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Case Updates from the First Court of Appeals – April 2022
Houston Bar Association Appellate Practice Section
April 29, 2022
Innovative Vision Solutions, LLC v. Kempner, No. 01-20-00195-CV, 2022 WL 868130 (Tex. App.—Houston [1st Dist.] Mar. 24, 2022, no pet. h.) (mem. op.).
Panel consisted of Justices Goodman, Hightower, and Rivas-Molloy. Opinion by Justice Hightower.
This opinion is notable because it deals with an oral Rule 11 agreement that was a settlement agreement. The important lesson here: parties should be careful about oral Rule 11 agreements and should structure the terms of their agreement fully before reading the agreement into the record.
In this case, Innovative Vision Solutions, LLC and Dr. James S. Goddard, Jr. (together, “Innovative”) entered into the Rule 11 agreement with Harris Kempner, Jr. and Harris Kempner, III (together, the “Kempners”).
Innovative had been founded for the purpose of developing, manufacturing, and selling new medical imaging technology. The Kempners invested money, time, and advice into the business.
Innovative obtained patent and copyright licenses from Oak Ridge National Labs and the University of Tennessee-Battelle (the “Lab”) to commercially develop and manufacture the new technology. The licenses gave the Lab several rights, including the right to a running royalty and to audit Innovative’s business.
Eventually, the relationship between Innovative and the Kempners soured. Extensive litigation followed. The Kempners made a written settlement offer. On the day of trial, the parties agreed to settle based on the letter.
The oral Rule 11 agreement contained several provisions. In essence, the agreement gave the Kempners a royalty and incorporated by reference the licenses from the Lab. The Kempners were to receive a 2.5% gross royalty “on the same present terms as the royalty granted to” the Lab. 2022 WL 868130, at *2. The Rule 11 also gave audit rights to a third-party trustee similar to those given to the Lab. Id. Finally, the Kempners were to receive 7.5% of all sales proceeds if Innovative were ever to be sold. Id.
The parties intended to reduce the oral agreement to writing. But that never happened. Instead, more disputes arose. Thus, the Kempners amended their petition to seek a declaratory judgment regarding the rights and obligations of the parties. The trial court conducted a bench trial and issued a declaration.
On appeal, Innovative complained regarding a variety of issues. The First Court of Appeals rejected all of these complaints, and the opinion is a good primer on contract litigation.
The First Court held that the trial court appropriately held a bench trial and received evidence. Although the Rule 11 agreement was not ambiguous, the trial court was within its rights to receive evidence because it could consider extrinsic evidence of the facts and circumstances surrounding the contract’s execution for all purposes.
Moreover, the First Court reasoned that even if incompetent evidence had been received, a presumption applies in bench trials that the trial court disregarded any incompetent evidence. The First Court applied this presumption and overruled this issue.
The First Court also held that a valid contract had been formed because the oral Rule 11 agreement contained all the terms that the parties would reasonably regard as important to the bargain and those terms were sufficiently definite.
The First Court affirmed the trial court’s construction of the agreement and the award of attorney’s fees to the Kempners.
In re Reece, No. 01-21-00685-CV, 2022 WL 479929 (Tex. App.—Houston [1st Dist.] Feb. 17, 2022, orig. proceeding).
Panel consisted of Chief Justice Radack and Justices Countiss and Farris. Per curiam opinion.
The relators filed a petition for a writ of mandamus that sought to compel the trial court to rule on their pending plea to the jurisdiction. A previous petition had been denied by the First Court of Appeals.
This time, the First Court conditionally granted the petition and directed the trial court to rule on the pending plea. The plea had been filed in October 2020, and the relators had asked for a ruling on three separate occasions.
Under these circumstances, the First Court concluded that the trial court abused its discretion by failing to perform its ministerial duty to rule on the plea. The First Court reasoned that there had been multiple requests for a ruling and that the trial court had failed to rule within a reasonable time. The First Court signaled that a delay of six months qualifies as unreasonable.
The First Court, however, refused to compel the trial court as to how it should rule on the plea.