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Fifth Circuit Says Nobody Has Constitutional Rights To Be Free From Malicious Prosecution

By FRED A. SIMPSON

Castellano v. Fragazo, 352 F.3d 939 (5th Cir. 2003) originated from 1984 events that were pursued in a number of Texas state and federal courts. Even so, matters are still not resolved after 20 years because the 5th Circuit remanded for a new trial. The fact pattern is simple yet complex at the same time because of the number of “players” and the awkward judicial proceedings. Other relevant citations are: 321 F.3d 1203 (5th Cir. 2003); 311 F.3d 689 (5th Cir. 2002); Ex parte Castellano, 863 S.W.2d 476 (Tex. Crim. App. 1993); Lexis 2991 (Tex. App.-San Antonio, Apr. 9, 2003)
Plaintiff Alfred Castellano owned restaurants in San Antonio (known as “Fred’s”). In 1984, one of Fred’s restaurants was destroyed by fire. The fire was an “inside job” according to arson investigators. (They found gasoline and other evidence at the scene.) Two of Fred’s former employees testified that Castellano tried to burn the restaurant on other occasions. Those former Fred’s employees also produced a tape recording that incriminated Castellano. Importantly, one former employee was an off-duty San Antonio police officer who worked security at Fred’s. (The police officer left Fred’s employ after Castellano allegedly refused to use his position on the San Antonio Fire and Police Civil Service Commission to obtain and deliver an advance copy of the police lieutenant’s examination. Castellano fired the other Fred’s employee earlier because she refused to take a polygraph test after she was suspected of theft.)
At the conclusion of a well-publicized criminal trial, a jury found Castellano guilty of arson. Sentenced to five years probation, Castellano then filed writs of habeas corpus, the third of which was granted by the Texas Criminal Court of Appeals, based primarily on testimony of another Fred’s employee who validated the conspiracy and its perjury, proving that the incriminating tape recording was actually “manufactured” by the two avenging conspirators who captured Castellano’s otherwise innocuous words and phrases and transformed them into a false and damning presentation.
Castellano’s arson conviction was overturned in 1993 and his case was remanded for a new trial. However, the district attorney dismissed the case for “lack of evidence.” Castellano’s criminal record was then expunged.
Castellano filed this civil action in District Court of Bexar County in 1994 under 42 U.S.C. § 1983, alleging the conspirators maliciously caused his prosecution in violation of his First, Fourth, Fifth, Sixth, Eighth, and Fourteenth Amendment rights. His damage claims included injury to his feelings, reputation, mental health and character, with lost clientele, profits and his loss of good personal community standing.
The case was removed to federal court where it was tried to a jury after six years of pretrial activity in which the claims based on the Fifth, Sixth, Eighth and Fourteenth Amendments were dismissed by summary judgment.
The jury found $3 million in compensatory damages and $1/2 million in punitive damages. After substantial post-trial activity, the matter was appealed to the Fifth Circuit, with appellant/defendants raising issues of: (1) whether there was a §1983 cause of action under the Fourth Amendment, (2) trial court error by jury instruction as to “due process” under the Fourteenth Amendment instead of “unreasonable seizure” under the Fourth Amendment, (3) evidentiary matters concerning malicious prosecution, conspiracy, and qualified immunity, and (4) seven challenges to damage awards.
A divided Fifth Circuit panel affirmed the trial court’s judgment. However, the case was reheard en banc with a different result. Although the en banc panel ordered a new trial on Castellano’s federal and state claims under the Fourth and Fourteenth Amendments and any of his remaining state claims, there was far from unanimity. Of the 15-member Fifth Circuit judges who voted, seven of them concurred only in part but also dissented with a variety of conflicting views on proper disposition of the case.
The Fifth Circuit decided that “malicious prosecution,” standing alone, presents no violations of U.S. Constitutional rights, and that claims under § 1983 must rest on the denial of rights secured under federal law, not state law. A key part of the decision was an interpretation of Albright v. Oliver, 510 U.S. 266, 114 S.Ct. 807, 127 L.Ed. 114 (1994), Parrott v. Taylor, 451 U.S. 527, 101 S.Ct. 1908, 68 L.Ed. 2d 420 (1981), and a review of prior Fifth Circuit decisions on the subject, as well as those from all other circuits:
“We conclude that the trial court’s reading of Albright, while clinging to the law of this circuit, simultaneously misread both the Fourth and Fourteenth Amendments. As for the Fourteenth Amendment claims, we reject the trial court ruling that there was no denial of due process, either in its primitive form that § 1983 cannot sustain such a claim, or because the state provides a post-deprivation tort remedy.
“We hold that a state’s manufacturing of evidence and knowing use of that evidence along with perjured testimony to obtain a wrongful conviction deprives a defendant of his long recognized right to a fair trial secured by the Due Process Clause, a deprivation of a right not reached by the Parrott doctrine.”
Dissenting opinions discuss the viability of § 1983 claims as substantive rights under the Fourth and/or Fourteenth Amendments, despite Parrott’s preclusion of such claims if they are predicated on procedural due process where there is an adequate state law remedy.

