By Brett Goodman In Texas, only a few cases have come out of the last decade concerning legal malpractice as relating to mediation. In Lehrer v. Zwernemann, after being unsatisfied with the work of the two attorneys he hired in a divorce proceeding, Lehrer sued two attorneys for malpractice. See Lehrer v. Zwernemann, 14 S.W.3d 775, 776 (Tex. App. – Hous. [1st Dist.] 2000, pet. denied). This subsequent suit went to mediation, but Lehrer again unsatisfied brought further suit against the mediator and the attorney he hired to bring suit against the first two attorneys. Summary judgment was entered for the mediator. The court outlined that, in legal malpractice cases, the standard of review is that the legal action taken by the professional must be a wrongful one that causes some legal injury. Lehrer found offense in that the mediator and opposing counsel had a former professional relationship, but the court found this had no impact on the mediation settlement agreement and that the mediator fully executed his legal duties. Legal malpractice as an issue in a case does not seem to change background principles of the Texas ADR Act. In Alford v. Bryant, in 2004, Bryant employed Long as attorney to represent her in a dispute over a roofing contract. See Alford v. Bryant, 137 S.W.3d 916, 919 (Tex. App. — Dallas 2004, pet. denied). A written settlement agreement was hammered out in mediation, but a part of this settlement was that attorney’s fees would be left to the trial court. Bryant then sued her attorney for legal malpractice for failure to warn that this could be a possible outcome of settlement through mediation, but Long claimed that this was discussed between the two and the mediator. The court first elucidated how a party waives a privilege through “offensive use” of information and that Bryant waived confidentiality of the mediation through offensive use. Although Bryant at trial was fine with the testimony of the mediator to help his case, Bryant now tried to oppose it, citing confidentiality. The court, however, concluded that the testimony of the mediator should not be excluded because “[i]t is disingenuous for Bryant to claim error now when she expressly consented to this procedure at trial.” These ideas also seem to extend outside of Texas. For example, in a 2007 case, a lawyer who had been admitted to the respective bars of Virginia and Florida ended up participating in mediation in Arizona but felt justified because of the Florida mediation rules with which she was familiar. See In re Non-Member of State Bar of Arizona, Van Dox, 214 Ariz. 300, 302, 152 P.3d 1183, 1185 (2007). It was ruled that the lawyer should be sanctioned for unauthorized practice of law in Arizona, but because it was determined that the attorney’s wrongful action led to little if any legal injury, the lawyer was only subject to an informal reprimand. Technorati Tags: law, ADR, arbitration Brett Goodman is a summer intern at Karl Bayer, Dispute Resolution Expert. Brett is a J.D. candidate at The University of Texas School of Law. He holds degrees in Finance, Mathematics, and Spanish from Southern Methodist University.

Need CLE credits? Mark your calendars! ABA will host its 9th Annual Advanced Mediation and Advocacy Skills Training course in San Diego, California on Nov. 3-4, 2011. The course was designed for mediators, litigators, judges, and in-house counsel. The 9th Annual Mediation and Advocacy Skills Institute topics will include: Preparing for mediation Maximizing the Joint Opening Session Ethical Issues Negotiating in the Caucus Stage Breaking Impasse Developing Your Practice Break Out Sessions Focused On Cross Cultural Issues More information is here. You may register here.

