The year 2014 was a time of firsts—the Affordable Care Act went into effect, Janet Yellen became the head of the Federal Reserve, same-sex marriage became legal in more than 10 states, and in Texas, a new governor was elected for the first time since Rick Perry took office in 2000. But 2014 also proved a roller coaster of dismay and joy. The Ukraine, Ferguson, Ebola, and ISIS stayed on our minds. We retweeted Ellen DeGeneres’s selfie from the Oscars and watched Germany win the World Cup in Brazil. We raised more than $100 million for the ALS Association by taking the ice bucket challenge (and chuckled along to clips featuring George W. and Laura Bush, Kermit the Frog, Will Smith, and Bill Gates, to name a few participants). And, of course, we sang along to “Let it Go” and “Everything is Awesome!!!” The year also brought significant developments to the legal profession and case law. The Texas Bar Journal Board of Editors has assembled a series of articles highlighting these issues. The topics featured are not exhaustive, and the opinions reflect only the views of the authors. ACCESS TO JUSTICE BY HARRY M. REASONER A civil justice system that works only for some fails us all. Justice for all is a fundamental principle upon which our country was founded. The Texas Access to Justice Commission increases fairness in the judicial system for the 5.7 million Texans who qualify for civil legal aid by advocating for systemic change and the expansion of funding for access to justice initiatives. Efforts to inform congressional members on the benefits and need for legal aid funding have brought some improvement. This year, we can celebrate as Congress passed a budget that included $365 million in Legal Services Corporation funding, a nearly $25 million increase from 2013. Looking ahead to the 84th session of the Texas Legislature, state funding for legal aid is again included in the Texas Supreme Court’s budget request at $17.6 million. In 2014, the State Bar of Texas and the Commission cosponsored the annual Champions of Justice Gala Benefiting Veterans. About 400 people attended the event to honor the valiant men and women who have made great sacrifices for our country, generating more than $348,450. Since the gala’s inception five years ago, more than $1.75 million has been raised to improve access to justice for Texas veterans. Texas attorneys also showed their support through the Access to Justice Contribution Campaign. Donations through the State Bar of Texas dues statement increased by 16 percent to help fund Texas legal aid providers. More than 8,000 lawyers gave approximately $1.1 million. Recognizing those who give more than the suggested $150, the Champion of Justice Society has grown to 364 members whose contributions provide funding for the equivalent of three legal aid staff attorneys. The Commission continues to monitor what it considers abuse of Texas Rule of Civil Procedure 145, which governs affidavits of indigency, and submitted a supplemental report to the Texas Supreme Court on our proposed revisions to Rule 145 to document new and continuing misuse of the rule. Represented pro bono by Vinson & Elkins, the Commission submitted an amicus brief in support of petitioners who were wrongfully assessed court costs even though they had filed affidavits of indigency deemed valid as a matter of law. The case is currently pending before the Texas Supreme Court. The Limited Scope Representation Subcommittee assembled a packet of sample documents to help attorneys incorporate limited scope representation into their practices. It also produced a CLE presentation on LSR business practices. In April, the House Judiciary and Civil Jurisprudence Committee asked the Commission to report on the impact of probate on low-income Texans. Following the hearing, an interim work group was created to address some of the challenges faced by the poor in probate matters. As a result, three bills will be submitted during the upcoming legislative session to address the issues brought forth by the work group. The Commission’s Technology Committee has partnered with the Texas Young Lawyers Association to bring legal guidance to self-represented litigants in rural areas. Focusing on divorce cases, the Remote Access Project will connect rural self-represented litigants with urban pro bono attorneys through video conferencing. In October, the Commission launched the Law Student Leaders Access to Justice Summit to educate law students about issues that low-income Texans face. The summit was recommended by our Law School Advisory Committee, which is composed of the deans from each Texas law school, and was made possible with a $20,000 grant from the Texas Bar Foundation. Delegates learned about pro bono opportunities and what they can do once they are licensed. Because exposure to pro bono during law school leads to increased support of civil legal aid upon graduation, we hope that the summit will inspire a new generation of lawyers committed to creating a better community. The Commission also remains dedicated to providing training for legal aid attorneys. Through our Pro Bono Spring Break, 66 students from eight law schools provided pro bono services in six cities at 10 different legal aid organizations. In conjunction with the American College of Trial Lawyers, we conducted our 10th annual hands-on training for 30 legal aid attorneys. Progress has been made to increase access to justice for lowincome Texans. However, much work remains to be done as four out of five of those who qualify and are legitimately in need of help have to be turned away because of a lack of resources. HARRY M. REASONER is chair of the Texas Access to Justice Commission and a partner at Vinson & Elkins in Houston. His practice includes appellate law and complex commercial litigation. ANTITRUST AND BUSINESS LITIGATION BY EMILYWESTRIDGE BLACK AND CHRIS QUINLAN In 2014, the U.S. Supreme Court issued two antitrust decisions that analyze the reach of the Lanham Act. The court also issued an important decision that has implications for antitrust and business litigation. POM Wonderful v. Coca-Cola: FDCA Does Not Preempt the Lanham Act In POM Wonderful LLC v. Coca-Cola Co.,1 the Supreme Court ruled that the Federal Food, Drug, and Cosmetic Act’s regulation of food and beverage labeling does not foreclose competitors from bringing Lanham Act claims for deceptive labels. The suit arose out of Coca-Cola’s labeling of its “Pomegranate Blueberry” juice product. Because the beverage contains only 0.3 percent pomegranate juice and 0.2 percent blueberry juice (consisting instead of 99.4 percent grape and apple juices), POM Wonderful claimed that the labeling misled consumers into believing that the product consisted substantially of pomegranate and blueberry juices. The 9th Circuit held that the FDCA precluded the Lanham Act claims, but the Supreme Court reversed, holding that while the Lanham Act and the FDCA both touch on food and beverage labeling, they are complementary federal statutes serving different purposes. The Lanham Act protects commercial interests through private actions while the FDCA protects public health and safety. Accordingly, the FDCA does not preclude Lanham Act claims for food and beverage labels. Lexmark International v. Static Control Components: Establishing a Uniform Test for Lanham Act Standing In Lexmark International, Inc. v. Static Control Components, Inc.,2 the Supreme Court established a uniform and “not especially demanding” test for Lanham Act standing.3 Lexmark makes and sells laser printers, which it designs to work only with Lexmark toner cartridges. The company takes various steps to ensure that customers purchase replacement cartridges from Lexmark, including the installation of a microchip that disables the cartridge once it runs out of toner. Static Control manufactures a microchip that reactivates depleted Lexmark cartridges and thereby allows other companies to compete with Lexmark by refurbishing and reselling used Lexmark cartridges. Static Control alleged that Lexmark violated the Lanham Act by 1) misleading end-users to believe that they were legally bound to return spent cartridges to Lexmark, and 2) sending letters to remanufacturers falsely stating that Static Control was engaging in illegal conduct and that it was illegal for remanufacturers to use Static Control products to refurbish Lexmark cartridges. The district court dismissed those claims, holding that Static Control lacked standing under the five-factor antitrust standing test applied by the 3rd, 5th, 8th, and 11th Circuits to false advertising claims. The 6th Circuit reversed based on its application of the reasonable interest test established by the 2nd Circuit. The Supreme Court found both tests lacking, and also rejected the direct competitor test used by the 7th, 9th, and 10th Circuits, in favor of the more lenient zone-of-interests and proximate-cause test, which requires only that 1) the plaintiff suffer injuries of the type that the statute attempts to prevent, and 2) the causal link between the defendant’s conduct and the plaintiff’s injury be sufficiently close. Under this test, Static Control met the Lanham Act standing requirements despite not being a direct competitor to Lexmark because it “allege[d] an injury to a commercial interest in reputation or sales” resulting closely from Lexmark’s conduct.4 Importantly, the decision also expands the reach of the Lanham Act to some instances of derivative harm, because the Supreme Court approved of Static Control’s claim that representations to end-users had affected the sales of remanufacturers and subsequently harmed Static Control as a supplier of remanufacturers. Halliburton II: Conflicts between Economic Theory and Stare Decisis In its much-awaited decision in Halliburton Co. et al. v. Erica P. John Fund, Inc. (Halliburton II),5 the Supreme Court declined to overrule the longstanding fraud-on-the-market presumption of reliance established in Basic v. Levinson,6 despite increasing skepticism of the efficient markets theory that underlies the rule. In doing so, the court noted that “even though the efficient capital markets hypothesis may have ‘garnered substantial criticism since Basic,’ Halliburton has not identified the kind of fundamental shift in economic theory that could justify overruling a precedent on the ground that it misunderstood, or has since been overtaken by, economic realities.”7 In addition to its effect of preserving the ability of 10b-5 plaintiffs to bring suit as a class, Halliburton II implicates antitrust cases, which depend on economic analysis. By requiring a “fundamental shift in economic theory” to overrule established precedent, the court could slow the pace at which antitrust law follows evolving economic theory. Looking Ahead: North Carolina Board of Dental Examiners v. FTC The Supreme Court recently heard arguments in North Carolina Board of Dental Examiners v. FTC.8 In this case, the Federal Trade Commission alleged that the North Carolina Board of Dental Examiners acted anticompetitively by sending letters to non-dentist teeth whitening companies accusing them of practicing dentistry without the required license. Many of those teeth whiteners subsequently shut down their businesses. The court will decide whether the board is immune from antitrust scrutiny as a government agency. The North Carolina Legislature has identified the board as a state agency, but the majority of the board is elected by practicing dentists. Regardless of how the court rules, the decision may create substantial obstacles for government actors. A decision against the FTC would cause a serious setback in its efforts to apply the antitrust laws to actions of state boards or agencies that are not actively supervised by the state, but a decision against the board may deter qualified professionals from serving on the state boards that regulate their fields. Notes 1. 