Commercial Litigation

Dispute Resolution Terms in Contracts: A Trial Lawyer’s Perspective

When parties negotiate and draft a contract, litigation is usually the furthest thing on their minds. The substantive terms of the transaction, specifically those related to pricing and performance, warrant most of the attention because the underlying deal is the very reason for the contract in the first place.


Frequently, terms related to enforcement are relegated to the miscellaneous or general sections, and often are treated as boilerplate, meaning they may get rubberstamped when all the other terms are complete. However, it is worth taking an extra moment or two to review these provisions as if you were a "Monday morning quarterback" or had the benefit of 20/20 hindsight after a disagreement takes place. Doing so will ensure that your rights to enforce or defend the core terms of the contract are not jeopardized.


To this end, here is a summary of the terms that trial lawyers will typically consult immediately when evaluating a dispute involving a breach of contract:


· Waiver of Jury Trials. Parties to a contract may waive their right to a trial by jury. The Texas Supreme Court holds that such a waiver does not violate public policy as long as the waiver is voluntarily, knowing, and made with full awareness of the consequences of it. The more conspicuous, i.e., eye-popping, the waiver, the more likely it is to be enforced.


· Merger or Integration Clause. This states that the contract expresses the entire agreement between the parties and that all prior understandings, representations or commitments are merged into the contract. This clause prevents a party from trying to vary the contract’s terms after it is signed. It can also contain an anti-fraud provision whereby the parties agree that neither party relied on any statements or representations made during the negotiation or drafting phases that are not contained in the contract. This limits a party from attempting to claim that it was mislead or tricked into signing the contract, or attempting to introduce evidence of oral or even written agreements outside the "four corners" of the contract.


· Choice of Law, Forum Selection, and Venue Selection. A choice of law clause allows contracting parties to pick the state whose law will apply. Texas law permits these clauses, which are useful when the parties reside in different states or when performance of the contract crosses state lines. Importantly, this does not necessarily mean that the actual lawsuit will occur in that same state. This is where forum selection comes into play. A forum selection clause is an agreement that the lawsuit must take place in a specified jurisdiction, such as Texas or another state. Texas law generally enforces such provisions as long as the jurisdiction is not unreasonable, inconvenient, or against public policy. Venue selection involves selecting where within the jurisdiction the lawsuit will occur. For example, a venue selection clause would specify a county in Texas in which the lawsuit must take place. It is more difficult to enforce venue selection because Texas courts hold that venue is fixed by law. Often times, contracting parties will still indirectly choose a venue by picking one of the locations that would be permissible under Texas law or by providing that the contract is to be performed within a certain venue.


· Alternative Dispute Resolution. Texas’s public policy encourages parties to try to resolve their disputes out of court. Therefore, contracts can, and often do, contain a provision requiring alternative dispute resolution, such as meditation, before litigation can be filed.


· Statute of Limitations. The law sets a time limit for a party to file a lawsuit after a wrong occurs, which is known as the statute of limitations. When the time period starts and ends depends on the facts of each particular case. Contracting parties can agree to reduce the deadline by which a party must file a lawsuit to as little as one-year.


· Damages. Texas law permits contracting parties to agree on damages should a breach occur. This includes agreeing to limit or reduce the amount of damages to which a party would normally be entitled; agreeing to an exclusive remedy; agreeing to equitable relief, such as an injunction, even if it might not otherwise be available; or agreeing to a set amount of damages, otherwise known as liquidated damages.


· Interpretation. Texas law enforces unambiguous contracts according to the plain meaning of their words. Should the interpretation of a contract be called into question, however, the contract generally will be interpreted against its drafter. This rule can be avoided with a provision that states that no term of the contract will be interpreted in favor or against any of the parties for any reason.


These are not the only provisions that can impact a lawsuit, but the above are the types of terms a trial lawyer will look for when assessing a party’s ability to successfully enforce or defend a contract. Such provisions should be reviewed with an attorney before entering into a contract to ensure that you are put in the best position possible if a dispute arises.

