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The Texas Supreme Court, in opinions issued on Dec. 21, dealt a blow to insurers and held that a state lawmaker cannot collect millions of dollars in damages from a television station that broadcast a “false and defamatory” report about him. The court also ruled that a diet pill manufacturer targeted in hundreds of suits can’t appeal joinder issues in a case until there is a final judgment if the plaintiffs can show they have proper venue under the venue statute. Dissents to all or part of each ruling underscore the strong philosophical disagreements that exist between the two most conservative members of the court and the other justices. In a case of first impression, the high court ruled that an insurer cannot seek reimbursement from its insured for settlement funds paid under a reservation of rights. The case, Texas Association of Counties County Government Risk Management Pool v. Matagorda County, arose out of a law enforcement liability insurance policy the county had with TAC. In 1991, TAC added an endorsement to the policy excluding coverage for any claim “arising out of jail” because the county’s jail fell out of compliance with the minimum requirements of the Texas Commission on Jail Standards. Matagorda County was sued in 1993 by several prisoners who suffered injuries in the jail allegedly as a result of attacks by other prisoners. TAC initially denied the county coverage but later agreed to pay for defense costs subject to a reservation of rights to continue to deny coverage. The county did not acknowledge the reservation of rights. TAC settled the litigation for $300,000. A trial court later awarded TAC $300,000 for the cost of defending the claim, but the 13th Court of Appeals in Corpus Christi reversed that decision. In a 7-3 decision, the Texas Supreme Court found that TAC didn’t have a right to reimbursement. Justice Harriet O’Neill wrote the majority opinion in which she was joined by Chief Justice Tom Phillips and Justices Craig Enoch, James Baker, Greg Abbott, Deborah Hankinson and Al Gonzales. “There is a difference between an insurer’s reservation of its right to disclaim coverage, which occurred here, and an agreement by the insured that he will reimburse the insurer for any reasonable settlement, which did not occur here,” O’Neill wrote. “We hold the county’s consent to reimburse TAC’s settlement costs cannot be implied from this record.” Justice Priscilla Owen, in a dissenting opinion joined by Justice Nathan Hecht, wrote that the county was “unjustly enriched” in the case and “in order to prevent unjust enrichment, obligations are implied in the law even when there is no agreement, either expressed or denied.” Robert D. Allen, a partner in the Dallas office of Baker & McKenzie who represented Matagorda County, says the majority opinion did not close the door on insurers getting reimbursed. “They’re saying, ‘It’s not impossible to ever get reimbursed. You just didn’t do it correctly,’ ” Allen says. “All we wanted from Matagorda County’s side was to get the case settled. But we weren’t going to allow TAC to force their problems on us,’ ” Allen says. “ And that’s what we argued at the Texas Supreme Court.” E. Stratton Horres, TAC’s lawyer and a partner in the Dallas office of Wilson, Elser, Moskowitz, Edelman & Dicker, could not be reached for comment. LIBEL BY IMPLICATION In Turner v. KTRK Television Inc., the court held that a 1991 report broadcast by a Houston TV station conveyed a “false and defamatory message” about state Rep. Sylvester Turner, a Democrat who was in a runoff for Houston mayor. But the court’s majority said that Turner failed to prove “clear and convincing evidence of actual malice” — the standard required of a public figure — and cannot collect $3.25 million in damages awarded by a Houston jury. The court upheld a ruling by the 14th Court of Appeals in Houston, which had overturned the jury’s verdict. Turner, a partner in Barnes & Turner in Houston, says he’s glad the court ruled that the report was defamatory but disappointed that it didn’t find actual malice. “It’s a bittersweet pill,” he says. According to the high court’s opinion, KTRK reporter Wayne Dolcefino, in a report first aired six days before the runoff in the mayoral race, alleged that Turner was involved in an attempt to swindle approximately $6.5 million from insurance companies following the disappearance of a Houston man, who purportedly drowned after falling from a boat; he later turned up alive in Spain. Dolcefino, who also is a defendant in the case, reported that Turner drew up the man’s will only three days before his disappearance, the opinion noted. In the same report, Dolcefino alleged that Turner “pursued the estate case for over a year, until a judge removed him from the case over Turner’s protest, citing conflicts of interest,” the opinion said. Dolcefino also reported that Turner attempted to have a friend named administrator of the estate and said three investigators involved in the case disputed the lawmaker’s claims that he was fully cooperating with an investigation, the court wrote. Turner blamed the TV station’s report for his loss to Bob Lanier. The court noted that a poll conducted before the KRTK reports aired had shown Turner in the lead. In the majority opinion by Phillips, the court said Dolcefino omitted key facts from his reports. Those omissions included a statement by the judge overseeing the probate case