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Parties May Not Appeal Small Claims Court Judgments to the Courts of Appeals after a Trial de Novo in a County Court or County Court at Law

By Mindy L. McGehee Riseden

In Yusuf Sultan, D/B/A U.S. Carpets v. Mathew, 178 S.W.3d 747 (Tex. Nov. 18, 2005), the Texas Supreme Court affirmed the holding that a decision of a county court at law in de novo trial after a judgment in small claims court was final and non-appealable. The Court held that the courts of appeals lack jurisdiction over cases originally filed in the small claims court according to section 28.053 of the Texas Government Code.
Mathew sued Sultan for damages regarding the installation of a laminate floor in Mathew’s home and received a $4,000 default judgment against Sultan in the Harris County Civil Court at Law No. 2. The Fourteenth Court of Appeals dismissed Sultan’s appeal for want of jurisdiction according to section 28.053(d) of the Texas Government Code. Section 28.053 concerns hearings on appeal from small claim court judgments, and (d) states that the “judgment of the county court or county court at law on appeal is final.”
In order to appeal from a judgment in small claims court, a party must appeal to the county court or county court at law as explained in sections 28.052(a) and 28.053(d) of the Texas Government Code. The issue facing the Texas Supreme Court in this case is whether the word “final” in section 28.053(d) means “final and appealable” or “final and not appealable.” Interestingly, prior to 1998, many courts held that a county court’s or county court at law’s judgment on de novo appeal from a small claims court was appealable to the court of appeals. However, in 1998, the First Court of Appeals held the word “final” in this section to mean that the appeal stops with the county court or county court at law, and thus several other Texas appellate courts followed this interpretation.
The Texas Supreme Court followed statutory construction principles and interpreted the statute in accordance with the legislature’s intent that the purpose of small claims court is to provide an affordable and expedient procedure for pursuing claims involving small amounts of money. The Legislature’s goal with small claims court is to provide a simplified and inexpensive court procedure, thus it is logical to conclude that section 28.053(d) means final and non-appealable because of the added time and expense that accompanies an appeal to the court of appeals. Further, to distinguish from prior cases where the Texas Supreme Court held “final” to mean “reviewable” in other contexts, the Court noted that within sections 28.052 and 28.053 the Texas Government Code has incorporated a form of appellate review for small claims court judgments. One may appeal a small claims court judgment to the county court or county court at law for a de novo trial as stated in sections 28.052(a) and 28.053(d).
In addition, appellant’s argument that “final” in section 28.053(d) means ready for purposes of appeal to the court of appeals is too broad of an interpretation in that it would include interlocutory judgments as well. If the Court accepted appellant’s interpretation, it would be redundant, superfluous statutory language because section 22.220(a) of the Texas Government Code and section 51.012 of the Texas Civil Practice and Remedies Code already allows parties to appeal district court and county court judgments over $100 to the court of appeals. It would not be necessary to state in section 28.053(d) that the judgment of the county court or county court at law is final on appeal. The Court concluded with the additional explanations that the Texas Constitution does not guarantee the right to appeal all cases and that even if it appears illogical that parties may appeal cases originating in justice courts that is something for the legislature to resolve, not the judiciary.
Justice Hecht filed a dissenting opinion, in which Justices Wainwright and Medina joined. Hecht began with a historical approach by depicting how monetary limits and the jurisdictional boundaries among the trial courts have changed in the past 50 years. Hecht analyzed small claims court judgments in a historical context and concluded that the majority incorrectly held “final” means non-appealable. Hecht provided several reasons arguing that the Legislature’s intent before and after passing the Small Claims Court Act was that parties would be able to appeal small claims court judgments over $100 to the courts of civil appeals. Finally, Hecht concluded that “final” in section 28.053(d) means a judgment of the county court or county court at law after de novo trial is final and appealable of small claims involving more than $100.

Mindy McGehee Riseden is an associate at Martin, Disiere, Jefferson & Wisdom, L.L.P. in the appellate and insurance sections. She also is a member of the editorial board of The Houston Lawyer.

