In Texas, small monetary disputes may be brought before the Justice of the Peace or “JP Courts.” Most Texans are probably unfamiliar with the term and know these courts simply as “Small Claims Courts.” However, recent changes to the Texas Rules of Civil Procedure have increased the amount of damages claimants may seek in JP Court, thereby raising the stakes in an arena practicing attorneys often call, the Wild West.

On September 1, 2020, by order of the Supreme Court of Texas, the Texas Rules of Civil Procedure were amended to allow JP Courts to hear cases with a maximum value of $20,000.00. This doubled the amount previously permitted under the Texas Rules of Civil Procedure. The change is significant because JP Courts are not bound by the full Texas Rules of Civil Procedure or to the Texas Rules of Evidence. Such rules only apply if explicitly provided for by statute or by the rule, or if the judge hearing the case determines that a particular rule must be followed to “ensure that the proceedings are fair to all parties.” In other words, a rule only applies if the JP Court says it applies. This free-wheeling approach is meant to encourage the JP Courts as a venue for those who are unable to afford legal representation and would otherwise face complex rules of procedure and evidence as a barrier to recovery.

It remains to be seen what effect, if any, this increase will have on day-to-day practice in Justice of the Peace Courts. Will JP Courts be more likely to apply the rules in maximum damage cases? Perhaps. Will we see more attorneys taking on contingency work in JP Court? Maybe. Only time will tell, but change is certainly upon us.

Law360 reports that more than five thousand civil lawsuits have been filed by businesses seeking to recoup pandemic-related losses under their commercial policies. This new wave of litigation has called upon courts across the country to determine whether commercial policyholders have a right to recover for business losses in light of the COVID-19 pandemic.

Just last month, two federal courts reached conflicting decisions in similar suits brought by commercial policyholders against their insurers. The rulings, issued one day apart, highlight the challenges litigants will face in pursuing lawsuits of this nature on either side of the docket.

In Studio 417, Inc., et al. v. The Cincinnati Ins. Comp., the plaintiff-insureds brought a class action against their insurer after their claims for pandemic-related business losses were denied. The respective policies each contained the same relevant language, which obligated the insurer to cover “direct ‘loss’ unless the ‘loss’ [was] excluded or limited”. A “Covered Cause of Loss” was defined as “accidental [direct] physical loss or accidental [direct] physical damage”. However, the policies were silent as to what constituted a “physical loss” or “physical damage”.

The insurer argued that the plaintiff-insureds had not adequately pled a “physical loss” as required by the policies, and urged the court to define a physical loss as requiring “actual, tangible, permanent, physical alteration of property”. In contrast, the plaintiff-insureds argued that the “physical loss” requirement was met as it was “likely that customers, employees, and/or other visitors to the insured properties … infected the insured properties with the [Coronavirus]”. In addition, the plaintiff-insureds alleged that multiple state orders mandating the closure of plaintiffs’ businesses constituted a loss that “required and continue to require [p]laintiffs to cease and/or significantly reduce operations”.

The court ultimately turned to our dear friend Webster to resolve this dispute. In denying the insurer’s motion to dismiss, the court ruled that the “plain and ordinary meaning” of the phrase “direct physical loss” encompassed the plaintiff-insureds’ claims that the presence of COVID-19 “deprived plaintiffs of their property, making it unsafe and unusable” and “result[ed] in direct physical loss to the premises and property”.

In contrast, the United States District Court for the Western District of Texas issued its decision one day later in Diesel Barbershop, LLC v. State Farm Lloyds, in which the court precluded business owners from recovering COVID-19 related losses under their commercial policies. As in Studio 417, the inquiry in Diesel focused on whether the plaintiffs had sufficiently pled a ‘direct physical loss’. However, the plaintiffs in Diesel argued that only the state-mandated closures resulted in their business losses, not COVID-19 or potential exposure of their properties to COVID-19.

