by Connor G. Sheehan and Cari Lasala
Damages are a central focus in nearly every case. Here are a few recent developments that may impact your practice:
Lost Profits Damages
In Southwestern Energy Production Co. v. Berry-Helfand, 491 S.W. 3d 699 (Tex. 2016), the Texas Supreme Court reversed a jury award of lost profits, finding insufficient evidence to support the award. The damage finding at issue was based on expert testimony applying a fixed overriding royalty, whereas the third party contract that the plaintiffs contended resulted from a breach of their nondisclosure agreement utilized a sliding scale for the royalty that eventually zeroed out at a specified threshold. The court found the expert’s failure to apply the sliding scale royalty was “a critical misstep” that rendered the evidence insufficient to support the lost profit damages awarded. The Court held that while the plaintiffs’ expert could rely on the proffered agreement as a benchmark for lost profits damages, the expert was required to consider the precise sliding scale profit formula contained in the agreement. Indeed, it was the fact that the expert had available, but did not correctly apply, the formula that led to the reversal of the damages award. While financial experts often use averages or approximations in their calculations, Southwestern cautions that an expert should not disregard available evidence bearing directly on the lost profits calculation.
In partial property damage cases, a property owner has long been entitled to recover both the market value of the property and damages for loss-of-use. Until recently, however, most Texas appellate courts considered loss-of-use damages in total destruction cases an impermissible double recovery. In J & D Towing, LLC v. American Alternative Insurance Corporation, 478 S.W.3d 649 (Tex. 2016), the Texas Supreme Court resolved the issue, permitting recovery of loss-of-use damages in total destruction cases. The Court made clear that the availability of loss-of-use damages is not absolute, adding that loss-of-use damages should only be awarded for a period “reasonably necessary” to replace the property; that the damages must be “foreseeable and directly traceable” to the tortious act; and that while “mathematical exactness is not required,” the damages must not be speculative. Thus, the facts and circumstances in each total loss case should be carefully examined to determine whether and how much loss of use damages will be appropriate.
The Texas Supreme Court clarified Texas nuisance law through its 54-page opinion in Crosstex North Texas Pipeline, L.P. v. Gardiner, 505 S.W.3d 580 (Tex. 2016). The Court defined nuisance as “a condition that substantially interferes with the use and enjoyment of land by causing unreasonable discomfort or annoyance to persons of ordinary sensibilities attempting to use and enjoy it.” Id. at 593. While determining what is “substantial, unreasonable and ordinary” for the purpose of nuisance remains a question of fact, the Court made clear that it does not intend to protect landowners from “petty annoyances and disturbances of everyday life.” The Court identified damages, injunctive relief and self-help abatement as three remedies that are potentially available in a nuisance action. The type of damages that may be recovered depends on whether the injury is “temporary” or “permanent.” If temporary, the owner may recover only for lost use and enjoyment that has occurred up to the time of trial. If permanent, the owner may recover the lost market value of the land affected by the nuisance. The case is significant because it defines the scope of private actions by the public against companies which, given their necessary operations, often create noise that can interfere with others’ enjoyment of the use of their property.
Discovery and Damages
Fed. R. Civ. P. 26(b)(1) was amended effective December 1, 2015 to explicitly require parties to consider whether the discovery at issue is proportional to the needs of the case. While only a limited number of Texas cases address the recent amendments, the existing case law suggests that some evidence of damages should be presented relative to proportionality when a party is seeking or attempting to restrict the scope of discovery. See Wal-Mart Stores, Inc. v. Tex. Alcoholic Bev. Commis’n, 2016 WL 5922315 at *2 (W.D. Tex. Oct. 11, 2016) (the “sheer number of attorneys who have made appearances” was considered “a persuasive demonstration” of the significance of the case such that proportionality was “not at issue in this discovery dispute”); Robinson v. Dallas County Comm. Coll. Dist., 2016 WL 1273900 at *3-4 (N.D. Tex. Feb. 18, 2016) (a party resisting discovery must come forward with specific information to address the proportionality factors); Labaty v. UWT, Inc., 2015 WL 1393641 at *4 (W.D. Tex. Mar. 24, 2015) (denying motion to compel because damages were “relatively low” compared to the cost of production).