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Texas Supreme Court Weekly Update February 23, 2018

On Behalf of | Feb 23, 2018 | Texas Supreme Court Weekly Update

This week the Supreme Court of Texas issued 10 opinion, four of which are of particular interest.

In re Marion Shipman from the Austin Court of Appeals arises from a third party claim made by Jaime Shelton against Marion Shipman. During discovery Shelton sought to various business records from Shipman’s business dealings. Although Shipman responded, producing some documents and indicating that all responsive documents within his possession had been produced, Shelton, dissatisfied with the production, filed several motions to compel seeking among other things production of all computers, drives, and other media for a number of years. Shipman appealed; however, the court of appeals denied mandamus relief without explanation. Thus, Shipman appealed to the Texas Supreme Court arguing that the scope of the ordered production abused the trial court’s discretion. The Court agreed focusing on the fact that the trial court ordered Shipman to produce all electronically stored filed of every kind, whether personal or business, and regardless of whether they are related to the issue for seventeen years. Additionally, the Court emphasized that the trial court granted a greater relief that what was sought under the motion to compel. Significantly, the Court determined that Shelton arguments amounted to no more than speculation that additional responsive documents could be produced and that there was insufficient evidence to support a finding that Shipman defaulted on his obligations under the discovery rules. The Court granted mandamus relief to Shipman.

In re Andrew Silver from the Dallas Court of Appeals expands the protections of attorney-client privilege to include communications between a client and a non-attorney patent agent. In this case, Andrew Silver brought a breach of contract action against Tabletop Media, LLC for failure of payment claiming that he invited the technology that became Ziosk, which Tabletop sells. During discovery Silver refused to produce e-mails between him and a patent agent who represented him. Tabletop moved to compel production. The trial court granted the motion, and Silver’s mandamus petition was declined. The Supreme Court of Texas took up Silver’s appeal and clarified that attorney-client privilege applies between a client and a non-attorney patent agent who is nevertheless authorized to practice law in a federal patent proceeding. The Court reasoned that such agents perform the same services and are subject to the same rules as patent attorneys. Additionally, the Court found that patent agents fall within the definition of Texas Rule of Evidence 503(a)(3) as a lawyer who is authorized to practice law by a state or nation because they are authorized to represent clients before the USPTO. Thus, the Court determined that confidential communications between Silver and his patent agent could fall under the protection of the attorney-client privilege of Rule 503.

The Hiawatha Henry et al. v. Cash Biz L.P. et al. case from the San Antonio Court of Appeals deals with arbitration agreements within short term loan contracts. Cash Biz, LP is a lender of short term loans, which lent money to various borrowers. The borrowers were lent money with the condition that they postdate checks for the loan amount plus interest. Additionally, the borrowers signed contracts containing arbitration agreements. Once the borrowers defaulted, Cash Biz deposited the checks, which were returned for insufficient funds. The borrowers filed a class action suit and causes of action against Cash Biz, to which Cash Biz filed a motion to compel arbitration. Cash Biz argued that the arbitration clause waived the right to a class action. The borrowers claimed that the arbitration clause was inapplicable because they were not suing on the contract and because Cash Biz’s filing of criminal charges waived its rights to enforce provisions. The Texas Supreme Court held that borrowers’ claims against the lender came within the arbitration provision. The Court reasoned that there is a presumption favoring arbitration; therefore, arbitration provisions are construed broadly. In addition, the agreement applied to “all disputes,” which must be given a broad meaning. The Court further held that a lender does not waive its rights to arbitrate when it provides information to the district attorney. Thus, submission of information to the district attorney, who has discretion to file charges or not, does not invoke the judicial process such that the right to arbitration has been waived.

Altesse Healthcare Solutions Inc. and Shawna Boudreaux v. Allen Wilson and Becky Wilsonfrom the Dallas Court of Appeals deals with sanctions against uncooperative litigants in the context of a temporary restraining order. In this case, the Wilsons sold their company to Altesse Healthcare Solutions Inc. and Boudreaux. The Wilsons later sued Altesse seeking damages and a temporary restraining order. The TRO was granted and prohibited Altesse from contacting the company’s employees, contractors, and patients and from holding itself out as operating the business. The Wilsons’ alleged that during the TRO time period Altesse transferred funds out of the company and failed to return assets. Altesse admitted to these allegations. The trial court granted a motion for contempt and sanctions including death penalty sanctions. The court of appeals affirmed the sanctions. However, the Texas Supreme Court held that the trial court abused its discretion. The Court affirmed the lower courts’ finding that Altesse knowingly violated the TRO without a compelling excuse. However, the Court reaffirmed that there must be a direct relationship between the offensive conduct and the sanction, and the sanctions must not be excessive. In this case, the Court found no direct relationship between the sanction and the conduct of the party. Specifically, the sanction awarded the Wilsons the full value of the company at the time that it was sold to Altesse, not taking into account that the company still had some viable value to it – essentially giving the Wilsons double recovery. Further, the sanctions imposed denied Altesse the right to claim fraudulent inducement in the purchase of the company, and the Court determined that Altesse should have an opportunity to present this claim on the merits. Additionally, the Court found that Altesse’s conduct did not amount to the type of extreme bad faith that would justify exceptionally harsh sanctions under the circumstances of this specific TRO including the small three-day window and in light of the complexity of the business. Therefore, the Court determined that the sanctions imposed by the trial court were an abuse of discretion, and the case was remanded.


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