Lawyer’s Opinion in Pre-Lawsuit Publicity Precludes Business Disparagement Claim

By Anne M. Pike

In MKC Energy Investments, Inc. v. Sheldon, 2005 WL 2450158, No. 09-04-235-CV (Tex. App.— Beaumont, Sept. 22, 2005, no pet.), concerns a dispute between MKC, a landlord, and several of its business tenants’ complaints of “mold,” including complaints by the Southeast Regional Planning Commission (“RPC”). A local newspaper reported that RPC’s lawyer said conditions were “unhealthy” and had “dangerous levels of certain types of mold.” He advised his client “to evacuate the premises.”
MKC sought declaratory relief concerning obligations arising from RPC’s imminent departure, and also added third-party claims against the lawyer and his law firm, attributing statements in the newspaper article to the lawyer and asserting tortious interference, business disparagement, and conspiracy.
The accused lawyer filed both a no-evidence and a traditional motion for summary judgment. The appellate court affirmed, holding that the lawyer’s statements were not defamatory as a matter of law. The court of appeals looked at the entire article to review the context and the surrounding circumstances pertaining to the lawyer’s statements, finding several significant factors:

• Prior news articles had been published on the same subject matter.
• The article identified the appellee as RPC’s lawyer.
• RPC’s lawyer responded to a reporter’s call and did not initiate the interview
• RPC’s lawyer had retained an expert to investigate and prepare findings.
• Statements by RPC’s lawyer explained the lawsuit his client was contemplating.
• RPC’s lawyer expressly stated that MKC “denied any unsafe conditions.”

Based on these factors, the appellate court concluded that the lawyer’s statements “constitute opinions of the attorney regarding his client’s position in the impending lawsuit and, thus, were not defamatory.” Because those statements were not defamatory as a matter of law, MKC’s actions for tortious interference and conspiracy (both of which depended on the viability of its business disparagement claim) also failed.
In an analysis similar to that used in malicious prosecution cases, the appellate court’s opinion emphasizes the impact of both state and federal constitutional free speech provisions on MKC’s claims. The court observed that, in contrast to defamation causes of action, plaintiffs in business disparagement lawsuits must plead and prove falsity. The court also stressed the importance of viewing the speaker’s communication in its entirety and in light of the surrounding circumstances, noting that “a statement may be false, abusive, unpleasant, or objectionable to the plaintiff and still not be defamatory in light of the surrounding circumstances.” The lawyer’s statement effectively amounted to the same kind of full and fair disclosure that would protect a malicious prosecution defendant from liability. See, e.g. Ellis County State Bank v. Keever, 888 S.W.2d 790, 794 (Tex. 1994); Browning-Ferris Indus., Inc. v. Zavaleta, S.W.2d 336, 345 (Tex.App.—Corpus Christi 1992, writ denied).
The decision leaves unanswered the question of how to deal with perennial problems arising when lawyers attempt to represent clients effectively through publicity: interviewees have no control over what reporters will select for publication. No matter how carefully and conscientiously lawyers are with their statements to the press, there is always the risk of paraphrasings that distort the themes of intended messages, or of statements being quoted out of their contexts, appearing more as facts than as opinions. Nevertheless, MKC’s factors provide a basis for preparing press releases, holding press interviews, and generally alerting the press to a lawyer’s concerns over being misquoted.

Anne M. Pike is of counsel at Beck, Redden & Secrest L.L.P.  She is a 1991 graduate of the University of Houston Law Center.

Attorney Knowingly Participating in Fraud Liable to
Non-represented, Defrauded Party Under UFTA