By Brett Goodman The Court of Appeals of Texas in Dallas has affirmed the decision of a trial court that confirmed an arbitration award ordering appellants take nothing from appellees. In Skidmore Energy, Inc. v. Maxus (U.S.) Exploration Co., (Tex. App. — Dallas July 12, 2011, no. pet. ) Skidmore Energy Inc. contended that the trial court erred confirming the arbitration award that they take nothing from Maxus (U.S.) Exploration Company. The two oil and gas exploration companies in 1998 agreed to assign different property leases to the other, but Maxus abandoned five of the leases, eventually leading to arbitration. A majority of the three arbitrators awarded Maxus victory, but Skidmore appealed because it felt that two of the arbitrators failed to make certain pre-arbitration disclosures that led to partiality and that the arbitrators exceeded their authority. Skidmore claimed arbitrator McNamara to not be impartial because of certain financial and business ties to Maxus. The court explained, “A neutral arbitrator selected by the parties or their representatives exhibits evident partiality if he does not disclose facts which might, to an objective observer, create a reasonable impression of the arbitrator’s partiality.” Citing to the arbitration agreement, however, the court noted how it read, “there shall be no ex parte communications at any time by any party or its representative with any of the arbitrators, except that each party may confer with its own party-appointed arbitrator with respect to selection of the third arbitrator.” Thus, there was no mention of intent to have a neutral arbitrator beyond what is written. The court determined that a party waives the right to raise an objection to the partiality of an arbitrator if the party knows of a bias but does not express it until after the arbitration award, and these were the exact circumstances of the case. Even if Skidmore had acted within a more proper time frame, the court still saw “based upon the entirety of this record that McNamara did not fail to disclose facts which might, to an objective observer, create a reasonable impression of the arbitrator’s partiality.” On the point of the arbitrators exceeding their authority, the court likewise ruled in favor of Maxus. The arbitrators determined that Skidmore had breached the 1998 agreement, something not advanced by Maxus at the arbitration’s initial stages. As a rule, “an arbitrator’s authority is limited to disposition of matters expressly covered by an arbitration agreement or implied by necessity.” When in doubt about the authority of the arbitrators, the court made clear that the tendency in Texas should be to err on the side of allowing arbitration. Succinctly describing the resolution of the issue, the court asserted, “The affirmative defenses asserted by Maxus—waiver, estoppel, and limitations—were before the arbitration panel. The questions of whether and when there was a breach of the 1998 Agreement were before the arbitration panel.” Thus, the arbitrators were deciding matters properly allowed to be decided by them and were not exceeding their powers. Because the court struck down both of Skidmore’s contentions, it affirmed the trial court’s decision to allow the arbitration award in favor of Maxus. Once again, through the issue of the power of arbitrators, a Texas court has made a ruling showing deference in Texas to the work of arbitrators. Technorati Tags: law, ADR, arbitration Brett Goodman is a summer intern at Karl Bayer, Dispute Resolution Expert. Brett is a J.D. candidate at The University of Texas School of Law. He holds degrees in Finance, Mathematics, and Spanish from Southern Methodist University.  

Liability insurance policies often contain alternative dispute resolution clauses, including: (1) Binding arbitration only; (2) Mediation and, if mediation is unsuccessful, then binding arbitration; (3) Election between mediation and arbitration, with insured having veto power over the insurer’s selection; and (4) Mediation or binding arbitration with a waiting period before suit is filed if mediation is selected. See Ernest Martin, Jr, Hot Tips on Managing the Liability Crisis Through Insurance, Haynes and Boone, LLP (June 24, 2004). The Stowers Doctrine In Texas, the landmark decision recognizing an insurer’s duty to settle a third-party liability claim is G.A. Stowers Furniture Co. v. American Indemnity Co. See 15 S.W.2d 544, 544-46 (Comm’n App. 1929, holding approved). In Stowers, the court held that when a primary liability insurance carrier defends an insured person against a covered claim made by a third party, the primary insurer has a common law duty to exercise reasonable care in responding to a settlement demand that is within the policy’s limits. Thus, if an insurance company that is given the opportunity to settle within its policy limits fails to do so, it could potentially become responsible not only for any excess judgment, but