February 2005 Appellate Bulletin

TEXAS UPDATE
SUPREME COURT UPDATE
APPELLATE TECH UPDATE
FIFTH CIRCUIT UPDATE
NOTES FROM OTHER CLIENTS

TEXAS UPDATE
A Flurry of Year-End Activity, And Then Some
by Liz Wiley

On December 31, 2004, the court issued a flurry of opinions, many of considerable importance. A couple are outlined below, with more to come in the future.

When Is Evidence Sufficient To Find By “Clear And Convincing” Standard?

Texas law requires the predicates to exemplary damages to be proved by “clear and convincing” evidence. But, how does one argue that there was “no evidence” or “legally insufficient evidence” to support a finding by the clear and convincing standard? The Court answered the question in Southwestern Bell Telephone Co. v. Garza, ___, S.W.3d ____, 2004 WL 3019205 (Tex. Dec. 31, 2004). Logically, a higher standard of proof requires a higher standard of review, and the court found as much.

The result is a new “test,” but one already being applied in cases involving the termination of parental rights:

"In reviewing the legal sufficiency of evidence to support a finding that must be proved by clear and convincing evidence, an appellate court must ‘look at all the evidence in the light most favorable to the finding to determine whether a reasonable trier of fact could have formed a firm belief or conviction that its finding was true.”

Applying the standard under the Texas Anti-Retaliation law, the court found that “viewing all of this evidence—as well as the evidence we have detailed earlier along with the entire record—in the light most favorable to the verdict, we cannot conclude that a reasonable trier of fact could form a firm belief of conviction that [Southwestern Bell] acted toward Garza with ill will, spite, evil motive, or purposeful injury. While there are some indications that it might have done so, there are a great many others that it did not. At most, the record reflects that Southwestern Bell] mishandled the situation; it does not produce a reasonable conviction that [Southwestern Bell] intended to punish Garza without cause.”

Landowner Not Liable To Traveler On Adjoining Highway

The Supreme Court’s last word on landowner duties to individuals injured after deviating from an adjoining roadway onto the land was City of McAllen v. De La Garza, 898 S.W.2d 809, 810 (Tex. 1995). Now, ten years later, the supreme court again refused to impose a duty in Military Highway Supply Corp. v. Morin, __ S.W.3d ___, 2005 WL 119933 (Tex. Jan. 21, 2005) (per curiam).

Key to determining whether a possessor of land has a duty is whether the traveler on the roadway is “in the ordinary course of travel.” Under Section 368 of the Restatement (Second) of Torts, “a traveler is not ‘in the ordinary course of travel’ unless the deviation from the road is a normal incident of travel.” No duty exists if the deviation “is one not reasonably to be anticipated . . . or is for a purpose not normally connected with travel.”

In Morin, the question was “whether Morin and Bautista’s deviation from FM 732, after hitting a horse while traveling fifty to fifty-five miles per hour, was a normal incident of travel—an occurrence that Military Highway could have reasonably anticipated.” In short, no. Morin and Batista traveled over 500 feet from the point of impact with the horse, “careening” from the northbound lane to the southbound lane, across a sixteen-foot unimproved shoulder, and onto the abutting land. Too much distance and too much “careening” were involved to hold the landowner liable for the condition of the property where the plaintiffs came to rest.

SUPREME COURT UPDATE
Settling A Case? Call Your Tax Lawyer.
By Kendall Gray

On January 24, 2005, the U.S. Supreme Court released CIR v. Banks, holding that a client must pay income tax upon the portion of settlement proceeds that are paid to an attorney under a contingency fee agreement. The Court applied the so-called “anticipatory assignment” rule, which provides that a taxpayer cannot exclude an economic gain by assigning it in advance to another party. The clients had argued that a contingency fee should not be treated as an anticipatory assignment because the value is entirely speculative when assigned. Likewise, income is generally attributed to the one who earns it. A contingency fee arrangement, they argued, is a sort of business partnership, the fee being “earned” solely by the skill and diligence of the attorney.

In rejecting the arguments, the Court noted that the anticipatory assignment rule had never depended upon the speculative nature of the income assigned. Likewise, the attorney client relationship is “the quintessential principal-agent relationship” rather than a partnership. The client has the right and ability to control the case and decide whether to settle. Just like an employer, the amount paid in wages to an agent is not excluded from gross income. Tantalizingly, the Court left open the question of the tax treatment of settlement proceeds allocated directly to an attorney under a fee shifting statute.

Coming Attractions

Much of the buzz concerning the Court is obsessed with whom the President may appoint to replace justices who are still hearing cases and making decisions. The work of the Court goes on:

• The Court has two cases testing constitutionality of secretive “Special Trial Judges” employed by the Tax Court. Ballard v. CIR (No. 03-184); Estate of Kanter v. CIR (No. 03-1034) [Argued 12/7/04, click here for Transcript].
• The Court will decide whether “loss causation” must be proved in a securities fraud action claiming “fraud on the market.” Dura Pharmaceuticals, Inc. v. Broudo (No. 03-932) [Argued 1/12/05, click here for Transcript].
• The Court has two cases testing the limits of compelled commercial speech under the First Amendment. Veneman v. Livestock Marketing Ass’n (No. 03-1164); Nebraska Cattlemen, Inc. v. Livestock Marketing Ass’n (No. 03-1165) [Argued 12/8/04, click here for Transcript].
• On the other side of the free speech question, the Court will adjudicate an injunction prohibiting all future speech about a public figure, awarded as a remedy in a defamation action. Tory v. Cochran (No. 03-1488) [Argument 3/22/05].
• The Court will again tread the minefield of religious liberty, deciding whether the “Ten Commandments” monument or similar displays are qualitatively different from the artwork above the Court’s own bench. Van Orden v. Perry (03-1500); McCreary County v. ACLU of Kentucky (03-1693) [Argument 3/2/05].
• The Court will opine on the limits of supplemental jurisdiction where absent class members do not satisfy the minimum amount-in-controversy requirement. Exxon Corp. v. Allapattah Servs. (No. 04-70); Ortega v. Star Kist Foods, Inc. (04-79) [Argument 3/1/05].
• The Court will even determine whether purported charge error requires a retrial of Arthur Andersen’s conviction for witness tampering. Arthur Andersen LLP v. United States (04-368) [Granted 1/7/05].