By Adam J. Morris

Chu v. Hong, __ S.W.3d __, 2005 WL 2692464 (Tex. App. – Fort Worth, October 20, 2005, n.p.h.- Gardner, J. dissenting), contains as juicy a fact scenario as you are likely to see outside a law school hypothetical. Ms. Chong Hong was married to Mr. Gyu Kim from 1996 to 1999. During the marriage, Chong and Gyu bought a donut shop which they agreed to sell in 1998 for $210,000 to unidentified “buyers” represented by attorney William Chu.
In November 1998, buyers gave Chong and Gyu a check for $20,000 as the down payment. The sales agreement was subsequently modified, changing the sales price from $210,000 to $180,000 and acknowledging the $20,000 down payment previously tendered. However, the buyers ultimately refused to pay anything, and stopped payment on the $20,000 check.
When Chong informed the buyers and Gyu that she considered the agreement void, lawyer Chu threatened legal action against Chong and Gyu if they did not close under the terms of the modified agreement. Although Chong was unmoved, Gyu surreptitiously met with lawyer Chu, signed off on a deal in which he represented that he was sole owner of the donut shop, conveyed the shop to the buyers, and wired sales proceeds to Korea. Gyu soon followed the money.
In March, 1999, Chong filed an action for declaratory relief against Gyu and one of the buyers, seeking to void the transfer, and seeking damages for conversion and fraudulent transfer. She also sued Chu for a fraudulent transfer and conspiracy, prompting Gyu to file for divorce from Chong two days later. The suits were ultimately consolidated and tried to a jury, which awarded $330,000 to Chong for the value of the donut shop and lost profits, plus punitive damages against Chu in the amount of $1,500,000 and attorney’s fees of $85,000 (including appeal).
Chu appealed, challenging among other things the notion that the Uniform Fraudulent Transfer Act (“UFTA”) created personal liability for his conduct.
The appellate court majority disagreed, noting that Chu was an “insider” – that is, an entity whose close relationship with the debtor subjects any transactions made by him to “heavy scrutiny” – due to his own conduct. Chu knew that Chong had an ownership interest in the property conveyed, but opted to participate in the conveyance without Chong’s signature or a proper power of attorney, and failed to even request that Gyu obtain a power of attorney to transfer Chong’s interest. There was more than sufficient evidence to support the jury’s determination that Chong and Gyu “schemed to divest” Chong of her share of the business. An attorney who knows that he is participating in a fraudulent conveyance can thus be held liable under the UFTA.
What is particularly noteworthy here is that Chu was not representing Chong, and was not party to the transaction…he simply represented the buyers. Still, because he knew (or should have known) he was representing a party promoting a fraudulent transaction, he was held liable. Lawyers should obviously be wary if they are in a situation where they have any doubts as to the propriety of a transaction. Perhaps there are greater penalties than those of the disciplinary rules.

Adam J. Morris practices family law with Short Jenkins Kamin, L.L.P. in Houston, Texas. Adam graduated from University of Houston Law Center in 2002.

Arbitration for Nonsignatories: Having Your Contract
and Defeating It Too?

By David V. Wilson II and Amanda J. Flanagan

Nonsignatories to contracts generally avoid the grip of arbitration clauses. The Supreme Court of Texas recently cast doubt on this notion, however, forcing equity to break the bounds of traditional contract law and holding that a nonsignatory must arbitrate her personal injury claims under a contractual arbitration clause. In re Weekley Homes, L.P., ___ S.W.3d ___ , 2005 WL 3676775, 49 Tex. Sup. Ct. J. 55 (Oct. 28, 2005) (org. proceeding).
Vernon Forsting contracted with Weekley Homes, L.P. to construct a home in which he and his daughter, Patricia, were to live. Forsting was the sole signatory on the purchase agreement. However, Patricia negotiated directly with Weekley on many construction issues. The property was later transferred to the Forsting Family Trust for which Forsting and Patricia were trustees.
The agreement with Weekly provided for arbitration:

Any claim, dispute or cause of action between Purchaser and Seller . . ., whether sounding in contract, tort, or otherwise, shall be resolved by binding arbitration . . . . Such claims, disputes or causes of action include, but are not limited to, those arising out of or relating to . . . the design, construction, preparation, maintenance or repair of the Property.

