Commercial Litigation

Specific Relief Concerning Fraud in Real Estate and Stock Transactions

Parties to real estate and stock transactions need to be aware of the specific relief for fraud in real estate and stock transactions. Typically, under common-law fraud, a plaintiff must prove that (1) the defendant knowingly or recklessly made a material misrepresentation with the intent that the plaintiff rely on the misrepresentation and (2) the plaintiff relied on the misrepresentation to his detriment.

For real estate and stock transactions, Chapter 27 of the Texas Business & Commerce Code provides a statutory fraud remedy that is essentially the same as commonlaw fraud with one key exception— under statutory fraud, the plaintiff need not prove that the defendant acted knowingly or recklessly. Thus, the standard of proof is not as great for this statutory fraud as opposed to common-law fraud.

Under statutory fraud, a defendant is liable if it is shown that (1) the defendant made a material misrepresentation or a false promise and (2) the plaintiff relied upon this misrepresentation to his detriment. Thus, in real estate and stock transactions a party may be liable for statutory fraud even though that party acted with care and was unaware of the falsity of the representation. Conceivably, a party could commit statutory fraud without having any intention to defraud merely by making representations that the party believed were true but later turned out to be false. Additionally, if the plaintiff can prove that the defendant acted knowingly, the plaintiff can recover exemplary damages.

A defendant may also be liable for statutory fraud under Chapter 27 for benefitting from a misrepresentation made by a third party that the defendant knew was false. When the misrepresentation is made by a third party and the defendant is aware of its falsity, the plaintiff may also recover exemplary damages because the defendant acted knowingly.

Accordingly, this relief is to be considered in the event a party has concerns as to the accurate nature of any representations in connection with a real estate transaction by another party to the transaction or a third party.

By J. Allen Smith

Business Counsel Services

Just when you thought it was safe again… A National and State Review on Holes in Malpractice Damage Caps

SettlePou is pleased to announce a three part series from the Business Counsel Service Section for physicians, discussing the following: (1) the attack on malpractice damage caps; (2) increasing the physician’s professional protection; and (3) increasing the physician’s personal protection.

Part One

As children growing up in the 70’s, nothing scared us more than being attacked by a great white shark when jumping into the deep end of the pool (“Cue-Jaws Soundtrack”). But just when you thought it was safe again, Jaws 2 came out, terrifying us all over again.

Just as Jaws scared us out of the pool, many lawsuits have scared medical practices into limiting the types of procedures performed or out-right retiring. In 2004 Texas legislation, as in many other states, introduced a medical malpractice cap as a means of protecting physicians. For example, in Texas a patient can only recover $250,000 for noneconomic losses and $500,000 for wrongful death. However, just when physicians thought it was safe again, physicians are encountering new lines of attack. The two most prominent attacks, which will be discussed in this article from both a national and state perspective, are: (1) using of consumer protection laws against physicians, and (2) establishing high economic damages in a malpractice case, which many times are uncapped.

Consumer Protection Laws

Consumer Protection laws are designed to protect the state’s citizens from unfair and deceptive bargaining power against larger, more capitalized entities. Because the legislature cannot specifically address each area where a consumer might encounter an unfair business practice, the state statutes giving rise to consumer protection claims are often broad. Courts then have the final say on to whom the statute applies, or in other words, how consumers will be limited in pursuing damages under consumer protection statutes.

Developments Across the Nation.

To combat the medical malpractice caps, plaintiffs look for other avenues to pursue their claims. Essentially, in many states, plaintiffs are now either tacking on consumer claims against physicians to get around the medical malpractice limitations, or they are abandoning their physician negligence claims altogether and seeking only the consumer protection claim. The critical issue for courts, so far, has been how carefully the legislature drafted the statute when limiting liability. For instance, Pennsylvania decided that consumer protection statute did not apply at all to physicians supplying medical services, but only to business enterprises engaged in trade or commerce. However, this is an exception as most states allow consumer protections claims against physicians in a limited capacity.