134 S. Ct. 2228 (2014). 2. 134 S. Ct. 1377 (2014). 3. Id. at 1389 (internal citation omitted). 4. Id. at 1390. 5. 134 S. Ct. 2398 (2014). 6. 485 U.S. 224 (1988). 7. Id. at 2410. 8. Docket No. 13-534. EMILY WESTRIDGE BLACK is an associate of the Austin office of Haynes and Boone. CHRIS QUINLAN is an associate of the firm’s Dallas office. Black and Quinlan specialize in white-collar criminal defense, antitrust litigation, and the prosecution and defense of complex commercial litigation matters. APPELLATE LAW BY WARREN W. HARRIS AND LINDSAY E. HAGANS The Texas Supreme Court addressed a number of interesting and important appellate issues during its 2013-2014 term. One of the most significant recent developments in jury charge practice came from a divided court in King Fisher Marine Serv. v. Tamez .1 The issue before the court was whether an objection to the jury charge made “before the charge is read to the jury,” but after the trial court’s deadline for doing so, is timely under Texas Rule of Civil Procedure 272. The trial court conducted both an informal and a formal charge conference, with the latter occurring the evening before closing arguments. The next morning, just before the jury was seated, the defendant raised a new objection to a question that had been included weeks earlier in the plaintiff’s proposed charge, asserting that the question improperly failed to define a technical legal term and tendering a proposed instruction. The trial court rejected the proposed instruction “mainly” because it was untimely, and the court of appeals affirmed that ruling, concluding that it was not an abuse of discretion for the trial court to refuse to entertain an objection made just before the jury was seated because the defendant had “ample opportunity” to present its proposed instruction.2 In a 5-4 decision, the Supreme Court affirmed the appeals court’s judgment, reasoning that while Rule 272 prohibits a trial court from considering any objections made after the charge is read to the jury, nowhere does the rule require a trial court “to consider every objection made before the charge is read to the jury”3 (emphasis in original). Thus, Rule 272 affords a trial court the discretion to set a deadline for charge objections that expires before it charges the jury, as long as the deadline affords the parties a “reasonable time” to inspect and object to the charge.4 Four justices dissented and would have held the objection timely because “before the charge is read to the jury” is a bright-line rule, one that “appropriately provides all parties—plaintiffs and defendants alike—with clarity at a point in the trial in which the stakes are high and the pressure is acute, and it rewards the effort invested in the trial with a disposition on the merits ... rather than on technicalities.”5 In Long v. Castle Tex. Prod. L.P.,6 the Supreme Court provided guidance on how to determine the accrual date for post-judgment interest when an appellate court reverses a judgment and remands for further proceedings. The general rule is that “[p]ostjudgment interest accrues from the judgment date through the date the judgment is satisfied.”7 A limited exception is when the appellate court can or does render judgment, in which case postjudgment interest accrues from the date of the trial court’s original, erroneous judgment. Here, however, the court of appeals had remanded the case to the trial court for a determination on an issue that the trial court found, on remand, required the submission of new evidence not in the record.8 The plaintiff argued on remand that no new evidence was required, but it then simply waived that claim rather than try to obtain the additional evidence. The trial court then issued a new judgment and awarded post-judgment interest from the date of its original judgment, and the court of appeals affirmed.9 The Supreme Court reversed, holding that because the trial court, in its discretion, concluded on remand that it needed additional evidence, post-judgment interest must accrue from the date of the new judgment.10 In Brookshire Bros., Ltd. v. Aldridge,11 the Supreme Court tackled spoliation in a split 6-3 decision. The case involved a somewhat typical slip-and-fall in a grocery store; the store preserved and produced some, but not all, of the video of the accident. The trial court submitted a spoliation instruction to the jury, allowing the jury to presume harm if the jury found that Brookshire Brothers had spoliated evidence.12 The Supreme Court reversed and remanded for a new trial, holding that “the harsh remedy of a spoliation instruction is warranted only when the trial court finds that the spoliating party acted with the specific intent of concealing discoverable evidence, and that a less severe remedy would be insufficient to reduce the prejudice caused by the spoliation,” or when negligent spoliation irreparably deprives the non-spoliating party of any meaningful ability to present a claim or defense.13 Notes 1. King Fisher Marine Serv. v. Tamez, No. 13-0103, 2013 WL 9600954 (Tex. Aug. 29, 2014). 2. Id. at *2. 3. Id. at *4. 4. Id. 5. Id. at *15. 6. Long v. Castle Tex. Prod. L.P., 426 S.W.3d 73 (Tex. 2014). 7. Id. at 77 (citation omitted). 8. Id. at 76. 9. Id. 10. Id. at 87. 11. Brookshire Bros., Ltd. v. Aldridge, 438 S.W.3d 9 (Tex. 2014). 12. Id. at 16. 13. Id. at 14. WARREN W. HARRIS is a partner in Bracewell & Giuliani in Houston, where he heads the firm’s appellate group. Harris is a past president of the Texas Supreme Court Historical Society and a past chair of the Texas Bar Journal Board of Editors. LINDSAY E. HAGANS is an associate in the appellate group at Bracewell & Giuliani in Austin. She previously served as a law clerk for Chief Justice Nathan L. Hecht of the Supreme Court of Texas. BANKRUPTCY LAWBY AARON M. KAUFMAN Despite a unanimous ruling from the U.S. Supreme Court in Bellingham,1 bankruptcy practitioners will wait another year to learn the court’s take on whether express or implied consent is sufficient to give bankruptcy courts constitutional authority to adjudicate disputes that are not necessarily “core” bankruptcy matters.2 What the Supreme Court did decide this year was that, in the face of “Stern problems”— i.e., where bankruptcy judges are statutorily but not constitutionally authorized to enter final judgments—bankruptcy courts may propose findings of fact and conclusions of law and those findings and conclusions will pass constitutional muster once they are reviewed de novo by an Article III tribunal.3 The Supreme Court did not address the consent issue in its Bellingham decision but will address that issue next term in the Wellness International matter. To date, only the 9th Circuit’s 2012 decision in Bellingham held that parties could consent to final adjudication in the bankruptcy court,4 while the 5th, 6th, and 7th Circuits have held otherwise.5 This summer, following the Supreme Court’s lead in Bellingham, the 5th Circuit held that a debtor’s fraudulent transfer judgment against her ex-spouse had to be vacated as constitutionally unsound.6 On remand, the 5th Circuit suggested that the bankruptcy court “recast” its judgment as proposed findings and instructed the district court to review those proposed findings de novo. While this added step may strain the district courts’ already-busy dockets, it offers a pragmatic solution consistent with the Supreme Court’s rulings in Stern and Bellingham. The 5th Circuit also addressed an issue of considerable importance to all attorneys— compensation. In ASARCO, the 5th Circuit affirmed more than $4.1 million in bonuses based on counsel’s “once in a lifetime” multi-billion dollar fraudulent transfer judgment. In the same decision, however, the 5th Circuit rejected counsel’s request to recoup the additional $5 million in fees incurred to defend its fee application, which required extensive discovery, briefing, and a six-day evidentiary hearing.7 In October, the Supreme Court granted counsel’s petition for review to consider the “fees for defense of fees” issue.8 In another compensation-related decision, the 5th Circuit affirmed an 85 percent fee reduction under the strict standards of Pro-Snax.9 In affirming the reduction, however, the three-judge panel of the 5th Circuit gave bankruptcy attorneys a moral victory of sorts in the form of a rare “special concurrence” in which the panel acknowledged that “the Pro-Snax standard may be misguided,” because it “appears to conflict with the language and legislative history of ¤ 330, diverges from the decisions of other circuits, and has sown confusion in our circuit.”10 In November, the 5th Circuit granted counsel’s motion for reconsideration en banc, which will be decided without oral hearing. The 5th Circuit also tested the limits of certain 2005 amendments to the Bankruptcy Code impacting limitations on homestead exemption rights.11 In two separate opinions this year, the 5th Circuit held that, where the facts permit a trustee to limit or deny a debtor’s homestead exemption rights, the trustee can force a sale of the debtor’s homestead over the objection of the nonbankrupt spouse under certain circumstances.12 The court explained as a general proposition that such forced sales will not constitute gratuitous confiscations of property in violation of the non-filing spouse’s Fifth Amendment due process rights. In avoidance news, a Delaware Supreme Court decision underscored the need to review Uniform Commercial Code statements more closely before authorizing them to be filed; a few attorneys’ mistakes may have cost their client $1.5 billion in collateral.13 Meanwhile, the 5th Circuit held that innocent investors in a Ponzi scheme are only liable for the interest (but not the principal) that they withdrew from the fund before the Ponzi scheme collapsed.14 Finally, the 5th Circuit explained that “value” under the ¤ 548(c) “good faith” defense is viewed from the defendant’s perspective, not the debtor’s.15 Notes 1. See Executive Benefits Ins. Agency v. Arkison (In re Bellingham Ins. Agency, Inc.), --- U.S. ---, 134 S.Ct. 2165, 189 L.Ed.2d 83 (2014). 2. See Wellness Int’l Network v. Sharif, 134 S.Ct. 2901, 189 L.Ed.2d 854 (2014). 3. In re Bellingham Ins. Agency, Inc., 134 S.Ct. at 2175 (“at bottom, EBIA argues that it was entitled to have an Article III court review de novo and enter judgment on the fraudulent conveyance claims asserted by the trustee. In effect, EBIA received exactly that”). 4. See Executive Benefits Ins. Agency v. Arkison (In re Bellingham Ins. Agency, Inc.), 702 F.3d 553 (9th Cir. 2012). 5. See Waldman v. Stone, 698 F.3d 910 (6th Cir. 2012); BP RE, L.P. v. RML Waxahachie Dodge, L.L.C. (In re BP RE, L.P.), 735 F.3d 279 (5th Cir. 2013); Wellness Int'l Network, Ltd. v. Sharif, 727 F.3d 751, 761 (7th Cir. 2013), cert. granted 134 S.Ct. 2901, 189 L.Ed.2d 854 (2014). 6. Galaz v. Galaz (In re Galaz), 765 F.3d 426 (5th Cir. 2014). 7. See In re ASARCO, L.L.C., 751 F.3d 291, 297-302 (5th Cir. 2014), cert. granted at 189 L. Ed. 25 894 (2014). 8. See In re ASARCO, L.L.C., 189 L. Ed. 2d 897 (2014). 9. Barron & Newburger, P.C. v. Texas Skyline, Ltd. (In re Woerner), 758 F.3d 693 (5th Cir. 2014); see also Andrews & Kurth, LLP v. Family Snacks, Inc. (In re Pro-Snax Distribs., Inc.), 157 F.3d 414 (5th Cir. 1998) (in hindsight, services must have “resulted in an identifiable, tangible, and material benefit to the bankruptcy estate”). 