Business Legal Overviews Dallas-Fort Worth

Breach of Contract

Most commercial disputes involve contractual rights, with one or both sides asserting the other broke a promise or failed to fulfill an obligation.  

General InformationContracts in Texas can be created in either written or oral form (subject to the “Statute of Frauds” for certain transaction), or even simply implied by the circumstances. To form an express written or oral contract there must be: (i) an offer; (ii) acceptance in compliance with the terms of the offer; (iii) mutual assent to the essential terms; (iv) execution and delivery of the written instrument (if applicable); (v) and sufficient consideration – which means a bargained for exchange of promises or something else of value. Yet, even if an express contract fails to form due to one or more of those requirements missing, a plaintiff may still be able to recover the reasonable value of services it provided on the basis of a doctrine called “quantum meruit” or at least recover its out-of-pocket expenditures if made in justifiable reliance on the expectation of a contract or inferred promise (known as “promissory estoppel”).

Legal ElementsTo establish a breach of contract, the plaintiff must prove:

  1. The existence of a valid contract (as outlined above);
  2. Plaintiff carried out all its obligations or otherwise was excused from having to do so;
  3. Defendant failed to carry out its own obligations; and
  4. The plaintiff suffered harm as a result.

RemediesPotential forms of relief available in Texas for breach of contract include:

  • Economic Damages – the expected “benefit of the bargain” if the contract had been fulfilled plus any foreseeable consequential losses, or, losses incurred in reliance.
  • Liquidated Damages – an amount of damages agreed to by the parties in the contract itself (provided it does not constitute a penalty).
  • Nominal Damages – a minimal amount (i.e., $1) awarded where there is a clear breach but no provable damages.
  • Specific Performance – a remedy requiring the breaching party to fulfill its obligations under the contract, which can be granted in only limited circumstances.
  • Rescission – a remedy that voids a contract and returns the parties back to the same position they were in before the contract was made.
  • Reformation – a remedy used to correct mistakes in a written contract that fail to reflect the parties’ intent.
  • Declaratory Judgment – a statutory right to have a court determine the meaning, rights, or status of a contract in certain circumstances, either before or after breach.
  • Attorney’s Fees – Both Texas statute or the contract itself may allow (or disallow) a prevailing party to recover its attorney’s fees.

Statute of Limitations: A contract claim in Texas generally must be filed within four years of the breach—unless discovery was prevented in certain ways—but the sides can also agree in their contract to a shorter limitations period depending on the size of the transaction and persons involved.

Wright Commercial Litigation has worked on all kinds of Texas contract disputes in multiple industries and knows well how courts interpret contractual language and apply the numerous defenses. This is useful not only for prevailing in a suit but also advising on the risks before significant expense is incurred. The firm can quickly evaluate any contract, provide a legal opinion as to its enforceability or effect, and conduct a cost-benefit analysis to help you decide whether it is worthwhile to bring or defend a suit in light of the economic factors and other considerations that matter most to you.

Legal Overviews – Business Torts

Allegations of fraud, tortious interference, breach of fiduciary duty, or that someone violated other common law and statutory obligations routinely occur in commercial disputes. In general, this broad category of claims is referred to in Texas as “business torts.”

General Information: Business torts are “common law” (i.e., judge made) or statutory causes of action involving private economic harm that does not arise from a breach of contract, and is not the type of public harm said to result from violations of criminal law or personal injury most often associated with torts in general. Examples of business torts include:

  • Breach of Fiduciary Duty
  • Conversion (and the Texas Theft Liability Act)
  • Deceptive Trade Practices Act (DTPA)
  • Defamation (Libel or Slander), including Business Disparagement and Slander of Title
  • Fraud, Misrepresentation, and Fraudulent Inducement
  • Fraudulent Transfer
  • Misappropriation and Copyright/Trademark Infringement
  • Shareholder Oppression
  • Statutory Fraud (i.e., Fraud in a Real Estate or Stock Transactions)
  • Theft of Trade Secrets
  • Tortious Interference with Existing or Prospective Contractual Relations
  • Unfair Competition

Remedies: The forms of relief available in Texas for a business tort vary depending on the particular type of claim, but may include economic damages, fee/profit disgorgement, repair costs, statutory damages, civil penalties, mental anguish, and attorney’s fees when authorized by a statute. In addition, the harmed party—whether an individual or business—can recover exemplary damages (also known as punitive damages in Texas) by showing certain aggravated conduct. Tort reform has limited punitive damages in Texas to the greater of $200,000 or twice the compensatory amount awarded, yet some violations are excluded from the statutory cap (such as the Theft Liability Act) or have their own form of multiplied damages that can be awarded without needing to show any particularly malicious conduct (e.g., “treble” damages under the DTPA for a “knowing” or “intentional” violation in a consumer transaction).

