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A March 8 ruling by the Texas Supreme Court will make it more difficult to recover damages in an action involving interference with a prospective contractual relationship. Texas School of Law Professor David Anderson says the court’s 7-0 ruling in Wal-Mart Stores Inc. v. Sturges considerably narrows this type of tort claim. “It signals that there are not going to be any more judgments like Pennzoil v. Texaco under Texas law,” Anderson says. In 1985, a jury in the 151st District Court in Houston awarded $10.5 billion to Pennzoil after finding that Texaco had interfered with the company’s attempted buyout of Getty Oil. The 1st Court of Appeals in Houston affirmed in part and modified in part, finding that the punitve damages were $2 billion too high. Morris Gore, a Dallas solo who represents Harry Sturges III and his partners in the long-running case, says the supreme court has all but written this type of tort action out of the books. “It appears to me that the Texas Supreme Court has very significantly restricted prospective contractual interference as an independent tort,” Gore says. The court holds that to establish liability in such a suit requires proof that the plaintiff was harmed by the defendant’s conduct, which was independently tortious or unlawful. “By independently tortious we do not mean that the plaintiff must be able to prove an independent tort. Rather, we mean only that the plaintiff must prove that the defendant’s conduct would be actionable under a recognized tort,” Justice Nathan Hecht, author of the opinion, wrote. “It’s a complete victory for Wal-Mart,” Alan N. Magenheim, one of the lawyers who represented the Delaware corporation, says of the ruling. Magenheim, a partner in Houston’s Magenheim, Bateman, Robinson, Wrotenbery & Helfand, calls the case “groundbreaking” because the issue of when a defendant can be held liable for interfering with another’s prospective business relations had not been addressed by the state supreme court. In the opinion, Hecht noted the confusion in the law with regard to tortious interference with prospective business relations. The supreme court’s previous decisions had not defined precisely what conduct is culpable, and courts of appeals have disagreed on the issues, the opinion said. “It’s a much needed ruling,” says John Glover, a partner in Houston’s Chamberlain Hrdlicka White Williams & Martin and one of Wal-Mart’s trial attorneys. The supreme court opted to treat this type of tort differently when the case involves a prospective business relationship as opposed to a signed contract. IT MAKES SENSE “It makes sense to require a defendant who induces a breach of contract to show some justification or privilege for depriving another of benefits to which the agreement entitled him,” Hecht wrote. “But when two parties are competing for interests to which neither is entitled, then neither can be said to be more justified or privileged in his pursuit. If the conduct of each is lawful, neither should be heard to complain that mere unfairness is actionable.” Kevin Jewell, another Magenheim Bateman partner who represents Wal-Mart, says the ruling stands for the proposition that “aggressive but legal interference” in a deal that’s in the works cannot be attacked as tortious interference. However, Jewell says Wal-Mart did not act aggressively in this case. Gore alleges that Sturges was close to having a final contract when a real estate agent representing Wal-Mart interfered. Court records show that Sturges had contracted for himself and the other plaintiffs — Dick Ford, Bruce Whitehead and J.D. Martin III — to buy from Bank One a vacant piece of commercial property next to a Wal-Mart store in Nederland. But under the terms of covenants and restrictions agreements, Wal-Mart had to approve of the proposed use of the property, Hecht noted in the opinion. According to the opinion, Sturges contacted Wal-Mart seeking approval to build a food store larger than the site plan permitted on the tract and was told by a manager in the corporation’s property management department that Wal-Mart would approve the modification; later he was told the changes would not be approved. In the meantime, Sturges obtained a non-binding agreement with Fleming Foods of Texas that it would lease the property, the opinion said. Gore alleges that Wal-Mart wanted to buy the property and hired a real estate agent to help acquire the property. The agent told a Fleming official that if the food store chain leased the tract, Wal-Mart would close its store and move away — a decision that Gore alleges had not been made by Wal-Mart. “He [the real estate agent] said something that wasn’t true, and he said it to cancel the deal with us,” Gore alleges. Magenheim contends that Wal-Mart had intended all along to expand its store on the Nederland property. “It was never their [Wal-Mart's] intent to harm anybody,” he says. Sturges and the other plaintiffs sued Wal-Mart in 1990, claiming that the company tortiously interfered with their prospective lease with Fleming and breached the covenants and restrictions agreements. A 136th District Court jury in Beaumont found Wal-Mart liable on both theories and awarded the plaintiffs $1 million in actual damages and $500,000 in punitive damages. Addressing only the tortious interference claim, the 9th Court of Appeals affirmed the award for actual damages but decided that the punitive damages had been understated and sent the case back to the district court for a retrial of that issue. The supreme court addressed the tortious interference and the breach of contract claims and ruled against the plaintiffs on both. Gore says the breach of contract issue should have been remanded