Fred A. Simpson is a partner in the Houston Litigation Section of Jackson Walker L.L.P. engaged in insurance law, motion practice, appellate law, mediations and arbitrations.




Suit by Self-Funded Plan is Proper Bombardier Aerospace
Employee Welfare Benefits Plan v. Ferrer

By HELEN JENKINS

In Bombardier Aerospace Employee Welfare Benefits Plan v. Ferrer, No. 03-10195, 2003 WL 22961221 (5th Cir. Dec. 17, 2003), the United States Fifth Circuit Court of Appeals determined that a suit by an ERISA-governed, self-funded employee welfare benefit plan against a plan participant and his lawyers, seeking reimbursement from lawsuit settlement funds, and seeking reimbursement for medical benefits paid on behalf of the participant, was proper. The court affirmed the grant of summary judgment by the Northern District Court in Dallas, holding also that neither federal nor Texas common fund doctrines apply where the plain, unambiguous language of the Plan places sole responsibility for attorney fees and costs on the plan participant.
The participant, as an employee of Bombardier Aerospace, was provided managed care services under the plan. The plan paid participant’s medical expenses for injuries sustained in an automobile accident subject to a “Reduction, Reimbursement and Subrogation” provision, which gave the plan the right to recover and subrogate 100% of the benefits paid in the event of a judgment or settlement growing out of an accident. The plan further provided that responsibility for attorney fees lay with the participant.
The law firm representing the participant on a one-third contingent fee contract negotiated a $65,000 settlement, placing $18,500 of the funds in its trust account by agreed order pending outcome of the suit by the plan against the firm and the participant. The law firm maintained entitlement to one-third of the settlement proceeds ($21,666.66), plus costs ($302.24) based on its contingent fee contract with the participant.
The court disagreed with the assertion by the law firm that § 502(a)(3) of ERISA recognizes no cause of action against an entity which is neither a signatory to the plan nor a fiduciary, creating no subject matter jurisdiction under which a constructive trust can be sustained. The Fifth Circuit held the settlement funds could be subjugated to a constructive trust, with the firm as agent for the participant.
The court then turned to the issue of whether the imposition of a constructive trust over the funds requires a showing of either actual fraud, unjust enrichment or both. It dismissed the notion that the absence of constructive trust elements from the ERISA statute should be resolved by applying Texas law. Instead, the court held that the national uniformity goal of ERISA demands application of federal (not state) common law. As such, federal common law does not require a § 503(a)(3) plaintiff to demonstrate he was the victim of actual fraud or wrongdoing to impose a constructive trust. As for unjust enrichment as a prerequisite, the court notes that the defendants, not the plan, would be unjustly enriched, which would argue for the imposition of a constructive trust on settlement funds.
Finally, the court recognized the right of reimbursement under the plan’s clear provisions for “reimbursement from third party beneficiaries such as settlement proceeds,” and the language of the plan mandating the participant bear fees and costs of a tort action, and ordered no deduction
from the plan’s funds for attorney fees and costs.

Helen Jenkins teaches at South Texas College of Law and is a member of The Houston Lawyer’s editorial board.