The other extreme is when the legislature drafts a statute broadly enough to allow for consumer protection claims for a physician’s negligence. Thus, even though the state has medical malpractice limitations for recovery resulting from a physician’s negligence, it allows patients to circumvent the limitations by bringing consumer protection claims to recover for their injuries. The plaintiff will point to written representations, advertisements, or other oral representations made by or on behalf of the physician as lulling the patient into a false sense of security. If this activity rises to the level of a deceptive or unfair trade practice, it could subject the physician to hefty damages for something that essentially arose out of a negligent rendering of medical services. In Kansas, for example, the Supreme Court decided that the language of the statute was broad enough to allow consumer protection claims to be brought against physicians who provide medical treatment or services.

Most states strike a balance between these two extremes and allow claims against physicians under a consumer protection statute only in limited circumstances. Generally, consumer protection claims can be brought against a physician when the nature of the claim arises out of the “entrepreneurial, commercial, or business aspect of a physician’s practice”. A patient cannot simply recast a negligence claim as a consumer protection claim to avoid malpractice limitations. Colorado requires a certificate for review for all cases brought against physicians, so if a consumer protection claim sounds in negligence as well, the plaintiff must provide expert testimony to support its claim. The need for medical expert testimony often suggests a negligence claim rather than a consumer protection claim. Similarly, with regard to federal claims brought under the Federal Trade Commission Act (“FTCA”),
federal courts have also required the claim to arise out of the commercial or business aspects of a physician’s practice.

The Texas Approach. Texas has addressed the issue several times and has been very reluctant to allow claims against physicians under the consumer protection statute. Even when a dentist represented that he could do a bone graft “with no problems,” said a skin graft would work as well as a bone graft, and made statements about a patient’s prognosis, the Supreme Court said the dentist’s statements had to do with the medical standard of care sounding in negligence and not deceptive or unfair trade practices. The plaintiff’s claims was dismissed for failure to submit an expert report. Ultimately, the court looks to the underlying nature of the claim to determine whether it involves a breach of the accepted standard of medical care rather than a claim for deceptive trade practices. In another case, even when the physician expressly warranted to a patient that she would not be sedated and he thereafter sedated her, the Supreme Court said the representations all have to do with whether the administration of a general anesthetic under all the circumstances met the standard of care for anesthesiologists.” Therefore, the Texas approach only allows a claim to be brought under the Deceptive Trade Practices Act if it does not have to do with the standard of medical care.

A Cap is not a “CAP” when it’s Economic.

Tort reform measures place some limitations on physician liability, and, in many states including Texas, have helped significantly reduce frivolous lawsuits and reduce insurance premiums (at least for some specialties). However, tort reform does not eliminate the risk for a substantial judgment against a physician.

In explaining tort reform, the damages caps typically put in place cover non-economic damages. Non-economic damages include things that do not involve a cash loss, with no precise value, such as pain and suffering, emotional distress and loss of consortium or companionship. In Texas, patients are limited to recovering $250,000 for noneconomic damages. California and Montana also cap non-economic damages.

Few have a counterpart limitation, however, on economic damages. Economic damages encompass actual pecuniary losses, such as health care expenses, loss of wages, medical bills, and damage to property. As a result, there can be significant exposure for a physician where a catastrophic injury occurs to a patient, particularly to a well educated patient who can establish significant lost wages damages.

While many physicians believe that tort reform eliminates their exposure for malpractice claims, the reality is that tort reform helps but cannot be relied upon as the sole protection from a massive malpractice judgment. It remains important for physicians to review their professional and personal structures as a means to taking needed steps for protection.

By Michael S. Byrd and Bradford E. Adatto

Firm News

Texas Monthly Selects J. Allen Smith as a 2007 Texas Super Lawyer

SettlePou is proud to announce that Allen Smith has recently been selected by the publishers of Texas Monthly magazine as one of its 2007 Texas Super Lawyers. The selection process began many months ago, when over 60,000 Texas lawyers were invited to participate in the nomination process. Lawyers were asked to nominate the best attorney they’ve personally observed in action. Once all of the nominations were in, a specialized research department examined the background and experience of the candidates, evaluating indicators of peer recognition and professional achievement. Allen is shown on pages 66 and 102 of the 2007 Texas Super Lawyers magazine, and in the October issue of Texas Monthly which has recently hit the newsstands.

Allen Smith is a shareholder at SettlePou and Chair of its Commercial Litigation practice group. He has been practicing law for 23 years, and has been Board Certified in Commercial Trial Law by the Texas Board of Legal Specialization for over 15 of those years.