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Texas Supreme Court Cases To Watch For This Summer

May 30, 2014 – Media Coverage
Law360

Law360, Dallas (May 30, 2014, 6:44 PM EDT) -- As summer hits Texas, the state’s highest civil court has dozens of cases still pending, and among the most anticipated decisions expected before the court’s term ends in August are cases with the potential to mean big changes for corporate directors and elite energy executives.

The Texas Supreme Court has conference days scheduled each of the first four weeks of June, which typically means a flurry of opinions will follow, in line with the justices’ goal of not carrying over cases from one term to the next. Pending in the queue of cases already argued are some of the state’s most closely watched disputes, including a minority shareholder oppression case, an executive employee compensation fight, a $67 million verdict in a failed gasfield venture, and what could be a landmark toxic tort suit.

Speaking at a panel event in April, the court’s justices told appellate lawyers the cases they’ve waited the longest to issue opinions in are often the most contentious and difficult to decide. They say the justices are meeting their deadlines but don’t always agree on the law and may still be trying to persuade each other how the law should be correctly applied.

“Some cases just take a whole lot of study, writing and many, many circulations,” Justice Debra Lehrmann said in April.

Here are some of the biggest cases in the pipeline for the top Texas court: 

Ritchie v. Rupe

One of just four cases carried over from last term that are still awaiting rulings is a minority shareholder oppression suit argued in February 2013 that lawyers have said could be a game-changer for corporate directors facing buyback requests from small stakeholders. In Ritchie v. Rupe, a family-owned holding company is challenging a $7.3 million judgment requiring it to buy back the minority shares of family member Ann Caldwell Rupe, who alleges she was oppressed when the company’s corporate directors refused to help her sell her stock.

Corporate attorneys have said if the Texas Supreme Court upholds the appellate ruling, management at corporations across the state could find themselves with new obligations to provide information to third-party potential buyers of stock or to buy back stock at high prices. They say the court could use the case to define the business judgment rule and whether corporate officers and directors should have safe harbor from similar claims if they have legitimate reasons for refusing to meet with outside buyers.

Rupe’s attorney, Steve Aldous of Forshey Prostok LLP, says he thinks the amount of time the court has spent considering the case indicates the justices could issue the court’s most important decision on shareholder oppression since 1957. But he says the case is the wrong vehicle for the court to make any broad holdings about minority shareholder oppression and is hoping for a narrow ruling based on what he says is an uncommon record that includes a jury finding of fiduciary duty.

“More than anything, I think the value of this case would be if the court said, ‘We cannot define all the ways that oppression of a minority shareholder can occur, and we agree with the broad-form jury submissions that take place every day in our courts,’” Aldous says.

Ritchie is represented by Robert G. Gilbreath of Hawkins Parnell & Young and Amy Davis, Hilaree A. Casada and Katherine Elrich of Hermes Sargent Bates LLP.

Rupe is represented by Steven E. Aldous of Forshey Prostok LLP, Charla G. Aldous of Aldous Law Firm and Jeffrey S. Levinger of Levinger PC.

The case is Ritchie v. Rupe, case number 11-0447, in the Texas Supreme Court.

Exxon Mobil Corp. v. Drennan

Employment attorneys across the state have their eyes on Exxon Mobil Corp. v. Drennan, which was argued in November. The issue — whether Exxon can enforce an agreement that forced one of its top executives to give up valuable unvested employee incentive awards when he went to work for a competitor — could have broad ramifications for all employers, but it is getting especially close attention from energy companies trying to keep high-ranking talent in a hugely competitive market.

“People are absolutely watching this case,” says Winston & Strawn LLP’s John Strasburger.

Strasburger says he doesn’t know of any energy companies that have already changed the structure of their noncompete clauses or benefit policies in light of the Drennan case but that they’re taking a “wait and see approach” and keeping a close eye on what the court has to say about the structure of Exxon’s agreement.

Exxon is hoping for a reversal of a 2010 ruling from the First District Court of Appeals that found the company imposed a “severe economic penalty” on former vice president of the Americas for ExxonMobil Exploration Co. William Drennan III — who took a position with Hess Corp. — that was tantamount to a covenant not to compete that violates fundamental Texas public policy. Exxon canceled Drennan’s unvested employment incentive awards in accordance with a compensation agreement he had signed.

Strasburger says the case presents practical problems for a company trying to hire an executive subject to a similar agreement by making it potentially far more expensive to lure away some of the most experienced and valuable workers. Particularly in the energy world, where noncompete and nonsolicitation agreements are common and with a limited number of people who can perform at the highest levels, it could get very expensive to compensate a recruit for the benefits they’re losing by breaking those agreements, he says.