Loss of Consortium Claims: Roberts v. Williamson

By MATTHEW W. CALIGUR

In Roberts v. Williamson, 111 S.W.3d 113 (Tex. 2003), the Texas Supreme Court held that Texas law does not recognize a common law cause of action for a parent’s loss of consortium resulting from a non-fatal injury to a child.
In Roberts, a one-day-old infant began suffering from severe acidosis, a condition that, if untreated, can cause a number of adverse health consequences. The infant was experiencing respiratory distress and was placed in a pediatric ventilator. Unfortunately, the ventilator malfunctioned and the infant was deprived of oxygen for several minutes. Several hours later, the infant’s treating physicians decided to administer sodium bicarbonate to counteract the acidosis. Although the infant’s condition improved, the child now suffers from a weakened left side, has significant scarring, and is developmentally delayed. She uses braces to walk and has a permanent shunt implanted in her skull to drain fluids to her abdomen. Id. at 115.
The child’s parents, individually and on behalf of their injured daughter, brought suit against the child’s treating physicians and the hospital where the child received her initial treatment. Some of the claims were settled, but the claims against two of the treating physicians proceeded to trial. The jury award to the plaintiffs included $75,000 to the parents for past loss of filial consortium, and $1 for future loss of filial consortium. The Sixth Court of Appeals affirmed the trial court’s damage award.
In a majority opinion authored by Chief Justice Phillips, the Texas Supreme Court reversed and rendered, holding that the parents should take nothing on their filial consortium claim. The court conceded that allowing a parent to recover for loss of filial consortium has both “sympathetic” and “logical” appeal, but concluded the common law of the State of Texas is best served by not recognizing such a claim in the case of non-fatal injury to a child. Id. at 117.
The court spent considerable time comparing and contrasting loss of filial consortium claims with claims for loss of parental and spousal consortium, both of which are recognized under Texas common law. The court reasoned that, unlike the relationship between spouses, the parent-child relationship is not reciprocal. Although a child is dependent on her parent’s love, companionship, support, guidance, and nurturing, a parent is not similarly dependent on a child for those same relational elements, even though the parent enjoys the benefits of the relationship. In the context of the parent-child relationship, the court reasoned it is the child who requires special protection, not the parent. The court recognized a parent will suffer emotional consequences if her child is seriously injured, but took the position that “[s]ound public policy requires an end at some point to the consequential damages that flow from a single negligent act.” Id. at 118.
The court also was concerned that recognition of a common law cause of action for loss of filial consortium could lead to recognition of consortium rights in other relationships, such as non-dependent relatives or close friends. Id. at 119.
The majority next reconciled its holding with its decision in Sanchez v. Schindler, 651 S.W.2d 249 (Tex. 1983) (holding a parent could recover for loss of filial consortium in a wrongful death case) by drawing a distinction between wrongful death and non-fatal injury cases. The court distinguished Sanchez by suggesting that, in a situation where a child survives a tortious injury, the child has her own cause of action against the alleged tortfeasor. Because the child, therefore, may bring an action for her damages in her own right, there is no need to recognize similar actions by other family members. Id. at 120.
Justice Jefferson, joined by Justice O’Neill and Justice Schneider, issued a vigorous dissent tracing the evolution of the court’s approach to loss of consortium claims and concluding that the majority’s opinion in Roberts could not be reconciled with the court’s decisions in which it allowed a parent to recover damages for loss of filial consortium in wrongful death cases. The dissent also argued that the Roberts opinion was inconsistent with the court’s prior decisions allowing a child to recover for loss of parental consortium. The dissent argued that all tortious injuries to the familial relationship should be compensable, regardless of whether it is the parent’s or child’s services that are lost. The dissent claimed that the majority opinion “relegates parents to second-class status and reneges on the Court’s earlier promise to protect the familial relationship as a whole.” Id. at 131-32 (Jefferson, J., dissenting).
Regardless of whether one is inclined to agree with the majority opinion or the dissent, the impact of the court’s decision in Roberts is clear: Texas now treats loss of filial consortium claims in cases of non-fatal injury to a child differently than loss of filial consortium claims in wrongful death cases, and practitioners will have to adapt accordingly.

Matthew W. Caligur practices in the litigation section of Baker & Hostetler LLP and is a member of The Houston Lawyer’s editorial board.





Thou Shalt Have A Secular Purpose: Fifth Circuit enacts four
commandments for installing religious symbols on state grounds

