Posted by Rich Phillips, Emily Fitzgerald, Connor Bourland,and Brandon King
This week, the Texas Supreme Court will hear argument in eight cases over three days. You can watch arguments live (or watch the recordings, which are usually posted by the day after argument) here.
Tuesday, October 8
No. 17-0862, Energy Transfer Partners, LP v. Enterprise Products Partners, LP — The principal issue in this appeal is whether ETP and Enterprise formed a general partnership under the Texas Business Organizations Code. The jury found that ETP and Enterprise were in a general partnership, and Enterprise breached its duty of loyalty as a partner. The Dallas Court of Appeals reversed in part, holding that ETP and Enterprise did not form a general partnership as a matter of law because the parties’ written agreements contained unperformed conditions precedent that precluded the formation of a partnership unless ETP obtained a jury finding that the parties waived those conditions precedent, which ETP failed to do. ETP argues that the Court of Appeals improperly rewrote the TBOC’s “totality-of-the-circumstances test” by holding that “the law of conditions precedent” trumped the other evidence establishing a partnership. Enterprise argues that the TBOC is not the sole source of rules for determining partnership formation, thus common-law principles of conditions precedent and waiver supplement the TBOC’s partnership-formation provisions.
No. 18-0044, Copano Energy LLC v. Stanley D. Bujnoch, Life Estate — This case addresses whether a series of emails is sufficient to satisfy the statute of frauds. The trial court granted summary judgment for Copano, but the court of appeals reversed, finding that fact issues precluded summary judgment In the Supreme Court, Copano argues that even taken together, the series of emails does not comply with the statute of frauds because the emails do not sufficiently identify the parties or the property at issue and because they contain language indicating that an agreement would be executed in the future.
No. 19-0452, Janvey v. GMAG, LLC — This certified question from the Fifth Circuit arises from the Stanford ponzi-scheme litigation. The receiver filed a fraudulent-transfer suit against an investor who obtained about $88 million from Stanford before the SEC sued Stanford. Over the receiver's objection, the jury in federal district court was asked whether an investigation in Stanford would have been futile. The jury found that the transferee was on inquiry notice of the fraud and did not conduct an inquiry, but that an inquiry would have been futile. The Fifth Circuit has asked the Texas Supreme Court whether a transferee can invoke the good-faith defense by showing that, even if it was on inquiry notice, any further inquiry would have been futile.
Wednesday, October 9
Wednesday's arguments all have a theme: the Texas franchise tax and the cost-of-goods-sold deduction.
No. 17-0444, Sunstate Equipment Co. v. Hegar — This case involves the ability of a heavy-equipment-rental-company to deduct the costs of delivering and picking up the equipment as a cost of goods sold. The trial court granted summary judgment for Sunstate; the Third Court of Appeals reversed and rendered. At issue in this case is (1) whether costs incurred in delivering and picking up the equipment qualifies for the costs of good sold deduction under Texas Tax Code § 171.1012 and (2) whether delivering and picking up equipment constitutes “furnishing labor … to a project for the construction … of real property,” which would also allow Sunstate to deduct these costs under section 171.1012.
No. 17-0464, Hegar v. American Multi-Cinema Inc. — In this case, the Court will consider whether the cost of showing movies at a movie theater qualifies as a cost of good sold for purposes of a franchise-tax deduction.The trial court found that the costs are deductible and the court of appeals affirmed. The issue is whether showing a movie constitutes the sale of tangible personal property (in which case the cost of doing so would be deductible) or the sale of a service (in which case it would not be deductible).
No. 17-0894, Hegar v. Gulf Copper & Manufacturing Corp. — In this third and final franchise tax case, the Court will consider several issues related to the cost-of-goods-sold deduction and the subcontractor flow-through revenue exclusion provisions of the Texas Tax Code. The trial court awarded final judgment to Gulf Copper, granting a refund on the franchise tax paid and affirming Gulf Copper’s calculation of its deductions. The court of appeals affirmed the judgment as to the revenue exclusion, but reversed and remanded as to the cost-of-good-sold deduction. Both parties petitioned for review. The numerous in this case include (1) whether Gulf Copper was entitled to subtract costs under the COGS deduction for costs associated with furnishing labor and materials for the development of offshore oil and gas reserves; (2) whether Gulf Copper was entitled to use the “federal piggybacking” method of calculating its COGS or if, as the State argues, it was required to use a “cost-by-cost” calculation; (3) whether Gulf Copper was additionally entitled to revenue exclusion for hourly payments made to subcontractors through the “subcontractor flow-through” provision, section 171.1011 of the Texas Tax Code; and (4) assuming Gulf Copper put forth no evidence of allowable deductions under COGS and no evidence disputing the Comptroller’s calculation of the allowable deductions, whether the court of appeals improperly remanded for a new trial on Gulf Copper’s COGS deduction claim.
Thursday, October 10
No. 18-0426, Brewer v. Lennox Hearth Products, LLC. – This case involves a sanction against William Brewer arising from his use of a pretrial phone survey. Six weeks before the trial in a products liability/wrongful death case, Brewer's law firm drafted a survey concerning the alleged defective product and hired a third party to conduct telephone interviews in the local community. The plaintiffs moved for sanctions against the law firm, arguing the survey was an improper attempt to influence the jury pool. The trial court denied the defendant’s motion to continue and, after a hearing, sanctioned Brewer. The court of appeals affirmed. The primary issues on appeal are whether: (1) the court of appeals erred in affirming the sanctions award; (2) evidence supported the trial court’s finding of intentional, bad-faith conduct; (3) the survey significantly interfered with a core judicial function; and (4) the trial court’s denial of the motion to continue deprived Brewer of an opportunity to present a full and fair defense.
No. 18-0737, In re Murrin Brothers 1885 Ltd. – This original proceeding arises from a dispute between a company’s majority and minority shareholders. The Company Agreement required unanimity for major decisions, such as authorizing the representation of counsel. After a dispute arose among the shareholders, the majority faction engaged counsel regarding litigation against the minority faction; and the minority faction alleged this act was ultra vires absent a unanimous vote. The majority faction, however, contended the company’s Certificate of Formation authorizes a majority to hire counsel. The trial court denied the minority’s rule 12 motion to show authority, as well as its motion to disqualify the majority’s counsel. The court of appeals denied mandamus relief. The primary issues on appeal are: (1) whether, under the governing documents at issue, the majority faction was authorized to engage counsel in this litigation; and (2) whether the trial court and court of appeals erred in refusing to disqualify the majority faction’s law firm.
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