10. In re Woerner, 758 F.3d at 702-03 (Prado, J., concurring). 11. See 11 U.S.C. ¤ 522 (p) (imposing a fixed cap on the amount of a homestead that can be claimed if the homestead is acquired within 1,215 days) & ¤ 522(o) (allowing courts to deny a homestead exemption if the debtor is found to have funneled otherwise non-exempt assets into a homestead in an effort to hinder, delay, or defraud creditors). 12. Kim v. Dome Entertainment, Inc. (In re Kim), 748 F.3d 647 (5th Cir. 2014); In re Thaw, 769 F.3d 366 (5th Cir. 2014); see also 11 U.S.C. ¤ 363(h) (allowing the trustee to sell both the estate’s and the co-owners’ undivided interest in property under certain circumstances). 13. Official Comm. of Unsecured Creditors for Motors Liquidation Co. v. JPMorgan Chase Bank, NA, 2014 Del. LEXIS 491 (Del. Oct. 17, 2014) (subjective intent has no role in the UCC filing system); see also In re: Motors Liquidation Co., 755 F.3d 78, 86 (2d Cir. 2014) (certifying the question to the Delaware Supreme Court). 14. Janvey v. Brown, 767 F.3d 430 (5th Cir. 2014). 15. Williams v. FDIC (In re Positive Health Mgmt.), 769 F.3d 899 (5th Cir. 2014). AARON M. KAUFMAN joined the Dallas office of Cox Smith Matthews in 2008, following his clerkship with the Honorable Leif M. Clark, United States bankruptcy judge for the Western District of Texas, San Antonio Division (ret.). Kaufman’s commercial bankruptcy practice includes representation of debtors, creditors, committees, trustees, banks, landlords, tenants, equity holders, and prospective purchasers in mid-sized to large bankruptcy cases and related litigation. CONSTRUCTION LAWBY JOE F. CANTERBURY JR. The major developments in construction law during 2014 are found in four Texas Supreme Court decisions and an insurance case of the 5th Circuit. Zachry Const. Corp. v. Port of Houston Auth. of Harris Cnty, Texas, No. 12-0772, 2014 WL 4472616 In Zachry, the trial court instructed the jury on an exception to a no damage for delay clause addressing “delay or hindrance that was the result of the port’s actions, if any, that constituted arbitrary and capricious conduct, active interference, bad faith and/or fraud.” The clause at issue stated that there were to be no damages: … arising out of or associated with any delay or hindrance to the Work, regardless of the source of the delay or hindrance, including events of Force Majeure, AND EVEN IF SUCH DELAY OR HINDRANCE RESULTS FROM, ARISES OUT OF OR IS DUE, IN WHOLE OR IN PART, TO THE NEGLIGENCE, BREACH OF CONTRACT OR OTHER FAULT OF THE PORT AUTHORITY. Because the delay or hindrance damages were caused, at least in part, by the port’s breach of contract, as confirmed by the jury award, the appellate court concluded that Zachry had failed to establish that the no damages for delay clause was not intended to apply to the port’s breach of contract. The jury was given an instruction on exclusions from the clause but was not asked to make a specific finding on whether the port’s conduct “constituted arbitrary and capricious conduct, active interference, bad faith and/or fraud.” The 14th Court of Appeals in Houston1 concluded, however, that even such a finding would not affect the application of the clause because the words “other fault” to the specific exclusion of “negligence” communicated the intent that the port’s conduct that rises above mere negligence or is a departure from the standard of care would not preclude enforcement of the no damages for delay clause. Under that reasoning, the port could delay the contractor for any reason or no reason and escape damages due to the clause. The port also contended that the waiver of governmental immunity provisions of the Local Government Code denied jurisdiction for Zachry’s claims, contending that under ¤271.153(a)(1) no balance can be owed for delay damages except as expressly allowed under the contract. The Supreme Court rejected the port’s arguments on both grounds. On the port’s argument that it could delay Zachry for any reason, the court stated: Generally, a contractual provision ‘exempting a party from tort liability for harm caused intentionally or recklessly is unenforceable on grounds of public policy.’ We think the same may be said of contract liability. To conclude otherwise would incentivize wrongful conduct and damage contractual relations. LAN/STV v. Martin K. Eby Constr. Co., Inc., 435 S.W.3d 234 (Tex. 2014) Although Texas law is clear that the economic loss rule bars claims in tort between contracting parties for actions arising out of the contract, its application to claims of parties not in privity produces mixed results. In this case, the court denied recovery of negligence and negligent misrepresentation claims by a contractor for deficient plans and specifications prepared by an architect in contract with the project owner, based on the economic loss rule: [W]e think the contractor’s principal reliance must be on the presentation of the plans by the owner, with whom the contractor is to reach an agreement, not the architect, a contractual stranger. The contractor does not choose the architect, or instruct it, or pay it. The court sided with other courts that apply the economic loss rule. Therefore, contractors must look to the owner who furnished defective plans—not to the architect or engineer who prepared them. Chapman Custom Homes, Inc. v. Dallas Plumbing Co., No. 13-0776, 2014 WL 4116839 2014 The court ruled that a homeowner could maintain a negligence action against a plumbing firm with which it had no contract. The plumbing company had a contract with Chapman, the homebuilder, which also sued it in contract. The trial court and the court of appeals treated the case as an economic loss rule case, denying the builder’s claims for lack of damages and dismissing the homeowner’s tort claims for failure to plead a cause of action. The court reversed, holding that the plumbing firm had an implied duty to do its work in a manner to avoid damage to the home. It held that implied duty could not be shielded by a contract with the builder, quoting from Sharyland Water Supply Corp. v. City of Alton, 354 S.W.3d 407, 419 (Tex. 2011). Also, it found that a negligence claim had been pled. Therefore, the extent of the economic loss rule to claims between contractual strangers is still developing. Jaster v. Comet II Const., Inc., 438 S.W.3d 566 (Tex. 2014) In this case, the court reviewed the certificate of merit required by the Texas Civil Practice and Remedies Code for claims against design professionals by a defendant or thirdparty defendant. It held that the certificate of merit applies to a plaintiff who asserts an action but does not apply to a defendant or third-party defendant. Thus, a third-party plaintiff or cross-plaintiff is not required to obtain a certificate to assert claims. Crownover v. Mid-Continent Cas. Co., 757 F.3d 200 (5th Cir. 2014) In Ewing Constr. Co. v. Amerisure Ins. Co., 420 S.W.3d 30 (Tex.2014), the Supreme Court held that a contractor’s agreeing to perform work in a good and workmanlike manner did not assume contractual liability to trigger the Contractual Liability Exclusion of its commercial general liability policy. In June, the 5th Circuit, in Crownover, held that a contractual requirement to repair damages for failure to perform the work in a good and workmanlike manner triggered the CGL policy’s contractual exclusion. That decision took away the benefits of Ewing because the distinction between agreeing to perform work in a good and workmanlike manner and agreeing to repair or replace it if it fails to conform to that standard is a distinction without a difference. Fortunately for contractors— and those who sue them for defective work—the 5th Circuit revised its Crownover opinion to negate the contractual exclusion. Notes 1. 377 S.W.3d 841 (Tex.App—Houston [14th Dist.] 2012). JOE F. CANTERBURY JR. is senior partner in Canterbury, Gooch, Surratt, Shapiro, Stein & Gaswirth in Dallas. CRIMINAL LAWBY CRAIG STODDART AND KENDA CULPEPPER The U.S. Supreme Court continues to analyze and interpret the interplay between advancing technology and the Constitution, while the Texas Court of Criminal Appeals is keeping a close eye on the constitutionality of statutes being promulgated by our Legislature. Riley v. California, 134 U.S. 2473 (2014) During a 2009 traffic stop, David Riley was arrested for possession of illegally concealed and loaded firearms. The officers confiscated Riley’s cellphone, searched its contents, and found information linking him to a shooting that had occurred weeks before his arrest. Based in part on the information found in his phone, Riley was charged in connection with the shooting. The trial court denied a motion to suppress the evidence and Riley was convicted. Affirmed by the lower reviewing courts, the case ultimately found its way to the U.S. Supreme Court. Addressing a nationwide split of authority regarding cellphone privacy, the Supreme Court unanimously determined that the Fourth Amendment requires police to obtain a warrant before searching an arrestee’s cellphone. Prior to Riley, many jurisdictions, including Texas, considered warrantless cellphone searches to be within the scope of a valid search incident to arrest. Writing for the court, Chief Justice John Roberts reasoned that because modern cellphones can contain an immense amount of personal information, they “implicate privacy concerns far beyond those implicated by the search of a cigarette pack, a wallet or a purse.” Ex parte Ronald Thompson, No. PD-1371-13 (2014) As it did in 2013 in Ex parte Lo, the Texas Court of Criminal Appeals again struck down a Texas criminal statute as facially unconstitutional. In Ex parte Thompson, the court considered the constitutional propriety of Texas Penal Code ¤21.15(b)(1) and determined that its limited ban on taking photographs and recording visual images violates the free speech guarantee of the First Amendment. Prior to the court’s decision, ¤21.15(b)(1) made it an offense to “photograph ... another at a location that is not a bathroom or private dressing room without the other person’s consent and with intent to arouse or gratify the sexual desire of any person.” Thompson was charged with 26 counts of improper photography or visual recording under Texas Penal Code ¤21.15(b)(1) after being found to have recorded images of underage girls in swimsuits at a waterpark. Applying a strict scrutiny analysis, the court held that ¤21.15(b)(1) did not further the government’s compelling interest to protect individual privacy in the least restrictive way possible. As written, ¤21.15(b)(1) criminalizes any nonconsensual photography or visual recording if made with the intent to arouse an individual’s sexual desire, a standard they said was too broad to pass constitutional muster. Ex parte Maxwell, 424 S.W.3d 66 (Tex.Crim.App. 2014) In Miller v. Alabama, the U.S. Supreme Court held that mandatory life without the possibility of parole is unconstitutional for criminal offenders who are under the age of 18 at the time of their crime. Left unanswered in Miller was whether its holding would apply retroactively to criminal convictions that were already final at the time of Miller ’s issuance in 2012. Terrell Maxwell was 17 years old in 2007 when he and two friends decided to rob and ultimately murder Fernando Santander. Maxwell was convicted of capital murder and punishment was automatically assessed at life imprisonment without the possibility of parole. His sentence was affirmed