Fifth Circuit Ruling in Wal-Mart Case Could Have Wide Reach

Fifth Circuit Ruling in Wal-Mart Case Could Have Wide Reach Photo: Mike Mozart of JeepersMedia via Wikimedia Commons.

The U.S. Fifth Circuit Court of Appeals recently wiped out a $3.9 million jury award against Wal-Mart, a civil penalty the trial court judge called “stunning” and “the highest verdict that’s been reached in this court . . . in a case that is not worthy of the highest verdict.”

However, Russell Post, a partner with Houston’s Beck Redden who represents the plaintiffs in the case, said the Fifth Circuit’s Aug. 15 decision zeroing out the damage award against the nation’s largest retailer is unprecedented and could have “serious and unintended consequences” on a variety of Texas state statutes intended to regulate the behavior of businesses inside the Lone Star State. For those reasons, Post said his clients will ask the Fifth Circuit to rehear the case — Doris Forte et al. v. Wal-Mart Stores, Inc.

The case is involves the Texas Optometry Act — a statute that has not often been the subject of federal appellate review.

Wal-Mart rented space to optometrists using a standard lease agreement requiring optometrists to make representations in their leases of the projected number of hours their offices would remain open. Since 1995, the act prohibits attempting to influence the office hours of an optometrist. In 2007, the optometrists sued Wal-Mart under the act in a Southern District of Texas U.S. District Court. But in 2009, Wal-Mart deleted the hours representation provision from its leases. In 2010, the trial court judge instructed the jury that the plaintiffs do not claim they have suffered any physical or economic damages [and] only seek to recover civil penalties.”

A jury found Wal-Mart liable under the act for “setting or attempting to influence . . . office hours of an optometrist” and awarded $3.9 million in civil penalties, the highest possible under the statute.

The district court judge called the verdict “stunning” and “the highest verdict that’s been reached in this court . . . in a case that is not worthy of the highest value” according to the decision and eventually reduced the award to $1.4 million.

Wal-Mart appealed the judgment to the Fifth Circuit, arguing that it should be reversed or, alternatively, that the $1.4 million reduced award violates Texas tort reform laws that cap punitive and exemplary damages in certain civil cases.

In its decision, the Fifth Circuit affirmed the liability finding against Wal-Mart because the jury’s decision could be supported under the “plain meaning” of the act.

But the Fifth Circuit also ruled that the trial court erred when it found that Chapter 41 of the Texas Civil Practices and Remedies Code, which limits the amount of exemplary damages plaintiffs can recover in some civil law suits, did not apply to the case.

Specifically the Fifth Circuit ruled that Chapter 41 “eliminates the civil penalties in this case.” The court explained that the optometry law’s civil penalties fall within Chapter 41′s definition of “exemplary damages,” are not compensatory in nature, and that the plaintiffs in the case had “expressly disclaimed that they had suffered any actual damages.”

Chapter 41 places a cap of $200,000 on non-economic damages for some plaintiffs. But because the plaintiffs had “no non-nominal damages,” the maximum allowed under Chapter 41 for each plaintiff claim was “$0″ rather than $200,000, wrote Judge E. Grady Jolly in a decision joined by Chief Judge Carl Stewart and Judge Jerry Smith.

Post, who represents the optometrists in the case, is pleased the Fifth Circuit upheld the jury’s liability finding in the case, but is troubled by the appellate court’s decision to eliminate his client’s damage award.

“That aspect of this decision is genuinely unprecedented because no Texas court has ever held that the tort reform provisions of Chapter 41 apply to civil penalties,” Post said.

“If that decision stands it will have significant and unintended consequences for a wide range of civil penalties in Texas,” said Post, who noted the decision could affect the civil enforcement of environmental law in Texas — an issue that has already come up in Texas state courts that required a response by the Texas Attorney General.

The attorney general of Texas took the position that Chapter 41 does not apply to civil penalties, Post said. “This decision is not only unprecedented but contrary to the opinion of the Texas Attorney General.”

Randy Hargrove, a company spokesman for Wal-Mart, said the company is pleased that the Fifth Circuit concluded that no civil penalties were warranted in the case.

“While we disagree the Texas Optometry Act prohibited Wal-Mart from merely discussing hours of operation with former licensees, we stopped discussing hours of operation with Texas Optometrists five years ago,” Hargrove said.

“We’re proud to have independent optometrists to provide our customers with convenient and quality eye care. And Wal-Mart seeks to keep a good relationship with those optometrists and the Texas Board of Optometry,” Hargrove said.

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