by Rachel Stinson, Morgan, Lewis, & Bockius LLP (First Court of Appeals updates) and Kyle Lawrence, Beck Redden LLP (Fourteenth Court of Appeals updates)

Ortega v. Abel,  — S.W.3d –, 2018 WL 4028427 (Tex. App.—Houston [1st Dist.] Aug. 23, 2018)

Ortega, the owner of two grocery store chains in Oklahoma and Texas, purchased a smaller chain of five grocery stores from Abel.  Abel signed a non-compete agreement as part of the sale, agreeing that he would not own or operate a Hispanic-themed grocery story within 10 miles of either the 5 stores he sold to Ortega or any of Ortega’s other stores for a period of fifteen years. In addition, Abel agreed he would not open any Hispanic-themed grocery store in certain Texas counties—even if any such a store would be outside of the area excluded by the other provision—unless he offered Ortega the right of first refusal to partner with him in the store. 

Several years after the purchase, Ortega sued Abel, alleging that he had breached the non-compete by operating four Hispanic-themed grocery stores in Texas and Oklahoma.  The evidence at trial included testimony from Ortega, who testified that the purpose of the covenant was to protect his investment in the 5 stores he bought from Abel, and an expert who testified for Abel that the geographical restrictions in the covenant were unreasonably large.  The jury found for Ortega, awarding him $21 million in damages and $ 5.2 million in punitive damages.  After the verdict, the trial judge granted Abel’s motion to reform the covenant, finding that the reasonable area in which Abel should be prohibited from operating and the area in which he had to offer Ortega a right of first refusal was only a 3-mile radius around each of the 5 stores Ortega had purchased.  The trial judge’s final judgment awarded Ortega only this modified injunctive relief.

Ortega appealed the trial court’s reformation of the covenant and its failure to award the jury’s damages.

Justice Higley, joined by Justice Massengale, found both of the restrictions in the covenant not to compete—the one barring Abel from owning or operating any stores near the stores he sold Ortega, and the one setting an area in which Abel was required to offer Ortega a right of first refusal to partner—were restraints on trade governed by Texas Business and Commerce Code § 15.50.  The opinion also held that the trial court did not err by restricting the area covered by the covenant because the restrictions were supported by expert testimony that the scope was broader than necessary to protect the goodwill of the stores Ortega had purchased, and Ortega’s testimony did not directly conflict with the expert’s conclusion that a 3-mile radius, rather than a 10-mile radius, was appropriate and that only the stores Ortega purchased from Abel should be protected. 

Justice Lloyd’s dissent contended that both the majority and the trial court viewed the purpose of the covenant too narrowly.  Justice Lloyd reasoned that the original purchase by Ortega had been not just 5 grocery stores, but the purchase of an entire competing chain—i.e.,the goal of the purchase and the covenant had been to remove a competitor in a niche market from a defined geographical area—not to just acquire 5 new stores.  And, Justice Lloyd pointed out, the purchase agreement and covenant had been negotiated at arms-length between two sophisticated parties.  He concluded simply, “A deal is a deal.”

In Re Kirby Inland Marine, LP, — S.W.3d–, 2018 WL 3468476 (Tex. App.—Houston [1st Dist.] July 28, 2018) (orig. proceeding).

Original Proceeding on Petition for Writ of Mandamus

Rodrick Benson filed this Jones Act lawsuit against his employer Kirby Inland Marine alleging physical and psychological injuries caused by exposure to ammonia gas.  Benson’s neuropsychologist performed a two-day examination, including 28 various tests and assessments, and concluded that Benson suffered from a number of neuropsychological deficits and from major depressive disorder, post-traumatic stress disorder, and major neurocognitive disorder. Benson’s neuropsychologist recommended long-term treatment and rehabilitation, and concluded that Benson’s impairments would be progressive, requiring “lifelong medical care.” 

Kirby sought an independent examination, proposing a 6.5-hour evaluation with no duplicate testing.  The trial court limited Kirby’s examination to 2 hours, and required that Kirby disclose in advance the tests that its expert planned to administer.  Kirby filed a motion for reconsideration, supported by affidavit in which the examiner stated he could not evaluate all of the conditions and diagnoses found by Benson’s neuropsychologist within that limited amount of time, and that advance disclosure of the tests would skew the results.  Benson filed a response pointing out that the examiner would be provided “the raw data” from his neuropsychologist and with his deposition testimony, and contending that Kirby’s proposed parameters did not comply with Rule 204.  The trial court denied the motion for reconsideration.  Kirby filed a petition for writ of mandamus with the First Court. 

The panel of Justice Keyes, Bland, and Massengale conditionally granted relief.  The Court noted that the arguments Benson presented, contending that Kirby’s tests were unduly intrusive were similar to those raised in another case, In re Offshore Marine Contractors, Inc., a 2016 mandamus proceeding in which the plaintiff had been represented by the same counsel now representing Benson, and the same neuropsychologist had examined the plaintiff.  The Court balanced the intrusion into Benson’s privacy against the interests in a full and fair examination of the physical or mental condition the lawsuit placed in controversy, warning that “a trial court must be careful not to prevent the development of medical testimony that would allow the opposing party to fully investigate the conditions the party asserting the existence of the condition has placed in issue.”