By KRITOPHER STOCKBERGER

At a time when our nation is attacked by terrorists who brand us as a nation of irreligious infidels who place the heroes of Hollywood and sports leagues far above ethical representatives, the Fifth Circuit Court of Appeals acknowledged the religious history of our legal institutions and has provided four commandments for including religious symbols on governmental property. In Van Orden v. Perry, 351 F.3d 173 (5th Cir. 2003), the Fifth Circuit Courtof Appeals ruled that the 10 Commandments memorial at the Texas Capitol did not violate the Establishment Clause of the First Amendment. The court applied the three-part test prescribed by Lemon v. Kurtzman, 403 U.S. 602, 91 S.Ct. 2105, 29 L.Ed.2d 745 (1971). The parties stipulated that the monument did not foster an excessive entanglement with religion. Consequently, the court focused on the first two parts of the Lemon test and determined that the monument was (1) installed for a secular purpose and (2) did not have a primary effect of advancing or inhibiting religion from the perspective of a reasonable observer. The four commandments address these two issues in an area of law that is fact sensitive.
First commandment: build up a record of a secular purpose for the monument. Van Orden argued that monuments inherently honor what is depicted. Governor Perry argued that the monument was installed to recognize and commend the Fraternal Order of Eagles for its efforts to reduce juvenile delinquency. The Legislature’s resolution to install the monument included virtually no evidence of a secular purpose, but also included no evidence of a religious purpose either, which permitted the court to infer that the Legislature shared the Eagles’ interest in reducing juvenile delinquency. The Legislature also had a history of honoring the contributions of donors. The court also acknowledged the undeniable historical surrounding of the monument. The court also contrasted the monument to the 10 Commandments monument that was prohibited in Books v. City of Elkhart, Indiana, 235 F.3d 292, 306 (7th Cir. 2000), cert. denied, 532 U.S. 1058, 121 S.Ct. 2209, 149 L.Ed.2d 1036 (2001), in which a religious service was held during the acceptance of that monument. Consequently, the court provided several lessons for installing a monument with religious content to avoid giving weight to religious content: (a) include evidence of a dedication (e.g., an inscription) in governmental religious monuments, (b) surround the monument with conspicuously historical monuments, (c) include in the legislative history an explanation of the historical significance of the monument and describe why the donor is deserving of a memorial for its civic contributions, and (d) avoid a religious relationship with the monument (e.g., avoid saying a prayer before entering the resolution into the legislative minutes).
Second commandment: install the monument in a “museum setting.” The court acknowledged that a strictly museum setting would wholly negate governmental endorsement. The court indicated that the Capitol may not be the type of museum setting that wholly negates endorsement, but suggested that the more analogous a monument is to a museum item, the less likely it is to appear as an endorsed religious object. A museum setting is characterized by permanence, not-for-profit, education or aesthetic purpose, regular public display and employment of a professional non-religious staff, all of which fits the Capitol’s description.
Third commandment: include items in the monument that have a historical connection to the state or nation. The court emphasized the influence of the 10 Commandments on our country’s laws. The court also went so far as to say that its decision was merely an instance of the government endorsing its own laws, in light of the connection between the 10 Commandments and our country’s laws.
Fourth commandment: history helps. The court emphasized that the monument had stood for over 40 years before a lawsuit was filed. The monument’s history indicated that it had not been viewed as a government endorsement of religion for a very long period of time. Consequently, the court concluded, a reasonable viewer would not see the monument as an endorsement of religion.

Kristopher Stockberger is an attorney at Brown Sims, P.C. and a member of The Houston Lawyer’s editorial board.

A Defense By Any Other Name Would Smell As Sweet —
Commercial Impracticability

By FRED A. SIMPSON and DEBORAH J. SELDEN

At he State Bar of Texas publishes Pattern Jury Charges that provide 12 different instructions to juries on defenses that are designed to excuse contract performance, but the defense of commercial impracticability is not one of them.1 Recently, the Fourteenth Court of Appeals explored this little-used defense to claims of breach of contract in Tractebel Energy Marketing, Inc. v. E. I. DuPont de Nemours & Co., 14-02-00406-CV (Aug. 14, 2003).
Through a broker, the DuPont chemical giant sold valuable EPA pollution emission credits2 to Tractebel, a power plant designer and builder.3 Before delivery of these pollution credits to the buyer, DuPont lost them because of governmental action. When Tractebel sued DuPont for breach of contract, DuPont claimed a number of defenses excused its failure to perform, including mutual mistake, unilateral mistake, impossibility, and commercial impracticability. The jury rejected all those defenses except the last defense – commercial impracticability. Unfortunately, the jury’s instructions on the applicability of the commercial impracticability defense were defective because those instructions failed to include two critical elements that must exist before the defense may be used. The appellate court found that, even if the missing instructions had been given to the jury, the record contained no evidence to support the critical elements required by those missing instructions. The appellate court reversed the trial court’s judgment, thereby favoring Tractebel.

