with the hourly rates and costs customarily charged in and around” Collin County, Texas, was sufficiently detailed to establish reasonable hourly rates. And his experience was sufficient to back up his assertions of familiarity. The Court noted that neither Rohrmoos nor prior Dallas Court of Appeals cases have required additional “disinterested” evidence.
Canadian REH next argued that plaintiffs failed to establish the reasonable hours worked because the billing records were heavily redacted and contained block billing. Again, the Court disagreed. It noted that attorney invoices are “routinely redacted” when offered as evidence, in order to protect the attorney-client and work-product privileges, and that such redactions do not “obscure[e] meaningful review of attorney time” as Canadian REH claimed. The Court also disagreed that plaintiffs’ counsel’s use of “block billing” was a problem, noting that no entry included more than one day’s work for a timekeeper, and many entries included related tasks charged for fractions of one hour.
Canadian REH did get some traction with its complaint about conditional appellate fees, however. Plaintiffs’ counsel did not provide any explanation for his estimated appellate fees of $14,000 in the Court of Appeals and $7,000 in the Supreme Court. The Court reiterated prior holdings that an award of conditional appellate fees must be based on testimony about the services the attorney reasonably believes will be necessary to defend the appeal and a reasonable hourly rate for those services. Counsel’s conclusory opinion provided neither. The Court therefore vacated that portion of the award.

15 Carrington Coleman Attorneys Chosen for 2022 Texas Super Lawyers

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Fifteen Carrington, Coleman, Sloman & Blumenthal, LLP, attorneys led by Managing Partner Monica Latin and Bruce Collins, have been selected to the 20th-anniversary edition of the prestigious Texas Super Lawyers legal guide.

Mr. Collins and Ms. Latin have been honored among the top business litigators in the state every year since the inaugural guide was released in 2003.

Ms. Latin’s inclusion in the 2022 edition also represents her seventh selection among the Top 100 of all attorneys in the state. She also is ranked among Texas’ Top 50 female attorneys for a 10th consecutive year and the Top 100 attorneys in Dallas-Fort Worth for an eighth time.

Carrington Coleman attorneys included in the 2022 Texas Super Lawyers legal guide include:

Cathy Altman – Construction Litigation, 9th selection
Mike Birrer – Employee Benefits, 3rd selection
Neil Burger – Business Litigation, 10th selection
Ken Carroll – Appellate, 12th selection
Mark Castillo – Bankruptcy, 8th selection
Bruce W. Collins – Business Litigation, 20th selection
Lance Currie – Construction Litigation, first selection
Carmen Eiker – Family Law, 10th selection
Whitney Keltch Green – Family Law, first selection
Kelli Hinson – Business Litigation, 11th selection
Jason Katz – Business Litigation, fourth selection
Monica Latin – Business Litigation, 20th selection
Rodney Lawson – Personal Injury Defense, first selection
Christie Newkirk – Employment & Labor, 18th selection
J. Michael Sutherland – Business Bankruptcy, 19th selection

Texas Super Lawyers is published by Thomson Reuters and appears in Texas Monthly and Super Lawyers magazines. Selection is limited to no more than 5 percent of Texas attorneys and is based on a statewide survey of lawyers and extensive editorial review.

For more information on Texas Super Lawyers, visit https://www.superlawyers.com.

Physician Non-Competes: Special Considerations

4 minute read

With the rise in non-compete agreements throughout all business sectors, the inclusion of a non-compete in a physician’s agreement with a practicing group has also increased greatly. Non-competes that restrict a physician’s practice of medicine, however, uniquely impact general public health, and a patient’s individual health, more than non-competes in most other industries. While many non-competes are designed to protect a business’s confidential information and customers, physician non-competes are generally intended to prevent the doctor from continuing medical relationships with patients, a relationship typically thought of as more than just business. Therefore, Texas statute and case law impose additional burdens on the party attempting to restrict the activities of a physician pursuant to a non-compete agreement.

The requirements of the Texas Non-Compete Act, section 15.50 of the Texas Business and Commerce Code, for enforcement of a non-compete applies to all industries including physician non-competes. Therefore, under section 15.50(a), a physician non-compete will only be enforced if it: (1) is reasonable as to “time, geographic area and scope of activity to be restrained”; and (2) does “not impose a greater restriction than is necessary to protect the goodwill or other business interest of the promisee.”

Physician non-competes, however, face additional barriers to enforcement because of the circumstances surrounding the provision of healthcare. Therefore, a non-compete related to the practice of medicine must also comply with the provisions of section 15.50(b). Specifically, the law for physician non-competes requires that the agreement must permit the physician to “buy out” the non-compete at a “reasonable price” or it will not be enforced. TEX. BUS. & COM. CODE ANN. § 15.50(b)(2). The Texas Non-Compete Act also prohibits the contractual denial to the physician of a list of patients seen or treated in the last year before termination, and mandates access to medical records upon the patients’ authorization. TEX. BUS. & COM. CODE ANN. § 15.50(b)(1). Lastly, the non-compete must permit the physician to provide continuing care and treatment to patients during the course of an acute illness. TEX. BUS. & COM. CODE ANN. § 15.50(b)(3). Whether a non-compete meets these requirements, and is thus enforceable, is a matter of law for a court to decide. The burden is on the former employer seeking to enforce the restrictions.

