© 2015 The Texas Lawbook.
By Janet Elliott
AUSTIN (Oct. 1) – The legal battle between four Texas eye doctors and Wal-Mart has found its way to the Supreme Court of Texas over the issue of exemplary damages in private attorney general actions.
The eventual decision by the state’s highest court could produce a precedent that lawyers claim would cause a surge in lawsuits seeking big-dollar damages under state laws usually reserved for regulatory enforcement by governmental authorities, such as the state attorney general.
During oral arguments last week, Wal-Mart’s lawyer cited support from leading business groups in urging the state justices to apply a 1995 tort reform law limiting exemplary damages to a $1.4 million civil penalty obtained by four optometrists who leased space in the retailer’s stores.
The four eye doctors claimed that Wal-Mart violated provisions of the Texas Optometry Act by attempting to influence their hours of operation.
None of the doctors claimed they had been financially damaged as a result of Wal-Mart’s actions. Instead, they brought the case as a private attorney general action seeking the civil penalties of up to $1,000 a day as an award designed to deter law violators.
If the other 400 optometrists in a potential class action had received similar awards, Wal-Mart would have been forced to pay more than $100 million.
Business groups, including the U.S. Chamber of Commerce, the Texas Association of Business and Texans for Lawsuit Reform, filed amicus briefs in support of Wal-Mart.
The Texas attorney general, several district attorneys and other local government officials raised concerns about the potential effect on 30 state laws allowing private enforcement of consumer, health and environmental laws where government enforcement is also possible.
The Supreme Court is facing two certified questions from the 5th U.S. Court of Appeals:
Do the penalties obtained by the optometrists amount to damages within the meaning of Texas Civil Practice and Remedies Code chapter 41? If they do, should they be considered exemplary damages that are precluded under the law if there is no recovery of actual damages?
Gibson Dunn partner James Ho, who argued for Wal-Mart, said both questions should be answered “yes” in recognition of the Texas Legislature’s “efforts to improve the business climate of our state by enacting common-sense tort reforms.”
“We’re all joined together in this case to defend and enforce Texas law, not to gut it so that plaintiffs can seek these massive windfall recoveries despite the absence of any actual harm,” said Ho, in reference to the business groups.
Beck Redden partner Russell Post, who argued for Doris Forte and the other optometrists, cited briefs filed by the Texas Attorney General and a group of local governmental entities, including Harris County and Houston. The state and local governments expressed strong concern that a decision construing the penalties as damages could nullify a wide array of governmental penalties and urged the court to make clear that it does not apply to penalty actions initiated by the government.
“Wal-Mart urges the court to close its eyes to the consequences of this case for governmental entities,” said Post. “If you are going to address whether civil penalties are damages you cannot avoid the question of whether they are covered as to governmental entities.”
5th Circuit Withdrew Opinion
In August 2013, a 5th Circuit panel ruled that the Texas law limiting punitive damages to no more than the amount of actual damages must be applied to state laws that include civil penalties. On rehearing, the panel withdrew its opinion and certified the two questions.
The unusual nature of the case and its potential impact on government enforcement actions was a key topic of discussion during the Sept. 23 oral arguments. Chief Justice Nathan Hecht asked Ho whether civil penalties sought by the state are damages.
“We, of course, don’t have a dog in that fight. This is a private plaintiff case,” Ho said. “But at the end of the day, no. We agree with the AG. We do not think that Chapter 41 applies to state and local government in light of the text and purpose of Texas’s Chapter 41.”
Just as the government’s amicus brief sparked comment so did the business groups’ filing. In a letter brief for Texans for Lawsuit Reform, Hugh Rice Kelly noted the legislative history of the 1995 law that “did its best” to outlaw “runaway exemplary damage verdicts based on comparatively small, or nonexistent, losses.”
Post, a Houston partner in Beck Redden, addressed the issue head-on.
“There’s quite a bit of warning about the prospect of a parade of horribles from private civil penalty litigation in the Wal-Mart briefing and the briefing by amicis,” Post said. “That is not a plausible threat. These are fairly rare statutes in which the Legislature has specifically chosen to take advantage of the private attorney general approach to enforcement. That legislative judgment ought to be respected and not avoided based on scarecrow tactics.”
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