in 2010. Following the Miller decision, Maxwell filed an application for writ of habeas corpus, asserting that Miller should apply retroactively. The Texas Court of Criminal Appeals agreed, granting Maxwell’s request for habeas relief and remanding the case for resentencing. Pursuant to Miller and Maxwell, a juvenile cannot automatically be sentenced to life without parole upon a conviction for capital murder. The fact finder must hear additional evidence and consider the possibility of life imprisonment both with and without the possibility of parole. The court’s decision is retroactive and applies to all cases, whether pending or disposed. State of Texas v. Villarreal, PD-0306-14 In a very recent 5-4 decision, the Texas Court of Criminal Appeals determined that a warrantless, nonconsensual blood draw—obtained pursuant to the mandatory blood draw provisions of Texas Transportation Code ¤724.012(b)(1)—violates an individual’s right to be free from unlawful searches. The court reasoned that non-consensual testing of a DWI suspect’s blood did not fall within any of the recognized exceptions to the warrant requirements of the Fourth Amendment. With four members of the court dissenting, it is very possible that this case could find its way to the U.S. Supreme Court for review. CRAIG STODDART was recently elected as a justice of the 5th District Court of Appeals in Dallas. KENDA CULPEPPER is the criminal district attorney for Rockwall County and is certified in criminal law by the Texas Board of Legal Specialization. EMPLOYMENT AND LABOR LAW BY MICHAEL P. MASLANKA On Nov. 21, 2014, the Texas Supreme Court granted writ in a blockbuster retaliation case, San Antonio Water System v. Nicholas, in which the San Antonio Court of Appeals OK’d a trial court judgment of $1.3 million in a case where a jury found the plaintiff was terminated for opposing discriminatory conduct. Here’s the scoop: Two female employees reported to the company that they felt uncomfortable when a male manager asked them to lunch. The plaintiff was charged with telling the manager that the invitation could be misconstrued, that it was not a good idea, and that the manager could lose his job. Three years later, the plaintiff was terminated by the manager she had counseled. A lawsuit ensued. The case is like dark chocolate cake, rich with issues for employment law aficionados: Was there a reasonable belief by the plaintiff that the lunch invitation violated the law by creating a sexually harassing environment? Does governmental immunity insulate the employer from liability if the plaintiff did not establish a prima facie case? Is an employee engaged in protected activity by acting to prevent a possible future violation? The year 2014 saw a double-barreled blow to claims under the Texas Whistleblower Act. In Texas Department of Human Services v. Okoli and Texas Commission on Environmental Quality v. Resendez, the Texas Supreme Court held that protected activity does not extend to internal reports of wrongdoing even when the agency to whom the report is made has a policy to forward the report to the agency’s enforcement arm. In short, protection is only afforded to employees reporting misconduct to the sheriff of the agency, not its mayor. What’s possibly next at the High Court? An Oct. 29, 2014, decision from the San Antonio Court of Appeals held—contrary to other authority—that a jury must decide the amount of attorneys’ fees to be awarded a plaintiff who prevails in a lawsuit under the Texas Labor Code. Read all about it in Bill Miller Bar-B-B-Q Enterprises, Ltd. v. Gonzales . What was up at the appeals courts? There are two cases to keep in mind. First, a Rule 202 pre-suit deposition cannot be used in a discrimination case. The putative plaintiff must first exhaust administrative remedies with the Texas Workforce Commission or the Equal Employment Opportunity Commission. 1 And read about how to determine independent contractor status from the same court in White and White v. DR Deliverance Ltd., in which the court took a different position than the 5th Circuit, focusing solely on whether the worker retained control of how tasks are performed in determining independent contractor status. (And on Dec. 8, 2014, the city of Plano enacted an ordinance prohibiting discrimination on the basis of gender identity and actual or perceived sexual orientation). On the legislative front, check out the Houston Equal Rights Ordinance extending protected status to familial and marital status, as well as sexual orientation and gender identity. There is no private right of action, only enforcement through the city attorney’s office, and penalties include fines and criminal sanctions. What’s the news from the 5th Circuit? A reminder that a small-potatoes lawsuit can turn into a giant spud when attorneys’ fees are factored in. In Norsworthy v. Nguyen Consulting & Servs., Inc., the court, consistent with 5th Circuit case law, affirmed an award of attorneys’ fees of $33,000 although the actual damages in a gender discrimination case were only $3,000. And precedent was also followed in the reversal of a $510,000 jury verdict in Williams-Boldware v. Denton County, a case involving a claim of racial harassment. The 5th Circuit focused on the affirmative defense that an employer is absolved of liability when it takes prompt remedial action to correct harassment by a co-worker. The case provides a blueprint on how to deal effectively when these claims are raised in the workplace. The 5th Circuit green-lighted more religious discrimination cases for jury trials. In reversing summary judgment for an employer, in Davis v. Fort Bend County, the court held that an employee was arguably engaged in protected religious activity by going to a groundbreaking ceremony for a new church. Her termination for missing work to do so was thus an arguable violation of Title VII. So, now, a protected religious practice need not be tied to a religious practice or a tenant of faith. It was a 2-1 vote. And speaking of religious discrimination, the U.S. Supreme Court recently granted cert to answer this question: Is it the responsibility of the employee/applicant to raise the issue of a reasonable accommodation to a religious practice or does the employer have an implicit obligation to raise it when there is an apparent need for one? Here, an applicant was wearing a hijab to an interview for a sales job at Abercrombie & Fitch, whose dress code policy conflicted with wearing a head covering. Read all about it in EEOC v. Abercrombie & Fitch Stores, Inc . On Dec. 11, 2014, the 5th Circuit dropped a pro-plaintiff bombshell in an important Americans with Disabilities Act case. An early holiday gift that included a pro-plaintiff burden in establishing a prima facie case, relaxed standards for admissibility of EEOC charges, and a recommitment to an employer’s obligation to discuss a reasonable accommodation with a disabled employee. Not a stocking stuffer, but a big old present under the tree. Notes 1. In re Bailey-Newell, 439 S.W.3d 428 (Tex. App.—Houston [1st Dist.] 2014, orig. proceeding). MICHAEL P. MASLANKA is head of the Dallas office of Constangy, Brooks & Smith. His blog can be read at texaslawyer.typepad.com/work_matters; his Texas Bar TV video blog can be seen by searching "Mike Maslanka @ Your Desk"; and he can be connected with at linkedin.com/in/michaelmaslanka. ENVIRONMENTAL LAW BYMICHAEL R. GOLDMAN, JEANM. FLORES, AND CARRICK BROOKE-DAVIDSON The year 2014 has been an exciting time for significant environmental law holdings from Texas, state, and federal courts. Some decisions were long-anticipated while others came as something of a surprise. U.S. Supreme Court The U.S. Supreme Court reviewed two significant rulemakings issued by the U.S. Environmental Protection Agency under the Clean Air Act. In both cases, the State of Texas was one of the challengers. In EPA v. EME Homer City Generation, 134 S. Ct. 1584 (2014), the court upheld the EPA’s Cross-State Air Pollution Rule, which requires pollution reduction in upwind states that contribute to air quality violations in downwind states. The court held that the EPA’s allocation method for reductions, based on cost-effectiveness rather than proportional allocation, was a permissible construction of the CAA. The EPA was not as successful in the second case. In Utility Air Regulatory Group v. EPA, 134 S. Ct. 2427 (2014), the court overturned the EPA’s regulations promulgated to extend permitting under the Prevention of Significant Determination program to sources emitting greenhouse gases. The court held that the CAA neither required nor permitted extension of PSD permitting to sources of GHG. Moreover, the EPA’s attempt to limit the number of sources affected by a regulatory altering of the statutory emissions thresholds that trigger PSD was impermissible. The court did not uphold control technology review for GHG for sources otherwise subject to PSD. In a third case out of the U.S. Supreme Court, CTS Corp. v. Waldburger, 134 S. Ct. 2175 (2014), the court held that CERCLA does not preempt state statutes of repose, only statutes of limitations, based on the statutory language as well as the policy differences underlying statutes of limitations versus statutes of repose. Federal Courts In Sierra Club, et al. v. EPA, 754 F.3d 995 (D.C. Cir. 2014), the court held that the Sierra Club lacked standing to challenge an EPA memorandum to regional directors on next steps following the vacature of the 2011 Cross-State Air Pollution Rule. The court found that the risk to individual Sierra Club members relied on a highly attenuated chain of possibilities and, therefore, failed the criteria for associational standing. In Luminant, et al. v. EPA, 757 F.3d 439 (5th Cir. 2014), two power plants challenged the legal sufficiency of a CAA notice of violation issued by the EPA. The EPA amended the NOV and moved for dismissal of the judicial action based on lack of jurisdiction. The court found that the NOVs were not “final actions” under the Administrative Procedure Act and dismissed the suit for lack of subject-matter jurisdiction. We saw a redo with respect to the Endangered Species Act. Last year we reported on Aransas Project v. Shaw, 930 F.Supp.2d 716 (S.D. Tex. 2013), in which the district court enjoined the Texas Commission on Environmental Quality from granting any water permits affecting the Guadalupe or San Antonio rivers until it provides reasonable assurances that such permits will not harm the world’s only self-sustaining, wild whooping crane population in the Aransas National Wildlife Refuge. The 5th Circuit reversed on the basis that the Aransas Project could not establish that the TCEQ’s issuance of permits proximately caused the deaths of the whooping cranes. Aransas Project v. Shaw, 756 F.3d 801 (5th Cir. 2014). Texas Courts In Houston Unlimited Inc. Metal Processing v. Mel Acres Ranch, No. 13–0084, 2014 WL 4116810 (Tex. Aug. 22, 2014), the Texas Supreme Court declined to decide whether stigma damages are ever recoverable under Texas law, on the basis that the plaintiff’s expert failed to provide legally sufficient evidence to prove the damages. In Texas Comm’n on Envt’l Quality v. Bonser-Lain, et al., 438 S.W.3d 887 (Tex. App.—Austin 2014, no pet. h.), the court held that trial courts lacked subject matter jurisdiction to review state agency orders denying petitions for rulemaking. The court reasoned that, by their “deliberate silence,” the Administrative Procedures Act and the Texas Water Code do not waive TCEQ’s sovereign immunity for agency decisions on petitions for rulemaking. Consequently, there was no jurisdiction allowing judicial review of TCEQ’s decision. Litigation over hydraulic fracturing continues to evolve. The Texas Supreme Court is currently considering whether a trespass claim can be based solely on the migration of fluids in the deep subsurface. FPL Farming Ltd. v. Envtl. Processsing Sys., L.C., 383 S.W.3d 274 (Tex. App.