that Turner’s conduct was above reproach and the fact that the beneficiary of the insurance policies was the father of the man believed to have drowned. The opinion also said Turner worked on the will for weeks, although the document was signed three days before the man disappeared. The court accepted the “libel by implication” theory suggested by Turner, holding that a plaintiff can sue for damages if a report creates “a substantially false and defamatory impression by omitting material facts or juxtaposing facts in a misleading way.” The test, according to the court, is how a report is perceived by the average person. “This is bad news for the media,” says Paul Watler, a Dallas lawyer who specializes in First Amendment cases. Watler, a shareholder in Jenkens & Gilchrist, says the court has “eased up” on the definition of what constitutes defamation, making it easier for private individuals to win defamation suits. “It’s very troubling to find the [Texas] Supreme Court holding that every fact in a news report can be literally true but somehow, when taken as a whole, can be defamatory,” he says. Chip Babcock, a Houston lawyer representing KTRK and Dolcefino, says it’s a little early to tell what effect the ruling on libel by implication will have on the news media. Babcock, a partner in Jackson Walker, also says the court passed up an opportunity to provide landmark protection to the media by barring libel by implication, one of several theories that he says the plaintiffs bar has developed to win defamation cases. “I’ve always thought that under the First Amendment, you are responsible for what you do say but not for what you don’t say,” Babcock says. Turner says he is disappointed in the ruling because the court found that the report was defamatory and that the reporter was negligent and omitted facts. “They don’t condone what he [Dolcefino] did. They stopped short of finding malice,” he says. The justices were fractured in their opinions about the issues in the case. Only Abbott and Gonzales joined Phillips in the majority opinion. In a separate opinion, concurring in part and dissenting in part, Baker, Enoch and Hankinson said they agreed with most of the ruling but found that KTRK and Dolcefino acted with actual malice. Baker, author of the separate opinion, said Turner’s evidence shows Dolcefino “manipulated the facts” to exaggerate the role the lawmaker played in the case. Hecht, joined by Owen in another concurring and dissenting opinion, said the court set too lenient a standard for measuring evidence of falsity. Such a lenient standard “significantly threatens open and vigorous discourse about matters of public interest,” he wrote. O’Neill, who served on the Houston appeals court that heard Turner’s case, did not participate in the decision. FEN-PHEN CASE The sharpest rhetoric in a dissenting opinion came in American Home Products Corp. v. Fawn C. Clark, et al., one of hundreds of cases involving the diet drug combo known as fen-phen. Owen, joined by Hecht in a dissent, wrote that the majority “sanctions a fraud and a sham on the legal system” by affirming the 10th Court of Appeals’ decision to dismiss an interlocutory appeal filed by the drug company. The deluge of fen-phen suits in Texas began after the Food and Drug Administration directed drug manufacturers to withdraw fenfluramine and dexfenfluramine, or Redux, from the market in September 1997. American Home Products appealed after the 249th District Court denied a series of the company’s motions challenging the right of the plaintiffs — the majority of whom aren’t Texas residents — to have their suit tried in Johnson County. In this case, 11 plaintiffs have sued 10 defendants, claiming injuries from taking fen-phen. One of the defendants lives in Johnson County, one lives in Gregg County and the rest live outside the state. American Home Products appealed after the trial court denied all its motions without offering an explanation. The 10th Court abated the company’s appeal and directed the lower court to state the grounds for denying a motion to transfer the suit. In a revised order, the trial court said that each plaintiff had established venue against a Johnson County physician named as a defendant. The appeals court, with one judge dissenting, held that it had no jurisdiction to hear the appeal because the Legislature decided that interlocutory appeals would not be allowed once a trial court has determined the venue question. Baker, author of the majority opinion, held that the appeals court ruled correctly. Joining him in the opinion were Phillips, Enoch, Abbott, Hankinson, O’Neill and Gonzales. But in a separate concurring opinion, Enoch said the plaintiffs are unlikely to establish independently that they have a right to a trial in Johnson County. “And because improper venue is mandatorily reversible, the trial of this case will likely be a waste of time,” he wrote. Owen was tougher in criticizing her colleagues in her dissenting opinion. The court “seriously undermines the Legislature’s efforts to reform the legal system,” she said. Susan Burnett, one of several lawyers representing American Home Products, says the defense team is disappointed with the ruling. “We think that the dissent got it right,” says Burnett, a partner in Clark, Thomas & Winters in Austin. Sharon McCally, a Houston lawyer representing the plaintiffs, did not return two phone calls seeking comment.

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