I for one am eagerly anticipating such answers as which crop injury claims are preempted by FIFRA (No. 03-388) [Argued 1/10/05, click here for Transcript] and whether the ADA applies to companies operating foreign-flag cruise ships in U.S. waters (No. 03-1388) [Argument 2/28/05]. Even if your inner-dweeb is less well developed, your business is bound to be impacted by the Court this term. Stay tuned.

APPELLATE TECH UPDATE
New Filing Technology
By Casey Low

As of December 17, 2004, anytime the Supreme Court of Texas requests full briefing, it will simultaneously request that all parties submit an electronic version of the briefing to the court for eventual post on the court website. Although this process currently does not replace hard copies of briefs, the hope is that one day all information will be available online for anyone to access. The required certificate of compliance and other instructions are sent by the court with any request for full briefing, and are also located on the website:

http://www.supreme.courts.state.tx.us/ebriefs_information.htm

Online Oral Arguments

Beginning December 3, 2004, the Supreme Court of Texas began posting all subsequent recordings of oral arguments on its website for the general public to access for free. Previously the court had made tapes of the arguments, available for a nominal fee from the clerk’s office. The court plans to add these previous recordings to the website over time. Online users can access the electronic recordings by visiting the website and searching either by argument date or cause number:

http://www.supreme.courts.state.tx.us/oralarguments/audio.asp

FIFTH CIRCUIT UPDATE
Contractor’s Amended Claim Relates Back To Failed “Employee” Pleading
by Cameron Pope

In Johnson v. Crown Enterprises, Inc., ___ F.3d ___, 2005 WL 121876 (5th Cir. Jan. 21, 2005) a truck driver sued his trucking company under Title VII, which requires the plaintiff to be an employee. The parties later agreed that the plaintiff was an independent contractor, and he amended his complaint after the statute of limitations had run to add a claim for racial discrimination under 42 U.S.C. § 1981, which does not require employee status. Rule 15(c) provides that in certain circumstances, including when the claim or defense arises out of the same factual situation, amendments to pleadings arise relate back to the date of the original pleading. The district court held that the § 1981 claim did not relate back to the Title VII because they were “two separate and distinct claims that have different elements of proof and different procedural requirements regarding exhaustion of remedies and time limitations.” The Fifth Circuit reversed, holding that the plaintiff’s status was irrelevant because the claims were based on identical allegations of discrimination.

Rule 9(b): You Are Your Vice President’s Keeper

In Barrie v. Intervoice-Brite, Inc., ___ F.3d. ___, 2005 WL 57928, at *10 (5th Cir. Jan. 12, 2004) Plaintiffs brought a securities class action against a company that develops and sells interactive voice software and its chief officers after they reported a loss and lower-than-expected revenues and earnings per share. The Fifth Circuit reversed the district court’s dismissal and remanded in part, recognizing that high ranking company officials can be liable for failing to correct another official’s falsehoods during public meetings. The court held that under Rule 9(b), “where it is pled with specificity that one defendant knowingly uttered a false statement and the other defendant knowingly failed to correct it, even if it is not alleged which defendant spoke and which defendant failed to speak, the fraud is sufficiently pleaded as to each defendant.”

NOTES FROM OTHER CLIENTS
Scrooge Loses in Seventh Court

In Hart v. Sheanhan, ___ F.3d ___, 2005 WL 221963 (7th Cir. Feb. 1, 2005) the Seventh Circuit decided that the Friday after Christmas qualified as a “legal holiday,” even though he did not declare it an official holiday, because the President gave federal workers the day off with pay. As a result, the Appellant’s motion to alter or amend the judgment was timely filed within 10 days after entry of judgment, excluding “legal holidays.” See FED. R. CIV. P. 6(a). In an opinion by Judge Posner, the court concluded that “when the President closes the government for celebratory or commemorative reasons, rather than because of a budgetary crisis, or for a snow emergency, terrorist act, or some other force majeure, the presumption is that he has declared a legal holiday.” The Appellee was heard to reply, “If I could work my will, every idiot who goes about with ‘Merry Christmas’ on his lips, should be boiled in his own pudding, and buried with a stake of holly through his heart. He should! Bah! Humbug!”

Dweebie Web site of the Month

It is said that anything can be found on the web. Well, where could one find a priceless photograph of ideological opposites like Ruth Bader Ginsberg and Antonin Scalia ironically sitting together astride an elephant? Would that same website allow you to listen to historic oral arguments such as Brown v. Board of Education or Bush v. Gore while sipping a cheeky chardonnay? In fact it would. The site, http://www.oyez.org/, includes such features as archived oral argument recordings, current news of the court, “This Day in Supreme Court History,” and reproductions of some of the justices’ memorabilia – i.e., elephant photos. Check it out.

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