 Author- Daniel P. Tobin


Commercial Litigation Firm News

Rules of Civil Procedure: Potential Game-Changers


The Texas Rules of Civil Procedure (“TRCP”) and the Texas Civil Practice and Remedies Code (“CPRC”) are the predominant rulebooks for civil litigation in Texas state courts.  There are 822 rules in the TRCP that govern every stage of litigation, with many rules having numerous subparts and intricacies.  Likewise, the voluminous CPRC has many nuances affecting the outcome of civil lawsuits in Texas.
Generally every golfer, even a novice, will know the “major” rules of the game—how to keep score, how to penalize a ball hit out of bounds, etc.  But even some of the most experienced golfers are unfamiliar with rules that can lead to penalties or advantages on which success or failure can turn.
Like golfers, trial lawyers and many litigation-savvy parties know the “major” rules in the TRCP and CPRC—when to file an answer, what discovery is permissible, what is required for summary judgment, etc.  Familiarity with new, lesser-used, and nuanced rules of civil procedure, however, can give parties competitive advantages in litigation.
For example, Texas House Bill 274 (“HB 274”), enacted this past summer and effective as of September 1, 2011, broadens the availability of “interlocutory appeals,” those brought during the course of a lawsuit, before trial or even discovery.  Parties will now be able to file interlocutory appeals on controlling questions of law where the appeal “may materially advance the ultimate termination of the litigation.”  The new interlocutory appeal rules may help a party avoid the time and expense of full discovery and trial by having outcome-determinative legal issues finally decided through the court(s) of appeal.
Another significant change under HB 274 will be the adoption of “rules to provide for the dismissal of causes of action that have no basis in law or fact on motion and without evidence.”  The Texas Legislature has directed the Texas Supreme Court to adopt such rules (as part of the TRCP), although no deadline has been set and fairly broad discretion has been given on the mechanics of the new rules.  While the content and effective date of the new rules is thus uncertain, mandates in HB 274 ensure the new procedures will have a short time frame and will include a mandatory award of attorneys’ fees to the prevailing party.
HB 274 also imposes a new requirement for designating a “responsible third party”—a person or entity that is not actually made a defendant in the lawsuit, but whose responsibility a jury may consider in a comparative fault analysis thereby potentially reducing an actual party defendant’s liability exposure.  Specifically, a defendant cannot designate someone as a responsible third party if the defendant does not disclose the third party’s identity before the statute of limitations runs on claims against that party.  Failure to adhere to this requirement may prevent a defendant from taking advantage of the potential liability-reducing benefits of responsible third party practice.
In addition to new rules, some lesser-used and nuanced rules can afford parties significant advantages in litigation.  For example, Rule 167 of the TRCP puts in place settlement offer procedures that can make attorney’s fees and litigation costs recoverable where they might not otherwise be available.  For a more detailed discussion of Rule 167, please see Rule 167 Offers: Encouraging Early Settlement, by J. Allen Smith and Katherine L. Killingsworth, SettlePou Newsletter Volume 6, Issue 4, available at  Rule 167 was recently expanded by HB 274, which now allows a party to recover “reasonable deposition costs” in addition to attorneys’ fees, court costs, and reasonable fees for up to 2 testifying expert witnesses.
Other lesser-used and nuanced rules in the TRCP with potential strategic impacts include:
· Rule 1 – states that the purpose of the rules is to ensure that the parties receive a just, fair, equitable, and impartial adjudication of the rights.  This may serve as authority for equitable motions not specifically governed by other rules.
· Rule 6 – prohibits a lawsuit from being commenced or served on a Sunday.  This can be critical for default judgments or other issues related to perfecting service.
· Rule 12 – allows a party to challenge the authority of an attorney to represent a party and requires that the attorney respond by proving its authority to the Court.  This can be useful in cases where questions arise as to an opposing party’s actual authorization of an attorney to take certain actions on the party’s behalf.
· Rule 176.3 – states that a subpoena, when issued to a person or company that is not a party to the lawsuit, may not require the witness to appear or produce documents in a county more than 150 miles from where the witness resides or is served.  Given the size of the State of Texas, this can be an important limitation when either defending or prosecuting a lawsuit.  For instance, it can mean that a subpoena issued in Dallas would not be enforceable on a nonparty witness residing in San Antonio.  If the discovery deadline passes before the party issuing the subpoena realizes the error, the requested discovery could be prevented, which in certain instances could have a significant impact on the outcome of a case.
· Rule 202 – allows a person to obtain court permission to take a deposition to investigate a potential claim or in anticipation of a lawsuit, but before a suit is actually filed.  This rule can be very useful in obtaining information from third parties before a potential defendant is aware of a potential suit.
· Rule 263 – presents an alternative to a traditional trial by allowing parties to agree to the facts of a case in writing and submit those facts to the court for the judge to render judgment by applying the law to the agreed facts.  Although not practicable in every case, this rule can significantly reduce the time and expense of full litigation, can ensure judgment is rendered (which is not guaranteed with competing summary judgment motions), and can limit appellate issues.  For more detailed discussion of Rule 263, please see The Rule 263 Trial By Agreement, by J. Allen Smith and Bradley E. McLain, The Texas Lawyer Special Edition, Litigation and E-Discovery, April 18, 2011, Volume 27, Number 3, page 20; and A Trial Without Having a “Trial,” by Bradley E. McLain and J. Allen Smith, SettlePou Newsletter Volume 4, Issue 2, available at