The Diesel court reviewed the plain language of the policies, which read, in relevant part:

“When a Limit Of Insurance is shown in the Declarations for that type of property as described under Coverage A – Buildings, Coverage B – Business Personal Property, or both, we will pay for accidental direct physical loss to that Covered Property at the premises described in the Declarations caused by any loss as described under SECTION I — COVERED CAUSES OF LOSS.”

‘SECTION I — COVERED CAUSES OF LOSS’ stated that the insurer would “insure for accidental and direct physical loss to Covered Property” unless the loss was excluded. Relying on decisions from the Fifth Circuit, Second Circuit, and Northern District of Texas, the Diesel court held that the plain language of the policies calling for a “direct physical loss” necessitated “distinct, demonstrable, physical alteration of the property” and granted the insurer’s motion to dismiss. The court also concluded that the plaintiff business owners’ claims were precluded by a Virus exclusion in the policies.

What do these decisions mean for insurance companies and their insureds moving forward?

Read the policy. While the majority of cases discussing COVID-19 related business losses have been resolved in favor of the insurer, the above courts’ conflicting decisions demonstrate the need for litigants to familiarize themselves with the language of the policy in question, as well as any exclusions that may apply. Thousands of policyholders and their insurers have sought redress on this issue in just the last few months, and we expect them to continue to do so as the pandemic lingers.

On October 7, 2020, Gov. Greg Abbott signed Executive Order No. GA-32 (“Order”), relating to the continued response to the COVID-19 pandemic. The Order brought welcome news to bar owners and thirsty patrons across the state of Texas by permitting the conditional reopening of bars. However, before the bottles are popped and the beers are poured, here are some things to know.

Not everyone gets to fill their glass just yet. The Order prohibits areas with “high hospitalizations” from reopening their bars.  An “area with high hospitalizations” means any Trauma Service Area that has had seven consecutive days in which the number of COVID-19 hospitalized patients as a percentage of total hospital capacity exceeds 15 percent, until such time as the Trauma Service Area has seven consecutive days in which the number of COVID-19 hospitalized patients as a percentage of total hospital capacity is 15 percent or less. As of today, the only high hospitalization areas are Culberson, El Paso, and Hudspeth counties.

But not so fast on the pour. Even if a county does not constitute an area of high hospitalizations, the Order gives county judges discretion as to whether to opt into the reopening or not. While many counties have chosen to reopen, most of the metropolitan counties have kept the tap shut off, including Dallas, Travis, Harris, and Bexar. A notable exception to the metropolitan bar crowd is Tarrant County, which decided to swing the bar room doors open as of October 14.

For those counties that qualify and opt to reopen, restrictions are still in the mix. Capacity is limited to 50 percent inside (with no limitation on outdoor seating) and patrons are required to consume their drinks only while seated, which means no hanging around the bar for now. There is a noticeable and welcome exception to this provision for brewers, distillers, and wineries, who are permitted to sample their wares to groups of 6 or fewer standing patrons, as long as social distancing is observed.

There is also good news for those thirsty Texans still hesitant to return to the bar room scene. The Order preserves the COVID-19 inspired permissive use of drive-thru, pickup, and delivery of alcoholic beverages.

As Texas continues to recover from the effects of the COVID-19 pandemic, these restrictions may rapidly change. For now, many bar owners across the state are breathing a sigh of relief, while others are still anxiously holding their breath.

I recently volunteered to speak at a program about safety precautions for COVID. The irony of it all was that the program inadvertently placed the participants at risk. The program organizers didn’t realize it. The facility staff didn’t catch it, and not a single other presenter blinked an eye. Was I being paranoiac?