—Beaumont 2012), pet. granted, 57 Tex. Sup. Ct. J. 53 (Nov. 22, 2013). In November, both the Texas Oil & Gas Association and Texas General Land Office filed separate actions against the city of Denton on grounds that its recent ordinance, which bans hydraulic fracturing, is preempted by Texas state law and is therefore unconstitutional. We expect all of the above issues to be further addressed, challenged, and refined in 2015. MICHAEL R. JEAN M. CARRICK GOLDMAN FLORES BROOKE-DAVIDSON are shareholders in the environmental law firm of Guida, Slavich & Flores. Goldman and Flores practice in the firm’s Dallas office, and Brooke-Davidson practices in the Austin office. FAMILY LAWBY GEORGANNA L. SIMPSON AND ELIZABETH HEARN This past year, Texas courts have issued several opinions with important implications for the family law practitioner. Texas’s prohibition on same-sex marriage. Two homosexual couples, one wishing to marry in Texas and another seeking to have a Massachusetts marriage recognized under Texas law, brought action to challenge prohibition of same-sex marriage under the Texas constitutional amendment. The couples moved for preliminary injunctions to bar enforcement of the prohibition.1 Applying the U.S. Supreme Court’s recent decision in United States v. Windsor, 133 S.Ct. 2675 (2013), the federal district court ruled that Texas’s prohibition on same-sex marriage conflicts with the U.S. Constitutional guarantees of equal protection and due process. The ruling has now been appealed and, in light of the U.S. Supreme Court’s decision not to hear same-sex marriage cases in its upcoming term, the outcome should be interesting. Attorneys’ fees as additional child support. A mother and father each sought a modification of conservatorship.2 Following a bench trial, the court denied the father’s requests for modification and granted part of the mother’s requested relief by increasing the father’s monthly child support obligation and reducing his periods of possession. Additionally, the trial court found the mother’s attorneys’ fees “necessaries” expended for the children’s benefit and ordered the father to pay the mother’s attorneys’ fees as additional child support. After the appellate court affirmed the order, the Texas Supreme Court concluded that, in light of the Family Code’s detailed scheme concerning awards of attorneys’ fees in Suits Affecting the Parent-Child Relationship, the Legislature did not intend to provide trial courts with discretion to assess attorneys’ fees awarded to a party in Chapter 156 modification suits as additional child support. Termination of parental rights. The Texas Supreme Court made several rulings relating to the termination of parental rights: • An appellate court need not detail all of the evidence in an opinion affirming a jury’s verdict finding sufficient grounds for termination3 and may not imply findings to support a termination;4 • A parent’s failure to strictly comply with a family-service plan cannot automatically support a finding under Section 161.001(1)(O), and a court may consider evidence of the more distant past, so long as there is also evidence of more recent conduct supporting termination; however, the court did not define the exact length of time required to ameliorate a history of bad conduct;5 and • A mother with an IQ below 70, who never seemed to fully grasp the idea that she would never see her daughter again, did not knowingly and intelligently execute an unrevoked or irrevocable affidavit of relinquishment, and a pro se father, who was never fully admonished of his right to counsel, did not voluntarily and knowingly waive his right to counsel.6 Grandparent standing. Grandparents may establish standing through evidence of a parent’s specific actions and omissions that would result in emotional harm to the child.7 In Mauldin, Texas Department of Family and Protective Services cited 17 allegations and referrals that led to Child Protective Services investigations with the family, although ultimately unsubstantiated. A mother repeatedly involved the children in ongoing litigation to an unnecessary degree. In fact, despite a court order not to contact the children, the mother hid a note in the children’s stuffed animals telling them to be good in court so they could come home. Additionally, to establish grandparent standing, the evidence must constitute “satisfactory proof to the court,” meaning that the trial court must determine whether the submitted evidence, considered in the light most favorable to the petitioner, would enable reasonable and fair-minded people to find that the child’s present circumstances would significantly impair the child’s physical health or emotional development.8 Deadlines, deadlines, deadlines. • A suit by a biological father to establish paternity of a child with a presumed father must be filed within four years of the birth.9 • A four-day delay between oral rendition of commitment for contempt and signing of a written order constitutes an illegal restraint from which a prisoner is entitled to habeas relief.10 • For the first time, an appellate court has held that Family Code Section 153.258 means what it says—where possession of a child by a parent is contested and the possession of a child varies from the standard possession order, the court shall, upon timely request (made within 10 days of the hearing), state in the order the specific reasons for the variance from the standard order.11 • Because arbitration is a contractual proceeding, an arbitrator must confirm an arbitration order within deadlines established by the parties or as ordered by court.12 • For the first time, an appellate court has applied Texas Rule of Appellate Procedure 26.3, which allows for a 15- day extension of the deadline for filing a notice of appeal, to a restricted appeal.13 Notes 1. De Leon v. Perry, 975 F.Supp. 2d 632 (W.D. Tex. 2014). 2. Tucker v. Thomas, 419 S.W.3d 292 (Tex. 2013). 3. In re A.B., 437 S.W.3d 498 (Tex. 2014). 4. In re S.M.R., 434 S.W.3d 576 (Tex. 2014). 5. Danet v. Bhan, 436 S.W.3d 793 (Tex. 2014) (per curiam). 6. In re K.M.L., 433 S.W.3d 101 (Tex. 2014) (08-29-14). 7. Mauldin v. Clements, 428 S.W.3d 247 (Tex. App.—Houston [1st Dist.] 2014, no pet.). 8. In re K.D.H., 426 S.W.3d 879 (Tex. App.—Houston [14th Dist.] 2014, no. pet.). 9. In re K.M.T., 415 S.W.3d 573 (Tex. App.—Texarkana 2013, no pet.). 10. In re Linan, 419 S.W.3d 694 (Tex. App.—Houston [1st Dist.] 2013, orig. proceeding). 11. Pickens v. Pickens, 2014 WL 806358, 12-13-00235-CV (Tex. App.— Tyler 2014, no pet. h.) (mem. op.) (02/28/2014). 12. Sims v. Building Tomorrow’s Talent, No. 07-12-00170-CV, 2014 WL 1800839 (Tex. App.—Amarillo, 2014, no pet. h.) (mem. op.) (04/30/2014). 13. Wray v. Papp, 434 S.W.3d 297 (Tex. App.—San Antonio, 2014, no pet.). GEORGANNA L. SIMPSON is a solo practitioner in Dallas who focuses on family law appellate matters. ELIZABETH HEARN is a solo practitioner in Dallas and is of counsel to Simpson’s firm. HEALTH LAW BY EDWARD VISHNEVETSKY Last year was a time of significant consolidation and increased regulatory scrutiny. Prompted by decreased payments, rising costs, and additional compliance hurdles, numerous small and mid-sized health providers and suppliers consolidated their practices and companies into larger regional and national conglomerates. ALJ Backlog Leads to Lawsuits and Potential Reprieve In early 2014, the Centers for Medicare and Medicaid Services’ Office of Medicare Hearings and Appeals released a memo indicating that administrative appeals before an administrative law judge could be delayed for more than 28 months. As of Sept. 1, 2014, the average processing time was 514.5 days—more than five times the statutory limit.1 As a result of the backlog, on Aug. 26, 2014, the Center for Medicare Advocacy filed a lawsuit against the secretary of the Department of Health and Human Services,2 alleging that the Medicare administrative review process violates statute and the Fifth Amendment’s Due Process Clause. The lawsuit follows a similar one filed in May 2014 by the American Hospital Association.3 CMS is offering hospitals the option to voluntarily withdraw their pending Medicare inpatient appeals in exchange for timely partial payment (60 percent of net allowable amount). The offer applies only to inpatient claims where the date of admission was before Oct. 1, 2013. Hospitals need to have submitted their requests by Oct. 31, 2014. Burwell v. Hobby Lobby On Sept. 12, 2012, Hobby Lobby Stores Inc. sued the secretary of HHS and challenged the Affordable Care Act’s contraception mandate under the Free Exercise Clause of the First Amendment and the Religious Freedom Restoration Act of 1993. On June 30, 2014, in a 5-4 decision, the U.S. Supreme Court sided with Hobby Lobby, stating that Congress intended the RFRA to be read as applying to corporations and holding that the contraception requirement creates a substantial burden on corporations that is not the least restrictive method of satisfying the government’s interest. Deadline to Update Business Associate Agreements The HIPAA Final Omnibus Rule made many changes to the Health Insurance Portability and Accountability Act. One of the changes required covered entities and business associates to update their business associate agreements by Sept. 23, 2013. However, the Final Rule established a transition period for “grandfathered BAAs” that were in place before Jan. 25, 2013 (and compliant with the thencurrent HIPAA rules) and were not subsequently modified or amended. According to the Final Rule, all grandfathered BAAs must be in compliance with current HIPAA regulations by Sept. 22, 2014. Ebola Scare Raises Legal Questions In the wake of the Ebola epidemic, new questions have arisen regarding current health care laws. For example, does the state’s goal to protect the general health and welfare of its citizens through quarantine directly conflict with the notion of personal liberties? Additionally, how broadly should the phrase “emergency use” be defined when considering exceptions to the Food and Drug Administration rules on the use of unapproved drugs? Finally, how strictly must patient privacy laws be followed in emergency situations? Interestingly, after the scare in the United States, HHS issued guidance on how HIPAA applies in emergency situations. Although HIPAA permits certain disclosures of protected health information when necessary to treat a patient or to protect the nation’s public health, providers must be careful not to overstep the boundaries of what can be used or disclosed, as a new line of cases suggests that a HIPAA violation does not preempt a private right of action for negligence. New Provider Enrollment Rule In December 2014, CMS issued a new rule by which the agency could deny the enrollment of a provider, supplier, or owner thereof if that person was previously the owner of a provider or supplier that had a Medicare debt that existed when the latter’s enrollment was voluntarily terminated, involuntarily terminated, or revoked. Additionally, the new rule allows CMS to deny a provider’s or supplier’s enrollment or to revoke the Medicare billing privileges of a provider or supplier if, within the preceding 10 years, a managing employee was convicted of a federal or state felony offense that CMS determines to be detrimental to the best interests of the Medicare program and its beneficiaries. Furthermore, CMS can revoke Medicare billing privileges if a provider or supplier has a pattern or practice of submitting claims that fail to meet requirements. Notes 1. See http://www.hhs.gov/omha/important_notice_regarding_adjudication_timeframes.html. 2. See Complaint at ___, Hull v. Sebelius, No. 3:14-cv-00801 (D.D.C. June 04, 2014) ECF No. 1. 