Statute of Limitations: Business torts in Texas usually have shorter deadlines in which to bring a suit (e.g., one year for defamation; two years for many common law violations; three years for trade secret misappropriation); however, many business tort claims also inherently involve some fraud or deception such that the limitations period may not start running from the date of the alleged wrong as opposed to when a plaintiff did or could have discovered a violation. The actual deadline is very much dependent on circumstances.

Wright Commercial Litigation has prosecuted and defended business tort claims in Texas for many different types of suits. This is useful not only for prevailing in court but also advising on the risks before significant expense is incurred. The firm can quickly evaluate any business tort claim and provide a cost-benefit analysis to help you decide whether it is worthwhile to bring or defend suit in light of the likely outcomes (including exemplary damages), the impact such a claim has on your reputation, and any other factors that matter to you.

Legal Overviews – Deceptive Trade Practices Act

Persons misled or outright defrauded into the purchase of goods and services have access to the increased remedial protections of the Texas Deceptive Trade Practices–Consumer Protection Act (DTPA), found in Chapter 17 of the Texas Business and Commerce Code, to help level the playing field between buyers and sellers for many types of commercial transactions.

General Information: The DTPA provides a “consumer”—which is defined in Texas to include either an individual or business (so long as the business has less than $25 million in assets and is not controlled by one with $25 million or more in assets)—with a remedy for any unlawful act related to the “purchase or lease” of a “good or service.”

A DTPA lawsuit in Texas may be filed against any individual, business, or organization of any size (excluding certain professionals providing services dependent largely on matters of judgment) for a “laundry list” of reasons that include:

  • False or deceptive advertising;
  • False or misleading statements used to induce a sale;
  • Disparaging the goods, services, or business of another by use of false or misleading facts;
  • Misrepresenting the terms of an agreement, guaranty, or warranty;
  • Filing suit regarding certain personal, family, or household debts in a county where the consumer does not reside;
  • Failing to disclose known information about goods or services if intended to induce a transaction that a consumer would not otherwise enter into;
  • Representing repairs were done when in fact they were not;
  • Price-gouging during an officially declared disaster;
  • Misrepresenting the geographic location of a business that primarily sells flowers or floral arrangements;
  • Violations of Chapter 541 of the Texas Insurance Code;
  • Violation of a tie-in statute (e.g., laws on credit reporting, real estate sales, debt collection, statutory fraud, insurance claims settlement, etc.);
  • Breach of an express or implied warranty; and
  • Generally, any other “unconscionable” act or practice.

Certain larger transactions are exempt from the DTPA, however, including those involving a written contract for more than $100,000 where the consumer was represented by an attorney (so long as it does not involve the consumer’s residence) and all transactions over $500,000 that do not involve a consumer’s residence.

Remedies: DTPA claims in Texas primarily provide for the recovery of “economic losses” due to a violation of the laundry list, often even when it is done without the seller having knowledge of the falsity or an intent to defraud, but also mental anguish damages, treble damages, and attorneys’ fees (with broader “actual damages” for violation of a tie-in statute as well). Before a DTPA suit can be filed, however, the consumer must first make a proper written demand that gives a defendant 60 days in which to pay a claim or settle and avoid the possibility of multiplied damages.

Statute of Limitations: DTPA claims must be brought within two years of a breach, although the time period does not always start running from the date of the alleged wrong as opposed to when a plaintiff did or should have discovered the violation. The actual deadline to bring suit is thus very much dependent on the circumstances.