also liable to their own insured for breach of the duty of good faith and fair dealing, D.T.P.A., claims under the Texas Insurance Code another claims. This duty of reasonable care is known as the Stowers Doctrine. The Elements of Stowers The Texas Supreme Court further clarified the Stowers duty in American Physicians Insurance Exchange v. Garcia. See American Physicians Ins. Exchange v. Garcia, 876 S.W.2d 842 (Tex. 1994). In Garcia, the court went on to explained that the Stowers doctrine is activated when a third party seeking to impose liability on an insured makes a demand to settle the claims and the following circumstances exists: The claim against the insured is within the scope of the policy’s coverage; The settlement demand is within policy limits or a stated sum of money within the policy’s limits; The proposed settlement is one that will result in a full release of the insured; and The terms of the settlement demand are such that an ordinarily prudent insurer would accept it, considering the likelihood and degree of the insured’s potential exposure to an excess judgment. Stowers: Recent Cases Two recent Texas cases reinforce the use of the Stowers doctrine as a prevalent practice. After a 2001 automobile accident with Francisco Rangel, Edward McDonald was admitted to Memorial Hermann Hospital, and the hospital filed a “Notice of Hospital Lien” saying, “The name of the person alleged to be liable for damages arising from the injury is any and all responsible parties. The lien is for the amount of the hospital charges for services provided to the injured individual during the first 100 days of the injured individual’s hospitalization.” McDonald v. Home State County Mut. Ins. Co., 01-09-00838-CV, 2011 WL 1103116 (Tex. App. — Hous. [1st Dist.] Mar. 24, 2011, no pet.). McDonald’s lawyer sent Rangel’s insurance company a notice wherein it was explicitly stated that this was to be a Stowers offer. As the deadline in the notice passed, McDonald’s lawyer let Rangel’s insurance company know that he felt the Stowers duty had thereby been breached and settlement efforts had terminated. The case went to trial, where both parties filed motions for summary judgment. The court of appeals found the “settlement demand insufficient to trigger a Stowers duty because it did not include a release of the lien, and, therefore, an ordinarily prudent insurer would not accept the settlement demand. Specifically, the court found that the demand did not explicitly offer any release of potential claims against Rangel.” See Lee H. Shidlofsky, Insurance Law Newsletter. Vol. 5 Issue 1. May 27, 2011, at 2 “[T]he court rejected McDonald’s contention that the Insurer impliedly accepted a Stowers duty here by not discussing the lien’s release with McDonald in its settlement discussions. Instead, the court reasoned that the Insurer still could have required the release as part of any later formal settlement.” A different court recently answered “the question as to how to Stowerize an excess carrier—although doing so requires the assistance of the primary carrier in the first instance.” After a truck collision on Highway 287, defendants filed suit against the other driver as well as the truck company of the other driver, alleging vicarious liability. See Pride Transp. v. Cont’l Cas. Co., 2011 WL 1197306 (N.D. Tex. Mar. 31, 2011). The defendants made a settlement offer to the other driver with no mention of releasing claims against the company, and later, the insurance companies involved moved for summary judgment arguing a Stowers duty to accept the settlement that had not been accepted. After outlining the Stowers doctrine, the court “found that an insurer may enter into a reasonable settlement with one of several claimants even though it would exhaust or diminish the money available to satisfy the other claims.” Also, “a valid Stowers demand mandates that an insurer settle on behalf of a single insured even if it exhausts the policy limits and thereby exposing the remaining insureds, so this result prevents an insurer from settling on behalf of one insured and having to choose between continuing to defend a non-settling insured beyond policy limits or facing liability for treating the nonsettling insureds unequally.” Implications of Stowers on Mediation The Stowers doctrine intersects with mediation law in several issues. First, if there is not a judgment, there cannot be a Stowers cause of action. Because a “Stowers cause of action does not accrue until the judgment in the underlying case becomes final.” Therefore, there cannot be a Stowers cause of action if the case is settled in mediation before a Stowers demand is made. Another issue is the effect of a Stowers demand at the time of the mediation. Since any settlement which does not exceed the policy limits would automatically bar any future contractual claim, as a prerequisite is a judgment in excess of the policy limits, settlement […]