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

Senate Bill 18: Important Changes for Texas Landowners in Condemnation

Recently enacted Senate Bill 18 (“SB 18”) takes effect September 1, 2011, and alters the Texas property, education, government, local government, transportation, and water codes.  Among the provisions of SB 18 are new procedures emphasizing the importance of the offer process in condemnation and affording landowners additional rights with respect to property access and repurchase.

Offer Process Emphasized

 Texas law has long required condemning authorities to make offers to purchase property before initiating formal condemnation proceedings.  Much debate in the Texas Legislature has transpired over the fairness of the offer process to landowners facing a condemnor’s exercise of its “super power” to take land for public use.  For example, debate has circled around landowners’ concerns about receiving “lowball” offers, being unable to truly negotiate with condemnors in the offer process, and being unable to recover any attorneys’ fees if condemnors do not negotiate in good faith.

 Although SB 18 does not fully assuage all landowner concerns, it does put in place new requirements with a renewed emphasis on the “good faith” offer process.  For example, Texas law requires a “bona fide” offer by the condemnor, which SB 18 defines to require, among other things, written initial and final offers delivered by certified mail/return receipt requested, at least 30 days between offers, minimum limits for final offers, and additional time (14 days) for landowners to respond to final offers.  In addition, landowners are now entitled to 20 days notice (rather than the prior 11 days) before a condemnation hearing, giving the parties further time for purchase negotiations after a final offer has been made.  The new requirements give the offer process more structure, a slightly longer timeline, and more standards for assessing fairness in the amounts of offers and the manner in which offers are made.

To further emphasize the importance of the offer process, the Texas Legislature has now given landowners the right to recover some attorneys’ fees in condemnation lawsuits, albeit under only limited circumstances.  For example, if a court determines that a condemnor did not make a bona fide purchase offer conforming with all of the new statutory requirements, the court is required to abate the condemnation suit, order the condemnor to make a bona fide offer, and order the condemnor to pay reasonable attorneys’ fees and other professional fees (e.g., appraiser fees) that the landowner has incurred up to that point in the condemnation proceedings.  Attorneys’ fees are also now recoverable for compelling a condemnor to produce various documentation, such as appraisals, that the condemnor is required to provide to the landowner in the offer process.

These new limited rights to recover attorneys’ fees do not go as far as the law in some other states, where a successful landowner can recover all attorneys’ fees in a condemnation case.  Likewise, SB 18 may not protect landowners from final offers based on “lowball” appraisals.  But the new law does afford landowners in Texas more protection than they previously had and should hopefully incentivize condemnors to heed the Texas Legislature’s clear call for the offer process to be carried out more fairly to landowners.

Property Access and Repurchase

 In addition to emphasizing the offer process, SB 18 also puts in place new protections for landowners’ access to their property.  For example, in partial takings cases where the landowner will continue to own a remainder tract, SB 18 requires a landowner be paid for damage to the remainder where there is a “material impairment” to access between the landowner’s property and adjoining public roads.

SB 18 also impacts landowners’ ability to repurchase property a condemnor has previously taken.  While a repurchase right previously existed, SB 18 adopts additional circumstances under which the right to repurchase may be exercised.  At the same time, however, SB 18 imposes a short, 1-year statute of limitations to exercise the repurchase right once it arises, which can be triggered by actions the landowner has to take.  The new law thus broadens landowners’ repurchase rights in certain respects, but at the same time imposes burdens on landowners when seeking to exercise their rights.

Although the above-discussed changes to Texas condemnation law and others under SB 18 are a step in the right direction, there is still more to reform in Texas condemnation law for private landowners.  In addition, private landowners should be careful navigating the new law in order to protect their rights.

 by J. Allen Smith and Michael R. Steinmark

Commercial Litigation

New Modification Program Could Be Beacon of Hope in the Seemingly Hopeless World of Troubled Mortgages

The fingers of those laying blame for the financial crisis have pointed in a number of directions, including Wall Street investment banks, securities ratings agencies, mortgage brokers, Fannie Mae and Freddie Mac, and politicians on both sides of the aisle. Regardless of who is ultimately at fault, it is undeniable that at the heart of the crisis lie troubled mortgage loans.

For various reasons, including falling home prices, creative loan products, and interest rate adjustments, default rates on mortgage loans increased dramatically over roughly the last two and a half years, from under 5 percent in the third quarter of 2006 to roughly 12 percent at the end of 2008. While the problem initiated in the subprime market and in states like Florida, California, and Nevada, the problem eventually spread through the prime market as well, affecting homeowners nationwide with loans of wide-ranging values. As mortgage defaults became widespread, mortgage-backed securities failed, as did the credit default swaps effectively insuring them, leaving investors with assets of dubious, if any, value.

From a litigation perspective, rising default and foreclosure rates have spawned an escalating volume of foreclosure-related litigation. Borrowers are bringing a variety of claims challenging their loans, the rights of lenders to foreclose, and the rights of lenders to evict. In many of these cases, loan modifications would potentially be the most advantageous resolution for both borrower and lender alike due to falling home prices, increasing days on market, and already inflated lender REO inventories. But modifying these loans is often a difficult proposition for lenders due to high default amounts, and many borrowers are facing pay cuts and layoffs, further stymieing their ability to make monthly payments.

Legislators have been searching for solutions to assist with modifications, but to date an effective solution has remained elusive. For example, Congress passed the HOPE for Homeowners Act of 2008 with the goal of creating an FHA program to help homeowners avoid foreclosure by fostering modifications to reduce principal balances and interest rates. Due to the program’s hard-to-meet requirements, however, it is estimated that there have been fewer than 100 applications nationwide for participation in the program and as few as only one foreclosure actually prevented as a result of the program.

Despite the failure of prior programs, there may yet be hope on the horizon. Just recently, on March 4, 2009, the Treasury Department announced the “Making Home Affordable” program, a new attempt to assist with modifications to avoid foreclosure. The $75 billion program will require participating lenders to reduce payments to no more than a 38 percent debt-to-income ratio (“DTI”). For further payment reductions down to a 31 percent DTI, the Treasury Department will provide lenders with dollar-for-dollar matching to soften their losses. Lenders will have the option to forbear principal, extend loan terms up to 40 years, and reduce interest rates as low as 2 percent for a period of 5 years before they are gradually increased back. Servicers will receive an upfront incentive of $1,000 for each modification under the program, and will also receive additional $1,000 incentive payments for up to 3 years for borrowers who stay in the program. Among the eligibility requirements are an unpaid principal balance of $729,750 or less, and occupation of the collateral property as a 1 to 4 unit primary residence.

Because the Making Home Affordable program is so new, its actual impact, of course, remains to be seen. But changes in this program from its predecessors, such as the elimination of loan-to-value ratio caps for participation, seem to indicate that legislators may be learning from their prior failed attempts, engendering cautious optimism that an effective solution will be found soon.

By J. Garth Fennegan and Michael R. Steinmark