Wright Commercial Litigation has experience with the numerous procedural and substantive intricacies of the DTPA in Texas, which are somewhat unique among consumer protection laws in other states. Whether you are a business facing a DTPA demand letter or a consumer looking to bring a DTPA suit, feel free to contact the firm for assistance to make sure all the boxes are properly checked.

Legal Overviews – Insurance/Bad Faith

Insurance is a method of risk management that allows individuals and business to hedge against unexpectedly large loss by paying a comparatively small premium upfront. When pooled with premiums paid by many others facing the same risks, insurance acts to spread the costs of the risk across the entire group by paying a smaller number of outsized losses from the total premiums collected (and keeping the rest for administration and as profit). That places significant power in the hands of the aggregating entity though: the insurance company. As a counterbalance to that power, the law has long required insurance companies to act in strict good faith and treat their individual insureds fairly, or else face the consequences of additional damages.

General Information: There are many different forms of insurance coverage that can vary widely depending on the industry and risks involved. Virtually any risk can be insured against for the right price, but there are only two main categories of claims against an insurance company: a first-party and third-party claim. Both are made by the person or business who is insured since that is who and what the insurance protects. In general, a true “third party” or stranger to the insurance contract has no standing to bring a claim against the insurance company of another; they must instead sue the person that caused them harm even if the defense is ultimately controlled by and damages paid from the defendant’s insurance coverage. (There are exceptions of course, such as when the intended beneficiary is a true third party, with life insurance being the prime example.)

  • “First-Party”: this is a claim brought by the insured against the insurance company for loss directly suffered by that person or business, such as when your house, commercial building, or other property is damaged due to theft, hidden decay, construction defects, wind, weather, fire, or any number of other catastrophes, but also claims related to the loss of sales or business. The most recent area is business interruption insurance related to the COVID-19 pandemic.
  • “Third-Party”: this is a claim against an insurance company related to a breach of its obligation to defend an insured (or pay damages that result) from claims by other true third parties against the insured person or business. No-fault auto insurance for individuals falls into that category while businesses may have commercial general liability (CGL) insurance coverage, a professional liability or errors and omissions (E&O) policy, and there are also sophisticated policies that can result from harm caused by a product or good.

For either type of claim, Texas provides statutory and common law rights for the insured to bring a lawsuit against their own insurance company if it fails to in good faith hold up its end of the contractual bargain, including causes of action for: breach of contract, deceptive trade practices, bad faith, and failure to make prompt payment. Bad faith and prompt pay claims are unique to insurance as addressed in more detail below, while more information on Breach of Contract and the Deceptive Trade Practices Act can be found at their respective links above.

Common Law Bad Faith: A plaintiff may bring a cause of action against its insurance carrier for breach of the common law duty of “good faith and fair dealing,” which in Texas exists only for contracts involving certain special relationships—such as insured-insurer—as opposed to other states where it is recognized as a duty in all contracts. To prevail, a plaintiff must prove:

  1. There was a valid insurance contract;
  2. The insurance carrier denied or delayed payment when liability under the policy was “reasonably clear” (or cancelled an insurance policy without a reasonable basis); and
  3. The breach proximately caused the insured to suffer loss or damages.

Although based on the existence of a contract, violation of the common law duty is a tort claim in Texas.

Most suits for breach of the common law duty of good faith and fair dealing turn on establishing whether the insurance company knew or should have known coverage was “reasonably clear” yet still denied or delayed payment. The insurance company cannot be faulted for just being wrong, but they cannot play dumb or take unreasonable positions either. An insurance carrier can act in good faith and yet still be wrong, but the danger that the side with the most information, power, and resources may subtly manipulate that imbalance to its favor is what the law seeks to prevent.

There are numerous ways in which insurance companies can violate the duty of good faith and fair dealing, with some of the more common including: failure to conduct an appropriate investigation before denying payment; using an investigation as mere pretext for denial; relying on an investigation that the insurance company knew or should have known was biased, incorrect, or incomplete; or making insupportable interpretations of policy language. Each can subject the insurance company to damages well beyond that which may otherwise be due to an insured under the policy terms.