Numerous problems arose after the home was built. Despite Weekley’s efforts to remedy the problems, Forsting, Patricia, and the Trust sued Weekley asserting negligence, breach of contract, statutory violations, and breach of warranty. In addition, Patricia asserted a personal injury claim, alleging that Weekley’s negligence caused her to develop asthma. When Weekley invoked the arbitration clause as to all three plaintiffs; the trial court refused to compel arbitration of Patricia’s claim because she did not sign the agreement with Weekley.
The Supreme Court first recognized that when a litigant pursues claims based on the contract he subjects himself to the contract’s terms. However, in this case, Patricia purported to make a personal injury claim. The Court then looked to the doctrine of direct benefits estoppel, stating that a “nonparty may be subject to a contract’s arbitration clause if it deliberately seeks and obtains substantial benefits from the contract itself.” The Court focused on the nonparty’s conduct, and the substantial and direct benefits derived from the contract.
In this case, Patricia directed aspects of construction, repeatedly demanded extensive repairs to “our home,” personally requested and received financial reimbursement for expenses incurred while those repairs were made, and conducted settlement negotiations with Weekley. These actions indicated that Patricia “deliberately sought substantial and direct benefits from the contract.” As such, equity prevailed, and the Court enforced the arbitration clause as to Patricia despite not having been a party to the contract. In the words of Justice Brister, “[a] nonparty cannot both have his contract and defeat it too.”

David V. Wilson II is a shareholder at Hays, McConn, Rice & Pickering and an assistant editor of The Houston Lawyer. Amanda J. Flanagan is an associate at Hays, McConn, Rice & Pickering and practices a wide variety of civil litigation.

Food Poisoning?

By Fred A. Simpson

This unsuccessful appeal from a take nothing summary judgment (based on “no evidence”) shows the proof necessary to sustain claims of food poisoning for trial. Smith v. Landry’s Crab Shack, Inc., ___ S.W.3d __ (Tex. App. – Houston [14th Dist] 2005, n.p.h.).
Although plaintiff proved that: (1) the food she ate at Joe’s Crab Shack was all she ate in the 20 hours prior to the onset of her gastroenteritis; and, (2) her preceding meal was also eaten by her entire family without incident, her medical expert’s testimony failed her in the summary judgment proceedings.
Plaintiff’s medical expert found it “more likely” that she experienced gastroenteritis from bacteria in food “considering the clinical history and the set up.” However, the proper proof must allow inferences that (1) the gastroenteritis was caused by food; and either that (2) the illness occurred within the maximum (versus the most common) incubation period for food-borne gastroenteritis; or (3) it was the type of food-borne gastroenteritis that occurs within the most common incubation period. Furthermore, there must be some factual basis or explanation for why the clinical history and set up shows that the illness was caused by food eaten at the restaurant in question.
Plaintiff’s evidence did not raise a fact issue of whether the illness was, “in reasonable medical probability,” caused by the food she ate at Joe’s Crab Shack. In order to survive summary judgment in these cases, the substance of an expert’s testimony must establish more than a mere possibility of causation, and facts, although they may be inferred from circumstantial evidence, cannot be supported by mere conjecture, guess, or speculation. In addition, if facts from circumstantial evidence can support multiple inferences, there is no proof of causation.

Fred A. Simpson is a litigation partner at Jackson Walker L.L.P. He is an associate editor for The Houston Lawyer.

New Texas Statute Authorizes Trusts for Care of Animals

By Gabriel Aitsebaomo

Effective January 1, 2006, a person (settlor) may create an enforceable trust in Texas for the care of an animal that is alive during the settlor’s lifetime.1 Prior to the enactment of the statute, Texas followed common law which provides that a non-charitable trust for the care of an animal is unenforceable for several reasons. First, to have a valid trust a trustee must owe a legal duty to an ascertainable beneficiary.2 The trustee of a trust for the care of an animal is considered not to owe any legal duty to an ascertainable beneficiary because non-human beneficiaries, such as cats, dogs, poodles, parrots, horses, etc, have no standing to file lawsuits to enforce the terms of a trust.
Second, a non-charitable trust for the care of an animal violates the rule against perpetuities because all interests in trust must vest, if at all, within a life in being plus 21 years and the period of gestation.3 Under the rule against perpetuities, the measuring life is human life and not animal life.4 Accordingly, unless the term of the trust is limited to a duration of not more than 21 years, the attempted non-charitable trust would fail and the trustee holds the trust property on a “resulting trust”5 for the benefit of the settlor or the settlor’s estate.6 If, however, the trust term is limited to a duration of no more than 21 years and the trustee agrees to carry out the terms of the trust (despite the fact that the trust was otherwise unenforceable), the ensuing “trust” is called an honorary trust.7
An honorary trust is not really a trust; however, it is the name given to a situation where the trustee of an animal trust (that does not violate that rule against perpetuities) agrees to serve and carry out the terms of the trust, despite the fact that the trust was otherwise unenforceable. In other words, the trustee is on his/her honor to serve, and may choose to perform or not perform the terms of the trust.8