3. See Complaint at ___, Am. Hosp. Ass’n v. Sebelius, No. 1:14-cv-00851 (D.D.C. May 22, 2014) ECF No. 2. EDWARD VISHNEVETSKY is a health care attorney in the Dallas office of Munsch Hardt Kopf & Harr. He advises various types of health care providers and suppliers on operational matters, Medicare/Medicaid reimbursement, liability exposure, managed care law, ERISA, HIPAA privacy issues, federal and state health care regulatory compliance, licensing, ACO formation/integration issues, health care reimbursement disputes, and risk management issues. IMMIGRATION LAWBY NINA FANTL President’s executive action In November 2014, President Obama took executive action to shield millions of undocumented immigrants from deportation. His order will not grant permanent legal status to qualified undocumented immigrants. Instead, it extends the age cap for “Dreamers” (those covered by the Deferred Action for Childhood Arrivals program) and sets out to create a program for undocumented immigrants who are parents of citizens or green card holders. This Deferred Action for Parental Accountability program will allow eligible parents to request work permits as well as protection against deportation if they have been in the country continuously for five years and pass background checks. The president said his administration would tackle additional labor-related immigration issues, including modernizing the green card system and extending certain employment programs for international students in high-tech fields. He didn’t include expansion of the H-1B non-immigrant specialty occupation visa program in his plan. Change in USCIS guidance for applicants with criminal histories The year 2014 also brought a change in the stateside provisional waiver program.1 U.S. Citizenship and Immigration Services announced its intent last January to voluntarily reopen cases involving immigration pardons for close relatives of U.S. citizens that had been denied in 2013 solely based on the applicant having a prior arrest or conviction. In 2013, USCIS began a program permitting certain relatives of U.S. citizens (spouses, parents of adult citizens, and minor children) to request a provisional unlawful presence waiver prior to traveling abroad for consular processing of their immigrant visa applications. Under the program, however, if USCIS had “reason to believe” that the applicant might be inadmissible on grounds other than unlawful presence, the agency would not approve the waiver. For months, concerns were raised that USCIS, taking a very broad approach to the standard “reason to believe,” was unnecessarily denying provisional waivers based on criminal incidents that did not render the foreign national inadmissible to the United States. USCIS changed course in March and began requiring that all evidence in the record be carefully reviewed to make sure officers were not inadvertently excluding someone from the process based on a minor infraction, a petty offense, or one that falls under the youthful offender exception. Further, they should not find a “reason to believe” that the individual may be subject to inadmissibility solely on account of such offense and should continue to determine whether the applicant meets the other requirements for the provisional waiver, including whether a favorable exercise of discretion is warranted.2 U.S. Supreme Court rules that those turning 21 must start immigration process over In June 2014, the U.S. Supreme Court issued a decision in Scialabba v. Cuellar De Osorio that had important implications for would-be immigrants.3 In the nationwide class-action lawsuit, the court ruled that the only aged-out children who could retain (and convert) their original priority date under the Child Status Protection Act were those who were petitioned by a lawful permanent resident parent in the category of minor child, either as a direct beneficiary or a derivative of his or her parent’s petition. All other derivative beneficiaries would have to “go to the back of the line,” based on a newly filed immigration petition filed by their parent, and they could not retain the original priority date on their parent’s petition. This court decision was a setback for thousands of foreign-born relatives of U.S. citizens and legal U.S. immigrants, some of whom had waited decades to join their families in this country. U.S. Supreme Court to hear two immigration cases In October 2014, the Supreme Court started tackling two cases that stand to have a considerable impact on American immigration law and procedure. In Mellouli v. Holder, Mellouli was arrested for driving under the influence. While he was in jail, police discovered four tablets of Adderall in his sock. Although initially charged with trafficking a controlled substance in jail, Mellouli ultimately pleaded guilty to the lesser charge of possessing drug paraphernalia. In 2012, the government attempted to deport Mellouli for having been convicted under a law “relating to a controlled substance” as defined by the Controlled Substances Act. In Mellouli's case, the conviction records that the government used to argue for his deportation did not show what substance was involved. The court will decide whether the government, in order to deport a noncitizen convicted on a paraphernalia charge, must prove that a state conviction involved a controlled substance. Kerry v. Din addresses “consular nonreviewability”— i.e., the doctrine that prevents courts from reviewing decisions holds that federal courts are generally without power to review actions of consular officials because of the foreign policy and sovereignty implications of immigration. The embassy’s denial cited to Section 212(a)(3)(B) of the Immigration and Nationality Act, which covers a range of “terrorist activities.” The embassy gave no explanation of the facts that supported the denial. Din’s wife sued. The Supreme Court will decide whether a U.S. citizen’s constitutional rights are violated when a consular officer refuses to issue a visa to her husband without explaining the reason why. Notes 1. 8 C.F.R.¤212.7(e)(2014). The provisional waiver program began in 2013. Previously, these foreign nationals were required to apply for their waiver at the American consulate in their home country. 2. 8 C.F.R. ¤212.7(e)(2014); Section 212(a)(9)(B)(i)(I) and (II) of the Immigration and Nationality Act. 3. Scialabba v. Cuellar de Osorio, 573 U.S. (2014). NINA FANTL is certified in immigration and nationality law by the Texas Board of Legal Specialization. She has more than 20 years of experience in immigration law and has represented corporate, institutional, and individual clients with particular emphasis on professional, academic, and health care occupations. INSURANCE LAW BY MICHAEL W. HUDDLESTON The continuing development of the Stowers1 doctrine has been the subject of important decisions from both state and federal courts. These decisions are on appeal to higher courts, and they may well lead to filling in the gaps regarding previously unsettled issues involved in the application of the doctrine. In Patterson v. Home State County Mutual Insurance Co.,2 the court held that a purported Stowers demand including a release, which failed to include (a) all claimants (represented by a particular attorney) and/or (b) all insureds, was fatally defective. Such a release, the court observed, “did not constitute an unconditional offer to fully release the insureds in exchange for a settlement.” It noted that the personal outside counsel for the insured did not want to settle without a release from all claimants and to all insureds. The court did not say that an insured’s desire not to accept a given demand was a definitive and recognized defense to a Stowers claim. Obviously, Patterson is diametrically opposed to the decision of the 5th Circuit in Pride Transp. v. Continental Casualty Co.3 Simply put, the primary issue is whether a carrier must accept an otherwise reasonable settlement offer and exhaust its limits as to one of multiple insureds in a situation where other insureds will not be released and will remain exposed without policy benefits. A similar issue appears to have been presented as to whether the carrier may reject an offer that includes some but not all claimants, which would appear to be contrary to the holding in Soriano that a carrier could settle one of multiple claims if that particular settlement, viewed on its own and in isolation, was reasonable. Judge Gray H. Miller, in OneBeacon Ins. Co. v. T. Wade Welch & Assocs.,4 chose not to discuss or follow Patterson . Citing Soriano and Citgo, he held that an offer to an insured law firm that did not include the individually insured lawyers involved in the alleged wrongful acts was a valid Stowers demand as a matter of law. The court observed: “While the letter did not include a release of claims against Wooten, it did not have to include a release of claims against Wooten to be a proper demand under Soriano and Citgo .”5 OneBeacon also addresses whether the carrier may present evidence that it was reasonable under Stowers in not settling because it had good faith and unresolved coverage defenses. Miller ruled that “[a]ny testimony or evidence that OneBeacon’s ‘good faith coverage’ belief is a defense to Stowers liability should be precluded.” Miller instructed the jury that evidence regarding coverage defenses could not be considered. The insured had urged: “[A] good faith coverage defense is no defense to Stowers liability …”6 The insured noted that in American Physicians Ins. Exch. v. Garcia,7 the court reasoned that if an insurer rejects an insured’s Stowers demand as not being within the coverage, it “bears the risk that its point of view might have been incorrect, which could result in liability for any excess judgment.”8 The insured also argued in OneBeacon that allowing testimony about viable coverage defenses would inappropriately turn Stowers liability into a species of a bad faith claim, which the Texas Supreme Court has expressly rejected.9 Miller rejected arguments that Am. W. Home Ins. Co. v. Tristar Convenience Stores, Inc.10 supported the consideration by the jury of coverage defenses in determining reasonableness. As noted by the insured: “In Tristar, the court initially rejected the argument that an insurer could deny a Stowers demand simply on the basis of questionable coverage. However, the court went on to reason, without citation to authority, that the “contention that there was questionable coverage would be better addressed to the third Stowers liability element,” suggesting without deciding that the insurer’s coverage defenses could be relevant to Stowers liability.11 The Tri-Star court did not discuss Garcia, Soriano, Head, and/or Frank’s II . With two prominent decisions addressing multiple critical Stowers issues, the coming year will once again be focused on the doctrine. Notes 1. G.A. Stowers Furniture Co. v. American Indem. Co., 15 S.W.2d 544, 547 (Tex. Comm’n App. 1929, holding approved). 2. 2014 WL 1676931 (Tex.App.—Hous. [1 Dist.] 2014). 3. 511 F. App’x 347 (5th Cir. 2013) (unpublished)(Smith, J.)