By:  Michael R. Steinmark and Daniel P. Tobin



Commercial Litigation

The “Alternative” to the Courthouse

Over the past 20 years, the number of civil lawsuits filed in Texas district and county courts has increased by 31%, including an almost 4% average increase per year since 1999. While the number of lawsuits filed is steadily rising, the number of civil cases that go to trial is steadily decreasing. The United States Department of Justice found a 47% decrease in the number of civil trials in the nation’s 75 largest counties from 1992 to 2001.

So how can the number of lawsuits continue to increase while the number of trials continues to decrease? The main reason is settlement, as between 88 and 90% of all cases settle before going to trial. And cases most often settle through alternative dispute resolution (“ADR”). In fact, approximately threequarters of cases that go through ADR are resolved.

It is all but guaranteed that a party to litigation will have to participate in ADR. The State of Texas law strongly advocates the use of ADR, and the Texas Legislature passed the ADR Act in 1987 to carry out that policy. The ADR Act sets out procedures to facilitate non-adversarial negotiation, such as ensuring that the process is confidential, and encourages all Texas courts to refer matters to ADR. For example, the Travis County District Courts automatically refer all cases to pre-trial mediation. This is the predomipredominent policy in many Texas courts. For instance, Bexar County District Courts presume that all cases should be ordered to mediation and require that parties participate in an ADR hearing four months before trial.

Mediation is a confidential process during which a mediator facilitates settlement negotiations and discussions between the parties. The mediator is an impartial party that is typically an attorney who has completed required training for the mediation process. The mediation often starts with an opening caucus or joint session when the parties, their attorneys, and the mediator meet in the same room to discuss the case and their respective positions. The parties then split into separate rooms, and the mediator spends the rest of the time going back and forth to listen to the parties, clarify issues, and facilitate settlement negotiation. Mediations usually last a half day or a full day. If an agreement is reached at the end and reduced to writing signed by the parties, it is usually an enforceable contract. If an agreement is not reached, the parties may decide to continue settlement discussions, with or without the mediator, or the parties will proceed with litigating their cases at the courthouse.

The advantages of mediation are that it is flexible, voluntary, more economical, fast, and confidential. Allen Smith, the Chairman of our Commercial Litigation Section, describes mediation as an opportunity that allows his clients to “control their world” versus litigation where so many variables are left in the hands of opposing counsel and the court and out of the client’s control. Smith is an advocate of consideration of mediation prior to any lawsuit to address disputes efficiently and economically in a strategy that he calls as he calls “Litigation Mitigation”.

A soon to be published study in the Journal of Empirical Legal Studies concludes that settling can frequently be more beneficial than going to trial. “In just 15 percent of cases, both sides were right to go to trial – meaning that the defendant paid less than the plaintiff had wanted or that the plaintiff got more than the defendant had offered.” Given this finding and the very high likelihood that a court will order a case to mediation, it behooves all businesses to be familiar with the ADR process.

By J. Allen Smith and Daniel P. Tobin