to the appeals court and will raise that as one of the grounds to be considered when he files a motion for rehearing by the supreme court. In a concurring opinion, Justice Harriet O’Neill agreed with the court’s finding that no evidence supports the plaintiffs’ claim that Wal-Mart unlawfully interfered with the pending contract but said the court strays beyond measuring the evidence against the charge and “expounds on what the law should be.” O’Neill, who was joined in the opinion by Justice Deborah Hankinson, said the court’s eagerness to clarify the law in an unsettled area is understandable, but it should not do it in dicta. Anderson agrees with O’Neill but says this is “very powerful” dicta. “The fact the court has gone out of its way to announce new law on tortious interference with a prospective contract makes it all the more powerful,” he says. However, Anderson says the real estate agent’s alleged threat that Wal-Mart would move if Fleming leased the property could have been fraudulent if the company did not intend to move its store. A jury should decide that issue, he says. MOTIVATING FACTOR In a 5-2 decision on March 8, the supreme court ordered a new trial of a suit brought by an engineer who claims that a Houston area chemical company fired him because of his age. The court held in Quantum Chemical Corp. v. Ralf Toennies that 190th District Judge John Devine erred when he instructed the jury that the company violated the law if, because of age, it discharges an employee. When the jury deadlocked and sent a note to the judge asking whether Toennies had to show that age was a factor or the sole determining factor in his termination, Devine declined to answer, the majority opinion said. Toennies, a senior engineer at the La Porte facility, was 55 when Quantum fired him in 1994 after he received poor ratings on two annual evaluations. The supreme court’s opinion said Toennies’ performance had been praised by a number of coworkers, including the supervisor who had given him the bad evaluation, but that he also had received warnings about his work. The jury found in Quantum’s favor, but the 1st Court of Appeals in Houston said the verdict could have been the result of the judge’s flawed instruction to the jury. The supreme court agreed with the appeals court and remanded the case to the trial court. Supreme Court Chief Justice Tom Phillips, author of the majority opinion, noted that the Texas Commission on Human Rights Act provides that a plaintiff establishes an unlawful employment practice by showing discrimination was “a motivating factor.” The act does not distinguish between a “pretext” case and a “mixed-motive” case, the opinion said. In one type of case, the plaintiff alleges that the employer’s stated reason for the adverse action is a pretext for discrimination. In the other, the plaintiff has direct evidence of discrimination, and the employer must show that legitimate reasons would have led to the firing regardless of discriminatory motives. In the absence of settled federal precedent guiding the interpretation of the state law, the court followed the “plain meaning” of the law, the opinion said. “The plain meaning of this statute establishes ‘a motivating factor’ as the plaintiff’s standard of causation in a TCHRA unlawful employment practice claim, regardless of how many factors influenced the employment decision,” Phillips wrote. The standard supplants the “but for” standard of causation that, according to the opinion, is used by some federal courts. Hecht, who wrote a dissenting opinion in which Justice Priscilla Owen joined, said that it’s not known how the 5th U.S. Circuit Court of Appeals will rule. If the 5th Circuit follows the developing trend in the other circuits, Texans will find it better to file an employment-discrimination case in state court than in federal court until the U.S. Supreme Court resolves the issue, he said in the opinion. “This incentive for forum-shopping defeats an express purpose of the Texas statute,” Hecht wrote. STAMPING OUT DISCRIMINATION Levon Hovnatanian, who represents Toennies, calls the ruling “a huge win.” He says, “It should help stamp out employment discrimination in this state.” Hovnatanian, a partner at Houston’s Martin, Disiere & Jefferson, says the state supreme court often is criticized for being strongly defense-oriented. This case proves that if a statute says a plaintiff should prevail, the court will rule that way, he says. “They were fair; they followed the law,” Hovnatanian says. South Texas College of Law Professor Richard Carlson says the ruling will make it “a little easier” for plaintiffs to prevail in employment-discrimination suits that qualify as mixed-motive cases. Carlson, who teaches employment law, says the ruling will impact the way that judges have to describe the law to the jury. It also will affect the kind or amount of evidence that a plaintiff must have to get his case treated as a mixed-motive case, he says. “Just about everybody will be entitled to a mixed-motive instruction,” Carlson says. While Carlson says he agrees with the supreme court majority, he fears that a jury could be “misled” by a motivating factor instruction. The danger, he says, is a jury which hears the instruction may think it doesn’t have to find a problem with an employer’s explanation of the adverse action against an employee to rule in the employee’s favor. Carlson says the problem can be addressed if an employer requests additional instruction clarifying that the jury must reject the employer’s explanation to find for the employee. Quantum’s lawyer, Christopher V. Bacon of Houston’s Vinson & Elkins, declines comment because the case is still pending.

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