McGuire, Craddock & Strother’s Tom Whelan Talks With Law360 About Impact of Texas Supreme Court Ruling on Real Estate Litigation

As the Texas Supreme Court prepared for oral arguments in a $57.3 million real estate dispute last week, Law360 sought out MCS attorney Tom Whelan as an outside expert to analyze how the case could impact real estate negotiations in Texas.

In HMC Hotel Properties II LP et al. v. Keystone-Texas Property Holding Corp., HMC Hotel Properties is asking the Texas Supreme Court to overturn the San Antonio appellate court ruling reinstating a multi-million dollar punitive damages award in a slander of title action based on the seller’s claim that it lost a pending sale because its ground lessee sent a demand letter claiming that the seller had violated the ground lessee’s right of first negotiation under the express terms of the ground lease. Among the considerations for the Texas Supreme Court is where to draw the line between the legitimate assertion in negotiations of disputed contract rights and tortious conduct that might expose a party to claims for punitive damages.

Writes Law360: At the heart of the case is a sharp difference of opinion between the operator of the Marriott Rivercenter Hotel in San Antonio and the owner of the underlying real estate over the hotel’s contractual right to buy the land in the face of an existing offer. A jury and an intermediate appeals court said the hotel’s interpretation of the agreement was not only incorrect, but warranted punitive damages.

Whelan, a McGuire, Craddock & Strother litigator with extensive experience in real estate disputes, spoke with Law360 reporter Jeremy Heallen about the probable impact on real estate negotiations and real estate litigation should the Texas Supreme Court allow the lower court ruling stand.

“The decision makes it more difficult for parties to assert disputed contract rights aggressive,” Whelan told Law360.

An attorney’s assertion of a client’s position in court is absolutely privileged.  An attorney’s assertion of a client’s position with a view toward vindicating that position in court also is absolutely privileged.  According to the court of appeals, Host’s letter to Keystone did not qualify for the privilege because the client sent it and the letter did not refer to a potential lawsuit.

Whelan believes the appeals court’s signal that absolute privilege might have applied could spur attorneys to advise clients to send all demands through their lawyers and to refer ritualistically to legal proceedings in every demand letter in an attempt to invoke the protections of absolute privilege for themselves.

If the ruling stands, it would tend to discourage early negotiations between business principals and to prompt earlier threats of litigation, according to Whelan.“But that poisons the wellspring of negotiations early on. This case goes in the opposite direction of our state’s policy of discouraging litigation.”

Read the full article here.