(Texas Law) (holding named insured trucking company could not sue the carriers for wrongful settlement on behalf of an insured driver; holding reasonableness of offer to driver was not affected by the fact that it offered no protection from derivative common law indemnity claims of the named insured trucking company, citing Travelers Indem. v. Citgo Petr. Corp., 166 F.3d 761, 768 (5th Cir. 1999), and Texas Farmers Ins. Co. v. Soriano, 881 S.W.2d 312 (Tex. 1994)). 4. 4-11-03061 [Doc. 357] (S.D. Tex., Oct. 3, 2014). 5. Id. at 2 (emphasis added). 6. Plaintiffs’ Mot. in Limine, OneBeacon v. T. Wade Welch, et al., 4-11-03061 [Doc. 299-11] (S.D. Tex., Sept. 22, 2014). 7. 876 S.W.2d 842, 849 (Tex. 1994). 8. Plaintiffs’ Motion, supra. (also discussing Excess Underwriters at Lloyd's, London v. Frank’s Casing Crew & Rental Tools, Inc., 246 S.W.3d 42, 46 (Tex. 2008) (“Frank’s II”) (holding that “an insurer that rejects a reasonable offer within policy limits risks significant potential liability for bad-faith insurance practices if it does not ultimately prevail in its coverage contest.” [emphasis added]). 9. Id. (citing Tex. Farmers Ins. Co. v. Soriano, 881 S.W.2d 312, 318-319 (Tex. 1994); Maryland Ins. Co. v. Head Indus. Coatings & Servs., Inc., 938 S.W.2d 27, 28 (Tex.1996)). 10. CIV.A. H-10-3191, 2011 WL 2412678, at * 4 (S.D. Tex. June 2, 2011) (Werlein, J.). 11. Plaintiffs’ Motion in Limine, supra, at 20-21. MICHAEL W. HUDDLESTON is an equity partner with Munsch Hardt Kopf & Harr and is chair of the firm’s Insurance Practice Group. He represents policyholders and claimants in insurance recovery and bad faith actions. LEGAL EDUCATION JOHN G. BROWNING Across the country, law schools continued to experience declining numbers in 2014 as legal education maintained a bleak outlook for the future. The number of people taking the June 2014 LSAT—only 21,802—was at a 14-year low according to the Law School Admission Council. That was a decline of 9.1 percent from the previous year, and the takers of the September 2014 exam represented an 8.1 percent drop from 2013. While final totals for 2014 weren’t available by press time, only 59,400 people applied to U.S. law schools in 2013—a dramatic decline from the 87,900 applicants in 2011. Nationally, 39,675 law students enrolled in the fall of 2013, a 24 percent plunge in first-year enrollment since 2010 that made it the smallest incoming class since the 1970s. In terms of the still-challenging job market, the National Association for Law Placement statistics revealed only a slight decline from the previous year, with 84.5 percent of 2013 graduates across the country securing jobs within nine months of graduation. Even so, since 1985, only two class years have posted a lower employment rate. With the economic climate in Texas faring better than the national one, the outlook for law students is not as dismal in the Lone Star State, though the national trends are still present. While 1L enrollment may be down 24 percent nationally, among our nine American Bar Association-accredited law schools, it is down an average of 12 percent. This continues a trend in enrollment at Texas schools in which eight of the state’s law schools reported a smaller enrollment in 2012 than they experienced in 2010. The University of Texas School of Law, for example, saw a 26 percent decline in applications in 2012 compared to 2010, while Baylor and Southern Methodist University law schools reported declines of 22 percent and 9 percent, respectively, over the same period. Paying for law school continues to be a hot-button issue. Nationwide, tuition rose by 30 percent at public law schools just from 2009 to 2012 (the increase was 13 percent at private schools, according to ABA statistics). With tightening budgets, law schools have struggled with the level of scholarship support they can provide to students. At Texas A&M University School of Law, for example, 61 percent of scholarship students saw their awards reduced or eliminated in the 2012-2013 academic year. At St. Mary’s University School of Law, nearly four-fifths of the 179 entering students who were awarded scholarships in 2011-2012 saw their awards eliminated or reduced. Addressing the issue of financial support and scholarship retention is a top priority for many law school officials, including the newest members of the dean’s suite in Texas. In fact, Texas law schools have multiple new faces at the helm—four of the state’s ABA-accredited institutions brought on new deans to start off the 2014-2015 school year. In July, SMU Dedman School of Law welcomed Jennifer M. Collins as dean. The former vice provost and law professor at Wake Forest boasts degrees from Yale and Harvard, courtroom experience as a federal prosecutor, and a distinguished record as a scholar on families and the criminal justice system. Dean Andrew P. Morriss joined Texas A&M University School of Law at the same time. The former chair at the University of Alabama School of Law has a law degree from the University of Texas and a doctorate in economics from MIT and is a nationally recognized scholar on regulatory issues impacting the financial services and energy sectors. At the University of Houston Law Center, Dean Leonard M. Baynes assumed the reins in August. Baynes holds degrees from NYU and Columbia and previously served as the director of the Ronald H. Brown Center for Civil Rights and Economic Development at St. John’s University School of Law in New York. He has a national reputation as a telecommunications law scholar. In San Antonio, Stephen M. Sheppard took over as dean at St. Mary’s University School of Law. The former associate dean at the University of Arkansas School of Law earned degrees from the University of Southern Mississippi and Columbia. He is a legal historian as well as a scholar in comparative and international law and the law of war. Each Texas law school is dealing with the challenges confronting legal educators and students. This includes stepping up legal placement efforts, as well as exploring curriculum changes and providing more opportunities for hands-on, experiential learning. SMU, for example, has added patent and trademark clinics, the VanSickle Family Law Clinic, and the Judge Elmo B. Hunter Legal Center for Victims of Crimes Against Women. Texas’s newest law school, the University of North Texas Dallas College of Law, is doing its part to make legal education an affordable reality, with tuition for the inaugural class at only $12,540 a year (going forward, full-time, in-state students can expect to pay around $14,000 in tuition and fees). JOHN G. BROWNING is a partner in Passman & Jones in Dallas, where he handles civil litigation in state and federal courts in areas ranging from employment and intellectual property to commercial cases and defense of products liability, professional liability, media law, and general negligence matters. He also serves as an adjunct professor at Southern Methodist University Dedman School of Law, where he teaches the course “Social Media and the Law.” PATENT LITIGATION BY MICHAEL C. SMITH The most significant patent litigation development for Texas in 2014 was not, as many had anticipated, legislation from Congress seeking to limit so-called patent trolls, also known as patent assertion or non-practicing entities. Instead, it was the U.S. Supreme Court’s numerous emphatic rejections of decisions from the Court of Appeals for the Federal Circuit with respect to several major questions facing patent litigants. Supreme Court Changes In the 2013-2014 term, the Supreme Court granted certiorari in six patent cases, which is the largest number in the Federal Circuit’s 32- year existence. In each case, the court reversed the Federal Circuit in a substantially unanimous holding, revising large swaths of patent case law. In Nautilus, Inc. v. Biosig Instruments, Inc., the court reduced the burden for defendants to obtain findings that patents are impermissibly indefinite. Previously, the Federal Circuit had required that only an “insolubly ambiguous” patent claim could be invalidated as indefinite. The Supreme Court found that this standard was too high and concluded that indefiniteness could be found merely where one skilled in the art would not be able to ascertain the intended meaning with “reasonable certainty.” In Alice Corporation Pty. Ltd. v. CLS Bank International et al., the Supreme Court established a two-part test for determining whether a patent claim is patentable subject matter under 35 USC ¤ 101. The newer test, which calls into question the validity of a large number of patents dealing with software, invalidates many “business method” patents. Perhaps most important for litigants, two of the cases addressed the issue of the availability of attorneys’ fees to prevailing parties in patent infringement litigation under 35 U.S.C. ¤ 285. In Octane Fitness v. ICON Health & Fitness, Inc. and Highmark Inc. v. Allcare Health Management System, Inc., the court substantially lowered the requirement previously set by the Federal Circuit for such claims, holding that to meet the statutory threshold that a case be “exceptional” to justify an award of fees, a case need only “stand out from the others,” and reduced the movant’s burden of proof from “clear and convincing” to a mere preponderance of the evidence. It also held that district judges’ decisions on whether this standard was met were to be reviewed only for abuse of discretion not de novo. Although in practice the new standard has not yet substantially increased the number of fee awards, it has responded to the concern that fees were too difficult to obtain against patent assertion entities and has given rise to a significant increase in litigation over attorneys’ fees. Patent Validity Challenges Close behind the importance of the Supreme Court activity in 2014 was the importance of the new post-grant review proceedings from the 2011 America Invents Act that are now available to challenge the validity of a patent. Characterized in some quarters as “patent death squads,” the proceedings at the U.S. Patent and Trademark Office were initially toxic to patent holders, with 85 percent of initial decisions invalidating all asserted patent claims. Since then, the success rate has dropped somewhat, but the procedure has still been extraordinarily popular with defendants, with filings more than tripling initial estimates. The procedure has become a common defense tactic in patent litigation because, despite its expense, it can provide expedited resolution of some invalidity issues under the more stringent current standards for validity and patentable subject matter in a forum with procedural standards that are friendly to defendants compared to litigation in district courts. State Legislative Efforts to Counter Abusive Practices While legislative efforts in Congress ground to a halt at least temporarily in 2014, state legislatures and attorneys general were increasingly willing to take an active role in prohibiting perceived abusive practices by patent holders seeking to license patents within their states. Although in some jurisdictions courts have held that such prohibitions can violate a patent holder’s choice of attorney rights or are preempted by federal patent law, at least 18 state legislatures to date have passed legislation that provides consumer protection against bad faith or unfounded assertions of patent infringement. Texas legislators are currently studying the issue. MICHAEL C. SMITH is a partner in Siebman, Burg, Phillips & Smith in Marshall, where he focuses on complex commercial patent litigation in