New Law
Effective January 1, 2006, Texas enacted Texas Property Code Section 112.037, which permits settlors to create enforceable trusts for the care of animals that are alive during the settlors’ lives (but not those born after a settlor’s death).9 Because at common law, a trust for the care of animals ran afoul of the rule against perpetuities given that human lives – not animal lives, are used as measuring lives, the new statute circumvents this requirement by permitting the lives of the individuals named in the trust instrument to be the measurement for purposes of satisfying the rule against perpetuities.10 Likewise, with respect to the common law issue of enforceability of the trust, given that animals have no standing to file lawsuits; the new statute avoids this problem by providing that any person appointed under the terms of the trust or by the court may enforce the purpose of the trust.11

Endnotes
1.Tex. Prop. Code §112.037(a) 2. See Tex. Prop. Code §112.001. See also, City of Wichita Falls v. Kemp Public Library Bd. of Trustees, 593 S.W. 2d 834, 836 (Tex. Civ. App.—Fort Worth 1980, writ ref’d.) 3. Tex. Prop. Code §112.036 4. Id. 5. See Richardson v. Laney, 911 S.W. 2d 489, 493 (Tex. App.—Texarkana 1995, no writ). 6. Id. 7. See Restatement (Second) of Trust §124 8. Id. 9. Tex. Prop. Code §112.037(a) 10. Tex. Prop. Code §112.037(f) 11. Tex. Prop. Code §112.037(b)

Gabriel Aitsebaomo, CPA, LL.M Taxation, is an assistant professor of Law at Thurgood Marshall School of Law, Texas Southern University. He is a member of the editorial board for The Houston Lawyer.

No More Common Law Exoneration of Liens in Texas for Wills Executed on or After September 1, 2005

By Gabriel Aitsebaomo

Under the new Texas Probate Code Section 71A, wills executed on or after September 1, 2005 no longer automatically exonerate debts unless testators specifically provide in their wills that devises pass without being subject to the related debt.

Example – Old Law
Assume Tim executes a will that devises Whiteacre to his brother Bob. Assume further that upon Tim’s death and probate of his estate, Whiteacre is encumbered by a mortgage that secures a $150,000 note and Tim’s residuary estate is valued at $200,000. Under prior law (for wills executed prior to September 1, 2005), Texas applied the common law doctrine of exoneration of liens, which provides that absent a contrary provision in Tim’s will, the mortgage (of $150,000) must be exonerated or paid out of the residuary estate with the result that Bob succeeds to Whiteacre free of the mortgage debt of $150,000. See Currie v. Scott, 187 S.W. 2d 551 (Tex. 1945).

Example - New Law
Effective for wills executed on or after September 1, 2005, Bob (in the above example) will take Whiteacre subject to the mortgage debt of $150,000 unless Tim specifically provides in his will that Whiteacre is to pass to Bob free of the lien. A complete description of the new provision is provided below.

§ 71A. No Right to Exoneration of Debts; Exception

1. Except as provided by Subsection (b) of this section, a specific devise passes to the devisee subject to each debt secured by the property that exists on the date of the testator’s death, and the devisee has no right to exoneration from the testator’s estate for payment of the debt.
2. A specific devise does not pass to the devisee subject to a debt described by Subsection (a) of this section if the will in which the devise is made specifically states that the devise passes without being subject to the debt. A general provision in the will stating that debts are to be paid is not a specific statement for purposes of this subsection.
3. Subsection (a) of this section does not affect the rights of creditors provided under this code or the rights of other persons or entities provided under Part 3, Chapter VIII, of this code. If a creditor elects to have a debt described by Subsection (a) of this section allowed and approved as a matured secured claim, the claim shall be paid in accordance with Section 306(c-1) of this code.

Gabriel Aitsebaomo, CPA, LL.M Taxation, is an Assistant Professor of Law at Thurgood Marshall School of Law, Texas Southern University. He is a member of the editorial board for The Houston Lawyer.

Text is punctuated without italics.

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