Momentum Eng’g, LLC v. Tabler, — S.W.3d —, 2018 WL 4037411, at *1 (Tex. App.—Houston [14th Dist.] Aug. 23, 2018, no pet. h.). 

The citizenship of a limited liability company’s members is not a factor in determining whether the company is subject to personal jurisdiction.  Although limited liability companies are treated as partnerships for the purpose of federal diversity jurisdiction, they are treated as corporations for the purpose of personal jurisdiction. 
Lee Tabler was the assignee of a promissory note and addendum signed by Momentum Engineering, a Dubai limited liability company.  Alleging that the debt had not been paid, Tabler sued Momentum, its managing director James Larsen, Larsen’s wife, and the guarantor of the note.  Momentum filed a special appearance, which the trial court denied.  Momentum appealed. 

On appeal, Tabler did not dispute that Momentum was organized in Dubai and had its principal place of business there.  But he argued (among other things) that the trial court had general personal jurisdiction over Momentum because Momentum was a limited liability company with a member (Larsen) who resided in Houston.  He analogized to Americold Realty Trust v. Conagra Foods, Inc., 136 S. Ct. 1012, 1015 (2016), in which the Supreme Court of the United States held that, for the purpose of federal diversity jurisdiction, an unincorporated association is a citizen of every place in which a member is a citizen.  

Rejecting Tabler’s analogy, the Fourteenth Court of Appeals refused to extend principles of federal diversity jurisdiction to the context of personal jurisdiction.  The court noted that the requirements for diversity jurisdiction stem from Article III of the Constitution, whereas the requirements for personal jurisdiction are a product of the Due Process Clause.  Federal courts thus may have diversity jurisdiction over a case yet lack personal jurisdiction over a foreign defendant.  The “rule,” the court explained, “is that limited liability companies are treated as partnerships for the purpose of federal diversity jurisdiction, but are treated as corporations for the purpose of general purpose jurisdiction.”  
After determining that Momentum lacked sufficient contacts to support the exercise of personal jurisdiction and rejecting Tabler’s attempts to impute the Larsens’ contacts to the company, the court of appeals reversed the denial of the special appearance.  

W&T Offshore Inc. v. Meyers, — S.W.3d —, 2018 WL 3235438 (Tex. App.—Houston [14th Dist.] July 3, 2018, no pet. h.). 

Under the circumstances presented, a defendant who submitted a pretrial proposed jury charge without a premises-liability question was not estopped under the invited-error doctrine from later complaining that the plaintiff failed to obtain findings on an essential element of their premises-liability claim. 
Meyers sued W&T Offshore to recover for injuries he suffered when a crane cable broke and caused a crane on one of W&T’s offshore oil and gas platforms to fall on his foot.  The jury charge submitted a general-negligence question instead of a premises-liability question, and the jury found W&T negligent.  One of the issues on appeal was whether the doctrine of invited error barred W&T from complaining about the absence of premises-liability findings. 

Under the invited-error doctrine, a defendant may be estopped from complaining about absence of a necessary jury finding if the defendant “persuade[d] a trial court to adopt a jury charge” that the defendant “later alleges supports an improper theory of recovery.”  United Scaffolding, Inc. v. Levine, 537 S.W.3d 762, 775 (Tex. 2010).  Meyers argued that W&T invited error when, in its response to the trial court’s Rule 166 trial preparation order, it attached a charge that was titled “Plaintiff’s Proposed Jury Charge” and lacked a premises-liability question. 

The Fourteenth Court held that, under the circumstances presented, the invited-error doctrine did not bar W&T from complaining about the lack of a premises-liability finding.  Here, the Court explained, nothing indicated that the trial court had ruled based on W&T’s proposed charge.  The Rule 166 pretrial order instructed the parties to file a “Draft Jury Charge,” but provided that “[m]odifications may be submitted as the trial progresses.”  The trial court even noted at the pretrial conference that certain jury-charge issues would be decided later. 

For three reasons, the Court distinguished Saeco Electric & Utility, Ltd. v. Gonzales, 392 S.W.3d 803 (Tex. App.—San Antonio 2012, pet. granted, judgm’t vacated w.r.m.), in which the San Antonio court determined that a defendant had invited this type of jury-charge error.  First, the trial court in Saecoasked for proposed charges during the second week of trial; here, the trial court requested charges through a Rule 166 pretrial order and contemplated later modifications to the charge.  Second, the defendant in Saeco never objected to the submission of the general-negligence question; here, W&T objected at the charge conference that the “[s]ubmission of negligence as to W&T is improper.”  Third, the trial court in Saecospecifically told the parties that it was using the defendant’s proposed charge; here, nothing indicated that the court relied on W&T’s proposed charge. 

After concluding that Meyers’s claim required the missing premises-liability finding, the Court reversed and rendered a take-nothing judgment.