federal court. He is a former chair of the Texas Bar Journal Board of Editors, a former chair of the Litigation Section of the State Bar of Texas, and the editor of O’Connor’s Federal Rules * Civil Trials. His Eastern District of Texas Federal Court Practice blog can be found at EDTexweblog.com . TEXAS SUPREME COURT BY SCOTT P. STOLLEY AND JANE CHERRY In 2014, the Texas Supreme Court introduced new rules of evidence and issued a number of opinions addressing procedural issues and clarifying areas of state law. The court issued a revised Texas Rule of Evidence 902(10), effective Sept. 1, 2014, governing the authentication of certain business records. The former rule required a notarized affidavit, whereas the new rule simply requires that opposing counsel be served with the business records and either an affidavit or an unsworn declaration made under penalty of perjury, at least 14 days before trial. Additionally, on Nov. 19, 2014, the court issued an order approving a mostly nonsubstantive rewrite of the Texas Rules of Evidence, to take effect on April 1, 2015.1 The restyling aims to improve readability and conform the Texas rules with the federal rules. The court addressed procedural questions in King Fisher Marine Service, LP v. Tamez and In re John Doe aka Trooper. In King Fisher,2 the court interpreted Texas Rule of Civil Procedure 272, which provides that objections to a jury charge must be made “before the charge is read to the jury.” The court held that a trial court may set a deadline for charge objections that “precedes the reading of the charge to the jury as long as a reasonable amount of time is afforded for counsel to examine and object to the charge.” In Doe,3 the court held that a trial court may not order a pre-suit deposition of a potential defendant under Rule 202 unless the court has personal jurisdiction. Noting that spoliation instructions had reached an all-time high, the Supreme Court established a more stringent framework for determining spoliation issues in Brookshire Bros. v. Aldridge.4 First, the trial court must determine whether there was spoliation as a matter of law, by deciding whether the spoliating party had a duty to reasonably preserve evidence and whether the party intentionally or negligently breached that duty. Second, the court must impose a remedy that is proportionate to the level of culpability and harm suffered. Spoliation findings and sanctions are to be determined by the court outside the jury’s presence. In In re National Lloyds Insurance Co.,5 the Supreme Court granted mandamus relief in favor of an insurance company. In this bad-faith case brought by a homeowner, the trial court had ordered the insurer to produce information related to all insurance claims arising from two storms as adjusted by two adjusting firms. The Supreme Court held that this was an “impermissible fishing expedition,” because the payment of other claims was not relevant to the alleged undervaluation of the plaintiff’s claim. In Ritchie v. Rupe,6 the majority shareholders of a closely held corporation refused to meet with potential buyers of a minority shareholder’s interest. The court ruled that this was not shareholder oppression, and in the process, adopted a narrow definition of “oppressive” acts as governed by the Texas Business Organizations Code. To be oppressive, the act must: (1) be an abuse of authority; (2) be done with intent to harm another shareholder; (3) be done in a manner not comporting with business judgment; and (4) create a serious risk of harm and exigent circumstances for the corporation. The court also declined to recognize a common-law cause of action for shareholder oppression. In the insurance context, the court decided Ewing Construction Co. v. Amerisure Insurance Co.7 on certified questions from the 5th Circuit Court of Appeals. The Supreme Court held that an agreement by a construction contractor to perform in a “good and workmanlike manner” does not by itself create an assumption of additional liability for defective work. Therefore, such an agreement does not relieve the contractor’s liability insurer from its duties to defend and indemnify. Additionally, in Gotham Insurance Co. v. Warren E&P, Inc.,8 an insurer sought reimbursement from an oil well operator for alleged overpayment of a claim. The court held that the insurer was limited to a breach-of-contract claim and had no right to bring equitable claims for restitution and unjust enrichment because the insurance policy addressed the operator’s conduct at issue. This year also brought several significant decisions on defamation. In Waste Management of Texas, Inc. v. Texas Disposal Systems Landfill, Inc.,9 the court held that for-profit corporations can suffer reputational damages and that such damages are noneconomic. In Kinney v. Barnes,10 the court held that a permanent injunction requiring removal of statements from a website is not an unconstitutional prior restraint on speech when the statements have been adjudged to be defamatory. The court distinguished this from an injunction on future speech, which is unconstitutional, even where the speech is the same as speech already adjudged to be defamatory. Finally, in Burbage v. Burbage, the court held that the defendant waived error with respect to qualified privilege because he failed to object to the damages question as containing invalid theories of recovery. Notes 1. Supreme Court of Texas, Order Adopting Amendments to the Texas Rules of Evidence, Misc. Docket No. 14- 9232 (Nov. 19, 2014, eff. Apr. 1, 2015), available at http://www.txcourts.gov/media/710070/149232.pdf. 2. --- S.W.3d ----, 57 Tex. Sup. Ct. J. 1451 (Tex. 2014). 3. --- S.W.3d ----, 57 Tex. Sup. Ct. J. 1440 (Tex. 2014). 4. 438 S.W.3d 9 (Tex. 2014). 5. --- S.W.3d ----, 58 Tex. Sup. Ct. J. 64 (Tex. 2014). 6. --- S.W.3d ----, 57 Tex. Sup. Ct. J. 771 (Tex. 2014). 7. 420 S.W.3d 30 (Tex. 2014). 8. --- S.W.3d ----, 57 Tex. Sup. Ct. J. 336 (Tex. 2014). 9. 434 S.W.3d 142 (Tex. 2014). 10. 443 S.W.3d 87 (Tex. 2014). 11. --- S.W.3d ----, 57 Tex. Sup. Ct. J. 1303 (Tex. 2014). SCOTT P. STOLLEY is a partner in and the leader of the appellate practice group at Thompson & Knight in Dallas. He has been certified in civil appellate law by the Texas Board of Legal Specialization since 1994. He is also a fellow in the American Academy of Appellate Lawyers. JANE CHERRY is an associate of Thompson & Knight in Dallas. TRADEMARK LITIGATION BY KATHERINE A. COMPTON In October 2014, the Southern District of Texas considered the merits of a restaurant’s novel claims for trademark infringement relating to the flavor of its food and trade dress infringement for the way in which it plates its cuisine. New York Pizzeria Inc., a Texas restaurant chain, filed suit alleging that a former employee conspired with others to launch a knockoff restaurant chain named Gina’s Italian Kitchen using NYPI’s recipes, suppliers, and internal documents. 1 NYPI said that the defendants infringed NYPI’s trademark interest in its products’ distinctive flavor, which was due to “specially sourced branded ingredients and innovative preparation and preservation techniques.”2 In addition, NYPI claimed that the defendants violated NYPI’s trade dress in that “NYPI’s plating methods present NYPI’s products to customers in a distinctive visual manner.”3 The defendants filed an Amended Rule 12(b)(6) Motion to Dismiss For Failure to State a Claim.4 They claimed there was no legal authority for flavor trademark infringement and that the plaintiff failed to identify even a single product that is so visually distinctive as to be worthy of plating trade dress protection.5 In response, the plaintiff contended that the U.S. Patent and Trademark Office has permitted registration of nontraditional marks such as sound trademarks, tactile trademarks, motion trademarks, and scent trademarks.6 Plaintiff cited In re N.V. Organon where the Trademark Trial and Appeal Board refused to register the “orange flavor” as a trademark for antidepressant medication in tablet or pill form on the ground that it was functional; however, the TTAB impliedly recognized that the U.S. Supreme Court’s holding in Qualitex Co. v. Jacobson Products Co. Inc. provided a basis for flavor to serve as a trademark, provided the flavor was not functional and served to distinguish its source.7 Plaintiff additionally argued that it sufficiently identified the recipes and dishes for which it claimed trademark and trade dress protection.8 On Oct. 20, 2014, the court issued an order granting the defendant’s motion to dismiss the trademark and trade dress claims.9 With regard to the plaintiff’s claim for flavor trademark infringement, the court first analyzed the specific language as set out in the Lanham Act, which allows a federal cause of action trademark infringement. The court, citing Qualitex, then agreed with the plaintiff that there is “no special legal rule” in the Lanham Act that prevents flavor from serving as a trademark, noting that “almost anything at all that is capable of carrying meaning” and that “it is the source-distinguishing ability of a mark— not its ontological status as color, shape, fragrance, word, or sign—that permits it to serve [trademark] purposes.”10 The court noted that it is possible for flavor to “carry meaning” only if it distinguishes the source of a product; however, it is only when a flavor has acquired distinctiveness, or “secondary meaning,” that there is any chance of serving as a valid trademark.11 The court then addressed a second insurmountable hurdle: that of functional product features, which are not protectable.12 The court determined that the flavor of food affects the quality of the food and thus is a functional element of the product and not subject to trademark protection.13 With regard to the plating trade dress infringement claim, the court stated that it deserved closer consideration because, unlike the flavor infringement claim, plating does not serve a functional purpose. Thus, it is possible to prove infringement if it is inherently distinctive or has acquired a secondary meaning and there is a likelihood of confusion. However, citing Ashcroft v. Iqbal and Bell Atlantic Corp. v. Twombly, the court held that because NYPI did not sufficiently allege for which plating methods it has a protectable trade dress claim, and what makes the plating distinctive and nonfunctional and what plating infringes its trade dress, it dismissed NYPI’s claim for trade dress infringement. Notes 1. New York Pizzeria, Inc. v. Syal, et al., 3:13-CV-335 (S.D. Tex. Sept. 17, 2013) (the “NYPI Action”). 2. First Amended Complaint for Injunctive Relief and Damages at 74-78, NYPI Action, ECF No. 20. 3. Id. 80. 4. NYPI Action, ECF No. 24. 5. Id. 8 and 12. 6. NYPI Response 23, NYPI Action, ECF No.35. 7. Id. * 13-15. 8. NYPI Response 25, NYPI Action, ECF No. 35. 9. Memorandum and Order (“NYPI Order”), NYPI Action, ECF No. 37. 10. Id. 11. NYPI Order at P. 12, NYPI Action, ECF. No. 37; Sunbeam Products, Inc. v. W. Bend Co., 123 F.3d 246, 252 (5th Cir. 1997). 12. Qualitex Co. v. Jacobson Products Co., Inc., 514 U.S. at 165 F.3d 1297 (C.A.9 (Cal.), 1994). 13. NYPI Order at P. 12, NYPI Action, ECF No. 37. KATHERINE A. COMPTON is a Dallas-based attorney with more than 25 years of experience. She handles all types of complex commercial litigation with an emphasis on franchise litigation, banking litigation, trade secret disputes, and trademark infringement litigation.
Published by State Bar of Texas. View All Articles.
This page can be found at http://mydigimag.rrd.com/article/2014+Year+in+Review/1892293/240269/article.html.