In late September, I participated on a panel of speakers at a conference held at an internationally renowned hotel in Dallas, Texas sponsored by one of the largest global meeting and event associations. The program was designed to educate about 250 association participants on the safety measures taken by hotels and airlines in an effort to jump-start an industry hit very hard by COVID. What better venue than to have it at the hotel which that very day earned the GBAC Star Facility Accreditation. This is a performance based accreditation program that helps facilities demonstrate that they have work practices, procedures and protocols in place to prepare, respond and recover from outbreaks and pandemics. The association did everything right, and permitted participants to appear electronically. The hotel was impeccably clean. Hotel staff greeted and directed the participants, regulated the elevators, situated the tables far apart, covered the food appropriately and had individual antibacterial wipes available at each seat. There was nothing apparent that could have gone wrong.

The panel consisted of speakers from different segments of the hospitality industry, each of whom participated live. One of the speakers from a large international airline appeared sick, congested, coughing excessively, and probably contagious. Fortunately, everyone had masks on and each speaker was positioned about six feet apart on stage for the presentation. The sick airline representative which I named Mr. Contagious opened the presentation and I was the closer. So I was on the other end of the stage from him. I felt safe.

When the presentation started, I noticed only one handheld microphone that we were all to share. Mr. Contagious removed his mask, picked up the hand held microphone, and began to spread whatever was going on with him onto the microphone’s top shield. When he finished his part of the presentation, he coughed into the microphone, put his mask back on and walked over to panelist number two to hand her the microphone. Without blinking an eye she took off her mask and placed the contaminated microphone up to her mouth and began her presentation.

I could not believe what I saw. But looking around the room, the audience appeared expressionless as if there was nothing wrong with passing a germified microphone around to each of the panelist and then to the audience members to ask questions of the panelists. Was I being a germaphobe so engulfed in germs that I could not stop thinking about contamination? I said to myself, “I am not placing that microphone close to my mouth,” but not everyone would be able to hear me without the microphone. Panic was beginning to consume me. Just as I looked again into the audience, I saw an individually wrapped antibacterial wipe that I had not fully appreciated when I arrived and first saw it. I had found the solution to my panic.

When I microphone finally reached me, I made the antibacterial wipe a part of my presentation. I stood up, walked to the table to pick up the antibacterial wipe, wiped over the microphone, and sat back down to give my portion of the presentation in my mask. Fortunately, my improvisation was a hit generating laughter followed by applause. I realized that sometimes the best part of a presentation can often be unspoken.

Consider the following scenario that frequently plays out in contract negotiations: You have spent days (if not weeks) going back and forth with the opposing party ironing out the terms of a lucrative deal. The bulk of the negotiating has revolved around important issues such as payment terms, default, and cancellation protocols. You even have the lawyers duke it out over attorney’s fees and choice of law provisions for good measure. But just when you thought that the final draft was ready to be circulated, you realize that the topic of indemnity was not addressed. Since you do not want the deal to be derailed by discussion of such a touchy topic, you decide to just include standard boilerplate language where both parties agree to indemnify each other for any negligence committed by the indemnifying party. After all, the intent is for the other party to indemnify you if they breach any applicable duty stemming from this agreement.

Although the inclusion of such mutual indemnity provisions is the norm rather than the exception, the protection you think you bargained for will likely be unavailable to you if you find yourself sued as a result of the actions of the other party. For example, if you are a contractor who is sued due to the negligence of a subcontractor, your first inclination will be to demand that the subcontractor indemnify and defend you in the lawsuit based on the indemnity provision in your contract. However, if your indemnity provision consists only of rinse and repeat “standard” language, you may be out of luck in seeking recourse from the subcontractor. This is because Texas law is quirky when it comes to contractual indemnification, and the courts in this state have largely found reasons to invalidate all but the most carefully drafted indemnity provisions. In the above example, even though you were named as a defendant through no fault of your own, Texas law still considers you as a party that is accused of being negligent. It does not matter if you will ultimately prevail at trial. The focus is on what you are being accused of at the moment you are sued. Therefore, to request indemnity from the subcontractor, you would have to point to a provision in the contract that entitles you to indemnity for your own negligence. Of course, this may sound counterintuitive because from your vantage point, you are not asking to be indemnified for your own negligence because you did not do anything wrong! Nevertheless, Texas law disfavors contractual indemnity agreements and puts the onus on the parties to clearly spell out what their intent is when drafting these provisions. Therefore, an enforceable indemnity provision would require the subcontractor to indemnify you for any reason, including your own negligent acts. Obviously, asking the other party to agree to indemnify you for your own negligence can be a deal breaker when you are about to finalize an agreement. Oftentimes it comes down to a risk/reward analysis weighing the benefits of finalizing a deal versus the likelihood that indemnification issues will arise in the future. Even if you conclude that the standard boilerplate language will have to suffice, not all hope is lost. If you have a good business relationship with the other party, they will sometimes agree to indemnification even if the agreement is not technically enforceable. But make sure you always have a clear understanding of who is on the hook before finalizing that contract.

