Texas Supreme Court Maims Two Birds with One Tome

Monday, April 16, 2007
Contributed by: Matthew J. Whitten

In the recent case of Tony Gullo Motors I, L.P. v. Chapa, -- S.W.3d --, 2006 WL 3751591 (Tex. Dec. 22, 2006), the Texas Supreme Court modified the standard for recovery of attorneys' fees in cases that involve both contract and tort claims and, while they were at it, made life more difficult for plaintiffs to recover exemplary damages in cases governed by Chapter 41 of the Texas Civil Practice & Remedies Code.

In 2001, Chapa sued Gullo Motors after she was promised and paid for a high-end "Limited" model Toyota Highlander but was delivered a base model. She sued for breach of contract, fraud, and for violations of the Texas Deceptive Trade Practices Act ("DTPA"). A jury found for Chapa on all claims and awarded her economic damages under the contract of $7,213.00 and also awarded her mental anguish damages of $21,639.00, punitive damages of $250,000.00, and attorneys' fees of $20,000.00. The trial court disregarded the mental anguish and exemplary awards on the ground that Chapa's only claim was for breach of contract, and also refused to award attorneys' fees on the ground that Chapa had not segregated fees attributable to her contract claim alone. The Ninth Court of Appeals disagreed and reinstated all the awards but reduced exemplary damages to $125,000.00.

The Supremes disagreed with the decision of the Court of Appeals allowing Chapa to recover on all theories of liability. Noting the longstanding rule that "there can be one recovery for one injury," the Court stated that just because more than one theory of liability is asserted does not mean there can be a recovery on each theory. Accordingly, Chapa should have been forced to choose her most favorable remedy given the jury's verdict. For her breach of contract claim, that meant recovery of economic damages and attorneys' fees but no mental anguish or punitive damages. For her fraud claim, that meant economic, mental anguish, and punitive damages, but no attorneys' fees. For her specific DTPA claim, that meant economic and mental anguish damages and attorneys' fees, but no punitive damages. In Texas, the general rule is that there is no recovery of attorneys' fees unless authorized by statute. But the Court, apparently frustrated, stated that the general rule has been swallowed up by its exception: If facts of several claims, including one for which attorneys' fees could be recovered, are so "inextricably intertwined" that the work is incapable of segregation, attorneys' fees on both claims are recoverable. Accordingly, the Court modified its standard for recovery of attorneys' fees, holding that it will now examine whether the actual work performed is inextricably intertwined, rather than the individual facts. The court stated that only when discrete legal services advance both a recoverable and unrecoverable claim will the Court deem the claims to be so intertwined as to allow recovery of attorneys' fees.

Turning its attention to punitive damages, the court held that it is not enough that an award of exemplary damages falls below the statutory caps set forth in the Civil Practice & Remedies Code and meets the strict procedural requirements that Chapter 41 sets forth. The Court also apparently modified the standard for recovery even further, noting that while the United States Supreme Court has declined to adopt a bright-line ratio between actual and exemplary damages," but that "few awards exceeding a single-digit ratio will satisfy due process." In Texas, only the courts of appeals have authority to adjust the amount of the award, but the Texas Supreme Court has now decided that it has final State jurisdiction to decide the constitutionality of such awards, adopting the "ratio" analysis of the U.S. Supreme Court more explicitly than ever before. The Supremes remitted the exemplary damages award to the Court of Appeals for review under this new analysis.

This column is published for informational purposes only. It should not be construed as legal advice and is not intended to create an attorney client relationship. The views expressed are those of the author and do not necessarily reflect the views of the author's law firm or its individual partners.