Many disputes arise concerning whether the required “buy out” price contained in a physician non-compete is “reasonable,” as required by the statute. To determine whether this element has been met, courts often use an analysis similar to the determination of whether a liquidated damages provision is enforceable. Accordingly, the court will determine if the buy out price is reasonable by comparing it to an estimation of the employer’s forecasted lost profit if the physician were to violate the non-compete. Under this analysis, setting the buy out to be equal to the physician’s previous income, or to the yearly revenue generated by the physician, would be a mistake. Instead, the buy out provision should contain a price that reflects the anticipated net loss by the employer caused if patients follow the departing physician to another healthcare facility. If the parties’ wish to avoid determining the price of the buy out at the time of contracting, the statute allows for the amount to be determined through arbitration.

In addition to the unique buy out provision, the rules specific to physician non-competes prohibit key restrictions usually sought in other industries. For example, most non-competes are designed to prevent former employees from soliciting and obtaining the business of the employer’s customers. Accordingly, former employees are prohibited from retaining customer lists after their termination that would facilitate the easy solicitation of customers. But, in the healthcare context, not only does the statute require that the physician not be denied access to a patient list, but the physician is required by Texas Medical Board Rule 165.5 to send letters to all the patients treated in the last two years to notify them that the physician is no longer available. In addition, Texas Medical Board Rule 165.5 also requires the healthcare facility to post a similar written notice on its premises to alert patients that the physician has left its practice and further instructing patients where and how they can obtain their medical records. Therefore, while most businesses handle an employee’s termination in a manner designed to most effectively retain the customer’s business, when a physician relocates, the rules are designed to put the patients’ interests first.

More than other fields, courts factor in the impact to public policy when determining the enforceability of a physician non-compete. For example, the geographic area contained in the non-compete may be particularly scrutinized. If the non-compete would effectively eliminate a doctor from a city that needs healthcare providers, a court may determine that the restriction is overbroad as a matter of law. In addition, the breadth of the scope of activity prohibited may be subject to challenge. A clause that prevents a physician from generally practicing medicine within a certain radius of the prior place of employment may be overbroad and unenforceable if the physician only practices a certain type of medicine.

When drafting, enforcing, or defending non-competes for a physician, it is important to remember that while the same rules apply as to other fields, there are additional requirements to enforcement and additional concerns to consider. The healthcare industry is definitely a business in today’s economy, but the law still recognizes that it is different, and involves a type of relationship not typical in other areas that utilize non-compete agreements with its employees.

Pros and Cons of the Series LLC

5 minute read

Texas is one of about 16 states that permit the use of series limited liability companies (“LLC”).  Under the series LLC structure, an LLC (referred to here as the “master LLC”) can create separate series to hold different assets that may or may not be under common ownership and/or management with the master LLC or any other series.  The series LLC structure has two main advantages.  The first is its potential to compartmentalize liabilities: as long as certain conditions are met, the assets of each series are shielded from the liabilities of the other series and the master LLC.  Second, the series LLC structure can reduce costs and streamline administration because, in Texas at least, only the master LLC must file a certificate of formation, pay the filing fee, and file annual reports, and, in some cases, only the master LLC may be required to file tax returns.  But while a series LLC as a form of business entity may have many benefits, there are also some negatives that may not make it the right fit in all circumstances.  This article reviews the basics of the Texas series LLC structure and the reasons why it may (or may not) be the right form of entity in a given situation.

In Texas, a series LLC is formed in the same way as any other LLC, i.e., by filing a certificate of formation with the Texas Secretary of State and adopting a company agreement.  However, in order for an LLC to be able to form series, the certificate of formation and the company agreement of the LLC must include statements that “(1) the debts, liabilities, obligations, and expenses incurred, contracted for, or otherwise existing with respect to a particular series will be enforceable against the assets of that series only, and not against the assets of any other series or the LLC generally, and (2) none of the debts, liabilities, obligations, and expenses incurred, contracted for, or otherwise existing with respect to the limited liability company generally or any other series will be enforceable against the assets of a particular series.”[1]  In other words, no series will be liable for the debts of any other series or of the master LLC.  Simply making the required statements in the certificate of formation and company agreement will not, however, automatically segregate and contain liabilities.  The law goes on to state that the liability protections will apply only if “the records maintained for [a] particular series account for the assets associated with that series separately from the other assets of the company or any other series.”[2]  In other words, the master LLC and each series must maintain separate books and records.