Statutory Bad Faith (Chapter 541 of the Texas Insurance Code): Texas also has a law written into the Insurance Code that prohibits much of the same conduct as a common law “good faith and fair dealing” claim but also extends into generally unfair and deceptive conduct in the business of insurance. The matters prohibited include not only improper denial of coverage (called “unfair settlement practices” in the statute) but also things like false advertising, misrepresentations, failures to disclose, defamation of other insurers, using false financial statements, unfair discrimination, and several activities that are broader than just the individual insured-insurer relationship.

When it comes to unfair settlement practices in particular, the statute specifically defines prohibited acts to include:

  • misrepresenting a material fact or policy provision to an insured;
  • failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of a claim (or portion of a claim) with respect to which the insurer’s liability has become reasonably clear;
  • failing to promptly provide a reasonable explanation for denial;
  • failing to affirm or deny coverage of a claim within a reasonable time;
  • refusing, failing, or unreasonably delaying an offer of settlement under first-party coverage on the basis that others are responsible for the damages; or
  • refusing to pay a claim without conducting a reasonable investigation.

Chapter 541 of the Texas Insurance Code specifically “ties in” with the Deceptive Trade Practices Act as well, making a variety of unfair conduct and sharp dealing actionable under either or both remedial statutes.

Prompt Pay Act (Chapter 542 of the Texas Insurance Code): Another Texas law written into the Insurance Code acts prevent an insurance company from unreasonably delaying or withholding payment by setting specific deadlines according to which an insurance company must take various action after notified of a loss. This includes:

  • Within 15 days after receiving notice of a loss, the insurer must acknowledge receipt in writing and begin investigating.
  • The insurer can then request information reasonably required to adjudicate the matter. The date on which that information is provided sets the next deadline.
  • Within 15 business days after receiving the information requested, an insurance company must make a decision to accept or reject the claim or, otherwise, provide written notice it needs more time and state the reasons why.
  • If more time is requested, the carrier then has 45 days in which to accept or reject.
  • If rejecting a claim, the insurer must state all reasons why in writing.
  • For any portion accepted, payment is due within 5 business days.
  • An insurer is liable to pay interest on any violation of the statute at a rate of 18% per year, plus reasonable and necessary attorney’s fees.

Notably, the applicable interest that is due begins accruing from the date of breach regardless of whether there was any bad faith. In other words, the insurance company can be liable for interest even if it acted in good faith and was just wrong. This is another powerful incentive for an insurance company to carry out its duties and make sure it is correct in deciding claims.

Statute of Limitations: The vast majority of insurance claims must be brought within two years of when the insurance company denies coverage or commits a breach, although that is not always clearly stated and some Prompt Pay Act claims based expressly on a contract are longer. The actual deadline to bring suit is very much dependent on the circumstances. In addition, however, there are strict requirements to follow of giving notice to an insurer prior to suit for many types of claims. The pre-suit notice requirements also now vary some if the claims on based on a weather-related loss (under Chapter 542A of the Texas Insurance Code). The requirements are detailed enough that it often takes an attorney to make sure all the boxes are strictly checked.

Wright Commercial Litigation has experience assisting homeowners, small businesses, and nonprofit organizations faced with a denial of property insurance coverage, liability claims, and other commercial losses, and has achieved million-dollar recoveries. Feel free to contact the firm for assistance with taking on an insurance company you think is not acting fairly or otherwise complying with its duty to act in the utmost good faith.

TROs and Injunctions

Obtaining a resolution in court is no quick affair. The process is premised on a full and fair opportunity to discover all facts, which can take months or years to complete. To prevent harmful actions in the meantime, courts in Texas have the ability to issue certain orders that stop everything in place.

General Information: In Texas, only district courts and county courts have jurisdiction to provide the equitable relief of a restraining order or injunction for most commercial matters, which can be either “prohibitory” or “mandatory” in nature. Prohibitory relief prevents a party from doing something whereas mandatory relief, which is rarely granted, requires a person to take specified action. Texas Rules of Civil Procedure 680-693 govern the procedure for obtaining such equitable relief, which is divided into three distinct categories:

  1. Temporary Restraining Order (TRO): Immediate relief that may be granted ex parte (i.e., without notice to the other side) in order to preserve the status quo of the subject matter of a lawsuit.
    • The status quo is the “last actual, peaceable, non-contested status that preceded the controversy,” although that does not always apply if the status prior to a controversy was an illegal state of affairs.
    • A TRO may be sought with the filing of an original petition or at any later time when it becomes necessary.
    • Although a TRO can be granted ex parte, local rules may still require an attempt to give notice in certain situations.
    • The petition must contain verified allegations addressing and supporting all the grounds for issuing a TRO.
    • Requires posting of a bond to provide adequate security in case the adverse party is harmed by the TRO.
    • A temporary injunction hearing must be set to occur within 14 days (which can be extended only in limited circumstances).
    • A writ of injunction issued by the clerk must be served on all adverse parties before the TRO becomes effective.
    • There is no right to appeal a TRO, but immediate mandamus relief may be sought for serious matters.
  2. Temporary Injunction: Relief that can be granted only after a hearing with notice to all parties, in order to preserve the status quo of the subject matter of a lawsuit.
    • All “indispensable parties” must be joined before a temporary injunction can be granted.
    • There is no requirement to first obtain a TRO before a temporary injunction; a party can proceed directly to the temporary injunction hearing so long as they provide at least three days’ notice of the hearing to all affected parties.
    • Temporary injunction hearings take precedence over other court matters.
    • A full evidentiary showing in support of a temporary injunction, by way of live testimony, is required even if the respondent does not appear.
    • An adequate bond must be posted (or remain in place if originally posted with a TRO) during the entire existence of a temporary injunction.
    • The temporary injunction order must set a date for trial on the merits.
    • If no TRO was sought, the clerk issues a writ of injunction that must be served on adverse parties before the temporary injunction becomes effective.
    • There is a right to immediate appeal (on an accelerated basis) for a grant or denial of a temporary injunction, which is reviewed for abuse of discretion.
  3. Permanent Injunction: Final and lasting relief granted as part of a judgment after a full trial on the merits.
    • If a permanent injunction is sought without first obtaining a TRO or temporary injunction, there is no bond required.
    • There is no writ of injunction either; the final judgment is all the authority needed.
    • An appeal of the grant or denial of a permanent injunction is reviewed for abuse of discretion.

All three forms of relief listed above are binding on: (i) all parties to the lawsuit, (ii) their officers, agents, servants, employees, and attorneys, and (iii) any other person acting in concert with a party or its agents who receives “actual notice” of the order. Thus, in seeking emergency or temporary relief, it is important to make sure all persons actually sought to be restrained are served with a copy of the TRO or temporary injunction.

Grounds for Injunction: Several statutes in Texas provide a right to injunctive relief. Otherwise, Texas Civil Practice and Remedies Code § 65.011 sets out the most common grounds used for seeking an injunction, which include: (1) when the applicant is entitled to the relief sought and all or part of it requires the restraint of some act prejudicial to the applicant; (2) to stop or prevent an act relating to the subject of pending litigation, which would violate the rights of the applicant and tend to render a judgment in the litigation ineffective; (3) the applicant is entitled to relief under principles of equity or laws of the state; (4) when a cloud would be placed on title to real property; or (5) threatened irreparable injury to real or personal property.

Prerequisites to Relief: Before relief may be granted, there are three primary elements which must be pled and shown by evidence (i.e., verified allegations for a TRO and testimony in a temporary injunction hearing): (1) the applicant is seeking permanent relief, either by way of a suit for damages or a permanent injunction; (2) there is a probable right to that relief; and (3) there is a probable injury which is imminent, would result in irreparable harm, and is the type of harm that could not be adequately compensated with money damages (note, however, this last element need not be shown for harm that involves violations of a statutory right, a cloud on title, or threat of an irreparable injury to real or personal property).

Other Considerations: Venue depends on whether the injunctive relief would be “ancillary” to the main lawsuit or instead is the primary relief sought. If the injunction is ancillary, then venue is determined by the rules governing the main lawsuit. When an injunction is the primary relief sought, then venue is governed by Texas Civil Practice and Remedies Code § 65.023.

How We Can Help

Wright Commercial Litigation has sought and contested TROs/injunctions in many different contexts in Texas courts, for both business and individual matters. Feel free to contact the firm if you need assistance immediately halting some activity that violates your rights or challenging an injunction issued against you or your business. Contact the firm today for a consultation.