© 2013 The Texas Lawbook.
Cover Photo courtesy of The Dallas Morning News.
By Mark Curriden – (August 15) – A federal appeals court panel, in a potential landmark decision, ruled Thursday that Texas tort reform law limiting punitive damages invalidates civil penalties in other state laws unless the victims of the law violations have suffered actual damages.
The decision by the U.S. Court of Appeals for the Fifth Circuit, according to legal experts, could severely complicate or endanger scores of cases brought by the Texas Attorney General and private lawyers seeking to use civil penalties to change illegal or potentially dangerous conduct by businesses and individuals.
The ruling came in a very bizarre case in which hundreds of Texas eye doctors in 2009 sued Walmart, which was leasing them space in their shopping centers, for forcing the optometrists to report to the retailer their hours of operation.
The optometrists claimed that violated the Texas Optometrist Act of 1969, which allows the eye doctors to sue violators for attempting to influence their hours of operation. None of the doctors claimed that they had been financially damaged as a result of Walmart’s actions. Instead, they brought the case as a private attorney general action seeking the civil penalties as an award designed to deter law violators.
A jury heard evidence in four of the cases in 2010 and agreed with the optometrists, awarding them more than $4.3 million in damages. The judge reduced the amount to $1.4 million for the four.
If the other 400 optometrists received similar awards, Walmart would have been forced to pay more than $100 million.
In a unanimous decision, a three-judge panel upheld the jury’s finding on liability that Walmart violated the state law by requiring optometrists to report their hours of operation to store officials.
But in the final three pages of the 13-page opinion, the Fifth Circuit said the optometrists should get no money from the case.
The appeals court panel said that Rule 41 of the Texas Civil Practices and Remedies Code, which limits punitive damages to no more than the amount of actual damages, must be applied to state laws that include civil penalties.
The civil penalties are punitive and because the doctors made no claim of damages, they could not collect any civil penalties either, wrote Judge E. Grady Jolly.
“Chapter 41 caps damages for each plaintiff’s claim at zero, because no plaintiff received non-nominal damages that would have in turn permitted any award of exemplary damages,” Judge Jolly said.
Walmart officials applauded the decision, while lawyers for the optometrists were stunned and promised an appeal.
“This is a significant, unprecedented decision that could have potential grave unintended circumstances,” says Russell Post, a partner at Beck Redden in Houston, who represents the optometrists.
“No court in Texas has ever ruled that civil penalties are subject to tort reform,” Post says.
Independent legal experts said they, too, were surprised at the decision and do not think that Thursday’s ruling will be the final word.
“There’s more than a fair chance that there will be a motion to have the Fifth Circuit withdraw the opinion so that the court can seek certification on the question from the Texas Supreme Court,” says former Texas Appellate Judge Kent Sullivan, who is now a partner at Sutherland Asbill & Brennan in Austin.
Sullivan said that the Fifth Circuit has taken such action in the past, most recently involving the insurance claims in the BP oil spill litigation.
“This decision is going to cause a ripple effect, but the question is how big of a ripple and who will address it – the Texas courts or the legislature,” he says.
Walmart spokesman Randy Hargrove said the retailer “seeks to maintain a good relationship with each of those optometrists and with the Texas Board of Optometry.
“We are pleased that the Court concluded no civil penalties were warranted,” he said. “While we disagree that the Texas Optometry Act prohibited Walmart from merely discussing hours of operation with former licensees, we stopped discussing hours of operation with Texas optometrists five years ago.”
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