Exxon is represented by David J. Beck, Russell S. Post, David M. Gunn and others of Beck Redden & Secrest LLP; Steven J. Watkins of McGinnis Lochridge & Kilgore LLP; Harriet O’Neillof Law Office of Harriet O’Neill; Nina Cortell of Haynes and Boone LLP; and Shannon H. Ratliff of Ratliff Law Firm.

Drennen is represented by Scott A. Brister, Paul L. Mitchell and Kendall M. Gray of Andrews Kurth LLP.

The case is Exxon Mobil Corp. v. Drennen, case number 12-0621, in the Texas Supreme Court.

Phillips v. Carlton Energy Group LLC

Also awaiting a ruling is energy investor Phillips Oil Interests LLC’s attempt to upend a $66.5 million verdict in favor of Carlton Energy Group LLC after Phillips pulled out of a Bulgarian gasfield venture. A jury found Phillips had tortiously interfered with Carlton’s contract to buy a minority stake in the gas project and awarded a total of $93.5 million in actual and exemplary damages and attorneys’ fees — the verdict was reduced by a trial judge to $31.2 million, then restored by an appellate court to $66.5 million, excluding money for exemplary damages and attorneys’ fees.

The case has drawn sharp criticism from prominent tort reform groups Texas Civil Justice League and Texans for Lawsuit Reform, which filed amicus briefs arguing the damages award was far too speculative, particularly when there had been no gas production from the field at issue at the time of the alleged contract breach.

Hugh Rice Kelly, general counsel for TLR, says if the Texas Supreme Court doesn’t require Carlton to prove up the damages with more certainty, it would be creating a formula to allow everyone who’s ever created a product that failed to recover speculative value that they could not earn in the marketplace. Kelly says not just energy prospectors but litigants across all energy sectors would have a pathway to ignore bedrock principles of contract law that require damages be based on more than mere speculation — by presenting their claims under the guise of tortious interference with a contract instead.

“Drilling for gas in the courtroom shouldn’t be allowed,” Kelly says. “It’s the wrong place to find hydrocarbons.”

Phillips is represented by Mitchell Madden and Thomas V. Murto III of the Law Offices of Mitchell Madden and Thomas R. Phillips, Benjamin A. Geslison and Evan A. Young of Baker Botts LLP.

Carlton Energy Group is represented by Warren W. Harris and Jeffrey L. Oldham of Bracewell & Giuliani LLP; Fred Hagans, Kendall C. Montgomery and Paula Janecek Mathers of Hagans Burdine Montgomery & Rustay PC; Roger D. Townsend, Kevin H. Dubose and LaDawn H. Conway of Alexander Dubose & Townsend LLP; David M. Gunn of Beck Redden & Secrest LLP; and Vincent L. Marable III of Paul Webb PC.

The case is Gene E. Phillips et al. v. Carlton Energy Group LLC, case number 12-0255, in the Supreme Court of Texas.

Bostic v. Georgia Pacific Corp.

Topping the list for toxic tort practitioners is a mesothelioma case against Georgia-Pacific Corp. that questions causation standards for proving asbestos liability, argued in September. The plaintiffs bar is hoping for a ruling from the court easing the strict causation standards intermediate appellate courts have applied for mesothelioma cases, which involve a cancer linked to asbestos exposure.

Brent M. Rosenthal, a Dallas solo practitioner, says the plaintiffs’ bar wants to see the high court acknowledge how difficult it is to prove mesothelioma wouldn’t have occurred without exposure to a specific product manufactured by a single defendant when in many cases the plaintiffs have been exposed to a number of different products. The Bostics, who allege a family member’s death was caused by asbestos exposure, say they should only have to prove the exposure from a specific company was a substantial factor in increasing the risk to contract mesothelioma.

“That would bring a much saner environment to Texas,” Rosenthal says.

He says the court indicated in 2007’s Borg-Warner v. Flores ruling that people with mesothelioma had a realistic chance for a remedy under substantive Texas law but that appellate courts have since cracked down and made it nearly impossible for plaintiffs to recover.

Georgia-Pacific, on the other hand, argued the court shouldn’t micromanage litigation by carving out different tests for different kinds of toxic torts, and told justices during oral argument that the Bostics' proposed standard of liability could theoretically impose liability on a company whose products contributed only 1 percent of a plaintiff's exposure to asbestos. It wants a ruling requiring mesothelioma plaintiffs to prove with scientific evidence that the exposure to a certain product actually caused their disease.
   
Bostic is represented by Denyse Clancy, John Langdoc and Christine Tamer of Baron & Budd PC.

Georgia-Pacific is represented by Deborah Hankinson and Rick Thompson of Hankinson LLP.

The case is Bostic et al. v. Georgia-Pacific Corp., case No. 10-0775, in the Texas Supreme Court.