At the height of the COVID-19 lockdown, the Supreme Court of Texas issued an opinion that may lead to the shutdown of “eight-liner game rooms” across Texas.

In the City of Fort Worth v. Rylie, 602 S.W.3d 459, 463 (Tex. 2020), the Court considered whether Chapter 2153 of the Texas Occupations Code, which provides comprehensive and uniform statewide regulation of skill or pleasure coin-operated machines, preempted the City of Fort Worth’s (the “City”) ordinances aimed at restricting the operation of “eight-liner” game rooms.

Eight-liners, which most people associate with truck stops, operate like a video slot machine: a patron pays to play the machine, which displays nine symbols arranged in three columns and three rows; the machine records the payment as credits; and the player bets credits by pushing a button to cause the three columns to spin. If the columns stop with three of the same symbols in one of eight possible lines—three vertical, three horizontal, and two diagonal—the player wins an amount of additional credits, redeemable for more “plays” or for a prize.

Although the Texas Constitution requires the legislature to maintain laws banning most gambling and gambling devices, under the so-called “furry-animal exclusion,” a machine that would otherwise constitute a “gambling device” is excluded from the definition if (1) it is used solely for bona fide amusement purposes, (2) it rewards only noncash merchandise prizes, toys, or novelties, or a representation of value redeemable for those items, and (3) the reward for a single play of the game or device is worth no more than the lesser of $5 or ten times the cost of the single play. Eight-liner games have been permitted to operate under this exception.

In an effort to curb the proliferation and use of these machines, the City passed two ordinances: a zoning ordinance restricting where the machines can operate; and a licensing ordinance, which requires game-room operators to obtain a license from the City and pay a licensing and inspection fee.

Dueling motions for summary judgment eventually brought the case to the Supreme Court, which determined that Chapter 2153 does not apply to unconstitutional or illegal machines. However, because the Court of Appeals had not considered the constitutionality of the machines and the furry-animal exception in its decision below, the Court declined to address the constitutionality of the machines and remanded to the Court of Appeals to rule on the constitutional question with the benefit of full briefing on the issue.

The parties are now briefing the Court of Appeals on the constitutional question. The odds for either party’s success are uncertain, so at this point, it’s anyone’s game.

Fox Partner Mark Tabakman dives into the details of an unusual employee misclassification case in Texas:

This is a very interesting case.  A group of nurses at a Texas hospital claimed they their employer intended to pay them an annual salary rather than an hourly rate and thus they were owed no back wages.  They won in the lower court and appellate court but, now, the Texas Supreme Court has reversed, finding that there was insufficient evidence to substantiate that allegation.  The case is entitled McAllen Hospitals LP et al. v. Lopez and issued from the Supreme Court of Texas.

The Court set aside the judgments for the four workers, which totaled more than $389,000.  The Court noted that there was nothing in their yearly performance reviews, payroll change forms, Employee Handbook or any policy of the accounting or HR departments to indicate, much less explicitly state, that the nurses were paid on an annual, as opposed to an hourly rate.  Instead, the Court found that the nurses’ employer made it plain that they would only earn the annual salary if they worked at least forty hours per week in the following year.  The Court found in those years in which they worked less than 2080 hours, they would not receive as much money.