In addition to the potential liability protections, an advantage of the series LLC structure is its great flexibility.  Each series within an LLC may have its own members, managers, membership interests, assets, and purpose.  The assets associated with a series may be held “in the name of the series, in the name of the limited liability company, through a nominee, or otherwise.”[3]  The Texas statute also gives a series the power and capacity to, in its own name, sue and be sued; enter into contracts; acquire, sell, and hold title to assets, including real property; grant liens and security interests in assets of the series; and “exercise such powers or privileges as may be necessary or appropriate to conduct its business or attain its purposes.”[4]

Because assets and bookkeeping must be maintained separately for each series, the series LLC structure will work best where the assets of each series and their respective costs, expenses, and revenue streams can be tracked separately without great difficulty.  For example, interests in oil and gas wells, where the revenue stream from each well can be separately tracked without much difficulty, could be held in different series of the same LLC.  The same holds true for separate real estate assets.  Even though separate books must be maintained for each series, there may be instances when one or more series created by a master LLC would be a disregarded entity for federal income tax purposes and would not have to file separate federal income tax returns. 

The advantages of the series LLC structure are clear.  One series LLC can provide the same benefits as multiple traditional LLCs but without the multiple filings, fees, annual reports, and in some cases, tax returns that would come with traditional LLCs.  So what’s not to like?  In a word, uncertainty. 

Uncertainties surrounding the series LLC arise in part from the fact that the series LLC is still a relatively new form of business entity.  The strength of its liability protections and the legal ramifications of the relationships of the series to each other and to the master LLC have not been tested to any great extent by litigation.  In addition, only about one-third of US states have adopted the series LLC structure.  Whether the courts of a non-series LLC state would respect the liability shields of a series LLC is not known.  Furthermore, the states that have adopted the series LLC structure have not done so in a uniform manner.  Some states, such as Texas and Delaware, do not require any public filing to record the formation of a series by a master LLC, while others, like Illinois, do.  Therefore, a state that either does not recognize the series LLC structure or that imposes more onerous requirements on series LLCs might not respect the series of an out-of-state LLC.   

Alphonse v. Arch Bay Holdings, LLC, 548 F. App’x 979 (5th Cir. 2013), demonstrates the uncertainties arising from state law issues and the relative newness of the series LLC structure.  Arch Bay Holdings, LLC was a Delaware series LLC.  One of its series, Series 2010B, owned a loan secured by a mortgage on Alphonse’s Louisiana home.  When Alphonse’s home was sold at a foreclosure sale, Alphonse sued Arch Bay under the Louisiana Unfair Trade Practices Act.  A lower court had dismissed the case, in part because Delaware law determined Arch Bay’s liability, and under Delaware law, Series 2010B was the real party in interest, not Arch Bay.  The Fifth Circuit Court of Appeals, however, reversed the dismissal.  As the court explained, the law of the state of incorporation of a business entity, Delaware in this case, normally determines issues relating to the internal affairs of an entity, but different principles might apply where the rights of third parties like Alphonse are at issue.  Characterizing treatment of a series LLC as a “novel and complex” matter of state law, the court held that Louisiana law should be applied to determine whether Arch Bay or Series 2010B was the proper party.  The question remains unanswered.

Other uncertainties include treatment of the series LLC as borrowers, under bankruptcy law, and under the Uniform Commercial Code (“UCC”).  If a series LLC is a borrower, must the lender inspect the borrower’s books and records to make sure that separate books are maintained for each series?  On the other hand, if a loan is to be secured by all assets of a borrower that is a series LLC, should the lender require that the liability protections of the separate series be waived?  If a master LLC files bankruptcy, will its series be pulled into the bankruptcy?  Conversely, if a series files bankruptcy, will the master LLC and/or the other series be pulled in?   As for the UCC, in states where the formation of a series does not require a public filing, a series does not fit within the UCC definition of “debtor.”  If a series owns assets that secure a debt, who should be named as debtor on the UCC-1 financing statement that must be filed to perfect the lender’s security interest?  If the series is named as debtor, is the lender perfected?   Texas recently amended its UCC statute so that the definition of “person,” which is incorporated in the definition of debtor, includes “a particular series of a for-profit entity.”[5]  But not every state that has adopted the series LLC structure has done so.

In conclusion, there are pros and cons to consider when deciding whether the series LLC is the best entity structure for a given situation.  Weighing in favor of the series LLC are its tremendous flexibility and streamlined administration.  Weighing against are the uncertainties, particularly if claims could arise under the laws of a state other than that in which the series LLC was formed.  

[1] Texas Business Organizations Code, Section 101.602(a)

[2] Texas Business Organizations Code, Section 101.602(b)(1)

[3] Texas Business Organizations Code, Section 101.603(a)

[4] Texas Business Organizations Code, Section 101.603(a)

[5] Texas Business and Commerce Code, Section 1.201(b)(27)