What’s in a Name?
Beginning with a review of Section 261 of the Restatement (Second) of Contracts, Chief Justice Scott Brister traced the meager use of the impracticability defense in Texas. Entitled “Discharge by Supervening Impractica-bility,” Section 261 states:
Where, after a contract is made, a party’s performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary.
Judge Brister noted three general contexts in which the Restatement of Contracts applies the defense: (1) death or incapacity of a person necessary for performance; (2) destruction or deterioration of a thing necessary for performance; and (3) prevention by governmental regulation. Before 1992, courts had substantially recognized the defense under appellations such as “frustration of purpose,”4 and in 1992, the Supreme Court of Texas adopted the substance of the defense under the label “impossibility.”5

Jury Issue
After exploring the issue of whether the defense of commercial impracticability is determinable as a matter of law, Judge Brister concluded that, contrary to some other jurisdictions, in Texas, all defenses to breach of contract claims are generally considered jury questions unless facts are uncontested.6 However, a proper jury charge on the defense of commercial impracticability must include instructions to explain (a) the need for the contracting parties to show a mutual “basic assumption” before the defense can apply, and (b) the party seeking relief must first use reasonable efforts to surmount the obstacles to that party’s performance. The first instruction - the “basic assumption” instruction - deals with unstated terms of the contract that are inherently related to contract performance. This instruction should inform the jury that “failure to comply with an agreement is excused if . . .” and should complete the sentence with the particular condition that excuses contract performance.

Fundamental Assumptions
One of the fundamental assumptions shared by parties to a contract is that the law will not change to render the contract’s performance unlawful. Every contract has this as well as other implicit unwritten mutual “basic assumptions.” For example, in a personal service contract there is a basic assumption that the performing party will be alive and otherwise have the capacity to perform. In negotiating an ordinary lease contract, the parties basically assume that the building will remain in existence and not be destroyed by terrorists, or otherwise, during the term of the lease.
In Tractebel, Judge Brister held that the jury should have been instructed that, before the impracticability defense could apply, both DuPont and Tractebel had to be found to share a mutual intent to buy and sell only DuPont’s EPA credits – and no others. However, because the parties dealt through a broker who did not disclose the identities of the parties, the court found there was no evidence to support this assumption of exclusivity. The other essential but missing instruction was whether DuPont made reasonable efforts to shield itself from the lack of the contracted EPA credits. The court found that, even if the instruction had been included, there was no evidence that DuPont did anything to resist the government’s action to curtail the DuPont EPA credits, nor was there any evidence that DuPont attempted to purchase EPA credits from others to “cover” the sale to Tractebel.

Conclusion
Regardless of what label is given to commercial impracticability, this defense does not appear to have been widely used in Texas jurisprudence. Perhaps the lack of use is because impracticability generally excuses a party’s breach of contract only when all the doctrine’s requirements are satisfied and the contract itself does not otherwise expressly include an escape clause. Perhaps the defense is not widely used because courts, as a rule, cannot rewrite the parties’ contracts and the defense may only be applicable in limited circumstances where both parties hold basic (though unstated) assumptions about the contract that later prove untrue. Given the recent unpredictability of the national and international social and political scenes, however, lawyers should consider this defense as a possible option when mounting a breach of contract defense. Using Tractebel, as a guide, commercial im-practicability, may, in the future, prove to be a versatile defense with a wider range of application.

Endnotes
1. See Texas Pattern Jury Charges - Business, Consumer, Insurance, and Employment, PJC 101.22 through 101.33, State Bar of Tex. 2002. 2. Consideration was $1 Million for part of the credits DuPont had for sale at the time. 3. DuPont earned EPA pollution emission credits in 1983 when DuPont reduced the emissions from its New Jersey plant. DuPont sold some of these credits in 1998 to Tractebel for $1 million. The State of New Jersey subsequently tightened its pollution regulations, discounting the credits and ultimately revoked them, leaving DuPont with nothing to deliver under its promise to Tractebel. [Opinion at 2]. 4. See, e.g., Rameriz Co. v. Housing Auth. Of City of Houston, 777 S.W.2d 167, 173 n. 11. (Tex. App. – Houston [14th Dist.] 1989, no writ). 5. Centex Corp. v. Dalton, 840 S.W.2d 952, 954 (Tex. 1992). 6. Citing to Hathaway v. General Mills, Inc., 711 S.W.2d 227, 228-29 (Tex. 1986); James T. Taylor & Sons, Inc. v. Arlington ISD, 160 Tex. 617, 335 S.W.2d 371, 376 (Tex. 1960); Chastain v. Cooper & Reed, 257 S.W.2d 422, 424 (Tex. 1953).

Fred Simpson is a partner in the Houston Litigation Section of Jackson Walker L.L.P. Deborah Selden is staff attorney for the district courts of Harris County

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