The Court stated that “we hold there is no evidence that would have allowed reasonable, fair-minded people to find that the employer and its employees had a meeting of the minds on a fixed amount of pay.  We therefore reverse and render judgment that the employees take nothing.”

The nurses worked as supervisors and were classified as exempt employees under the Fair Labor Standards Act.  On an annual basis, they met with their bosses to go over their yearly evaluations and to set their pay for the new year.

The Takeaway

If the nurses were hourly paid, they were then, by definition, non-exempt.  Why did not they win on that basis alone?  The only explanation it seems is that the nurses did not work more than forty hours in any week, because if they did they would be entitled to overtime regardless of whether their annual salaries were supposed to be a certain figure.  The important lesson here is that misclassification, in and by itself, means nothing unless the employees at issue actually work more than forty hours, i.e. overtime, in a week(s).

That is a very important point…

On June 14, 2019, Governor Greg Abbot signed into law a bill (House Bill 3703) expanding access to medical marijuana products in the State of Texas.

Effective immediately, qualified physicians can prescribe medical marijuana products to treat epilepsy, seizure disorders, multiple sclerosis (commonly known as MS), spasticity, amyotrophic lateral sclerosis (commonly known as ALS or Lou Gherig’s disease), autism, terminal cancer, and incurable neurodegenerative diseases.  The patient must be a permanent resident of Texas.  Under the prior version of the law, medical marijuana was available only to patients with intractable epilepsy, a seizure disorder that is difficult to control with treatment. 

Texas’ medical marijuana law, known as the Texas Compassionate Use Act, is limited to low-THC products (up to 0.5%).

The passage of House Bill 3703 comes on the heels of Texas passing a law legalizing the production of industrial hemp and hemp-derived extracts, like CBD oil, which we wrote about last month.

Texas is slowly becoming more accepting of the benefits marijuana, but compared to those states that have legalized cannabis for recreational use, it continues to approach with caution.  For an overview of how expansion of the Texas Compassionate Use Act might affect your business, read this or contact Lee Szor at LSzor@FoxRothschild.com.

 

The Dallas City Council recently enacted a paid sick leave ordinance that requires private employers to provide eligible employees with paid sick leave.  It’s important for Dallas employers to understand their obligations under this new law, which we summarize below.

Before we do that, however, a big picture consideration: the ordinance seems likely to face legal challenges that may delay, if not altogether prevent, it from taking effect.  The Third Court of Appeals recently found that a similar ordinance in Austin violated the Texas Minimum Wage Act and the Texas Constitution.  That decision is currently on appeal to the Texas Supreme Court, and the Austin ordinance is enjoined from taking effect until that litigation is resolved.  It would be surprising if the Dallas ordinance does not face a similar legal challenge in the courts.

Additionally, proposed legislation was considered at the most recent Texas legislative session that would have blocked the Dallas ordinance.  The legislation initially appeared poised to pass, but ultimately the bills missed the deadline to be considered on the House floor, effectively killing them. Thus, a court challenge seems most likely.

Assuming the ordinance takes effect, Dallas employers will need to understand the new paid sick leave obligations and make changes to their policies and practices in order to comply.  Some of the key provisions of the Dallas ordinance are as follows:

  • Effective Date. For employers with more than five employees, the ordinance is effective August 1, 2019.  For employers with five or fewer employees (at any time in the preceding 12 months), the ordinance is effective August 1, 2021.
  • Eligible Employees. Employees eligible for paid sick leave under the ordinance are those who perform at least 80 hours of work for pay in a year within the City of Dallas (including through the services of a temporary of employment agency).  The ordinance does not apply to independent contractors.
  • Accrual. Eligible employees accrue one hour of paid sick time for every 30 hours worked for the employer in the City of Dallas, starting at the commencement of employment or the effective date of the ordinance, whichever is later.  Paid sick time accrues in one hour increments, unless the employer has a written policy establishing accrual in fraction of an hour increments.  Sick leave that is requested in excess of the employee’s available accrued paid sick time need not be paid.
  • Accrual Cap. For medium or large employers—defined as an employer with more than 15 employees at any time in the preceding 12 months (excluding the employer’s family members)—there is a yearly accrual cap of 64 hours of paid sick leave, unless the employer chooses a higher limit.  For small employers—an employer that is not a medium or large employer—the yearly accrual cap is 48 hours of paid sick leave, unless the employer chooses a higher limit.
  • Carry Over. All accrued, unused paid sick time is carried over to the following year, subject to the accrual cap.  Alternatively, to avoid the administrative burden of accrual and carry over, employers can simply provide employees with at least the yearly cap of paid sick time at the beginning of the year.
  • Eligible Uses. Eligible employees can request and use paid sick time for a work absence caused by: (1) the employee’s physical or mental illness, physical injury, preventative medical or health care or health condition; (2) the employee’s need to care for the employee’s family member’s physical or mental illness, physical injury, preventative medical or health care or health condition; or (3) the employee’s or the employee’s family member’s need to seek medical attention, seek relocation, obtain services of a victim services organization, or participate in legal or court ordered action related to an incident of victimization from domestic abuse, sexual assault, or stalking involving the employee or the employee’s family member.
    • Family Member. “Family member” includes an employee’s spouse, child, parent, any other individual related by blood, or any other individual whose close association to an employee is the equivalent of a family relationship.
  • Probationary Period. Generally, paid sick time is available for an employee to use as soon as it is accrued.  However, employers may restrict an employee from using accrued paid sick time during the first 60 days of employment if the term of the employee’s employment is at least one year.
  • Verification. Employers may adopt reasonable verification procedures to establish that an employee’s request to use accrued paid sick time is in accordance with the ordinance, if an employee requests to use accrued paid sick time for more than three consecutive work days.  However, the verification procedures cannot require the employee to disclose or explain the nature of the illness, injury, health condition, domestic abuse, sexual assault, stalking, or other health need.
  • Pay Rate. Paid sick time must be paid in an amount equal to what the employee would have earned if the employee had worked the scheduled work time, exclusive of any overtime premium, tips, or commissions, but no less than the state minimum wage.
  • Notice to Employees. At least monthly, employers must provide electronically or in writing to each employee a statement showing the amount of the employee’s accrued paid sick time.  Further, any employee handbook provided to employees must include a section informing them or their rights and remedies under the ordinance, and employers must conspicuously display in the workplace a sign describing the requirements of the ordinance.
  • Termination of Employment. The ordinance is silent on whether accrued, unused paid sick leave must be paid out to the employee upon separation of employment.

Next Steps: Dallas employers can respond to the new ordinance in a couple of ways, depending on their appetite for risk.  Since a legal challenge seems likely, employers can take a more “passive” approach that involves monitoring the status of the ordinance and leaving ample time before the effective date to implement necessary policy changes.  Alternatively, because the bill goes into effect on August 1, 2019 for employers with more than 5 employees, these employers may opt for an “active” approach that involves making (or at least planning) policy changes now in anticipation of the ordinance taking effect in less than two months.  If you need advice on the new law, please contact Lee Szor (LSzor@FoxRothschild.com) or John Gessner (JGessner@FoxRothschild.com) in our Dallas office.

On Fox’s Immigration View blog, partner Alka Bahal provides a detailed exploration of the I-9 inspection process, in the wake of a recent surge in I-9 audits carried out by the U.S. Immigration and Customs Enforcement (ICE) agency. All employers in the United States are required to have a Form I-9 on file for all employees to verify their identity and authorization to work in the United States.

We invite you to read Alka’s information-packed post addressing concerns facing employers:

Employers Beware: ICE Is Ramping Up I-9 Audits to Record Levels