2 Lawsuits Better Than 1? Severance and Consolidation
ARE MULTIPLE LAWSUITS BETTER THAN ONE?
An important component of litigation strategy in disputes involving multiple parties or multiple claims involves deciding which claims and parties to include in a lawsuit. By extension, that strategy decision includes consideration of whether omitting certain claims or parties from a lawsuit has a specific benefit.
Sometimes, a single set of facts or a single occurrence (including without limitation a real estate transaction) can give rise to multiple claims against multiple parties.
AN EXAMPLE OF A SINGLE REAL ESTATE TRANSACTION GIVING RISE TO MULTIPLE CLAIMS AGAINST MULTIPLE PARTIES
Consider the following (somewhat simplified) fact pattern:
- Buyer Bob purchases a home from Seller Sue.
- Bob is represented in the transaction by his Buyer’s real estate broker, Billy Broker.
- Upon signing the purchase contract Sue emailed to Billy a Seller’s Disclosure Notice that did not identify any defects with the home, and stated “none” in the section indicating known issues or problems, including water penetration. Billy, in turn, forwarded the SDN to Bob.
- Prior to closing on the purchase Bob engages the services of Inspector Ivan to perform a professional inspection of the home. Following his inspection, Ivan gives the home a clean bill of health in his written report.
- Bob closes on the purchase, and two weeks later he learns that the home is located in the flood plain, and that as a result, the home is subject to water intrusions each time it rains. After further investigation, Bob learns that Sue had made several insurance claims for past flood damage, but never performed any repairs. Instead, she simply installed new carpet to conceal the warped and molded hardwood floors throughout the home.
- Bob later learns that Sue and Billy are friends, and that Billy was aware of the past flooding through that friendship. Billy forgot to tell Bob what he knew about the past floods because Billy is a busy realtor who is moving properties as fast as he can. Billy insists that this was an honest mistake.
- Bob learns that repairing the home and re-directing water away from the home to prevent future flooding with cost $95,000. Naturally, Bob is furious and wants to hold as many people as possible responsible for his damages.
Under the above fact pattern, Bob has at least the following claims:
- Failure to Disclose defects and Fraud against Seller Sue based upon the misrepresentation contained in the Seller’s Disclosure Notice.
- Negligence or incompetence (“malpractice”) against Ivan Inspector for missing the evidence of prior flood damage during the property inspection.
- Negligence (concealment) and breach of fiduciary duty against Billy Broker.
A PLAINTIFF’s DILEMA: SHOULD ALL CLAIMS AGAINST ALL PARTIES BE JOINED IN A SINGLE SUIT?
When it comes time to file a lawsuit, Buyer Bob (and his lawyer) must engage in the following analysis:
- What are the benefits of filing a single lawsuit against Seller Sue, Inspector Ivan and Billy Broker for each of their respective roles in the home purchase transaction?
Possible benefits could include: financial savings since only one filing fee will be required, and Bob will incur attorneys fees in connection with drafting only a single lawsuit. Another benefit could be that one Defendant’s joinder will allow the suit to be filed in a more favorable venue than if that Defendant were omitted.
- What are the potential risks or drawbacks of filing a single lawsuit against all of the prospective defendants?
One possible drawback be that the 3 parties (or their lawyers) “gang up” on Bob through a joint defense arrangement.
- Are there any tactical advantage to filing separate lawsuits against the defendants, or some grouping of them?
A consideration here could be as follows: Both Ivan Inspector and Billy Broker breached their respective duties to Bob. However, the two breaches are not directly related, and it is unlikely that the inspector and the buyer’s broker conspired to bring about Bob’s damages. Thus, a jury may be confused about how to apportion liability between these parties.
Ultimately, Bob and his lawyer must decide whether it is to Bob’s advantage to file all claims against all parties into a single lawsuit, or to file multiple lawsuits.
While the fact pattern above is somewhat simple, this decision is not an easy one. Additionally, Bob must understand that however he decides to proceed – one suit or multiple suits — the Defendants may request that the Court alters Bob’s strategy. This request for altered status typically comes in the form of two related but opposite concepts – Severance and Joinder.
Understanding how severance and joinder work will assist a litigant in deciding which strategy to pursue.
Continuing with the fact pattern above, let’s assume that Bob files a single lawsuit in which Bob names Seller Sue, Inspector Ivan and Billy Broker as Defendants. Any one of these Defendants may move to “sever” Bob’s lawsuit into two or more separate suits by filing a “Motion to Sever.”
A severance divides a lawsuit into two or more separate and independent causes. Hall v. City of Austin, 450 S.W.2d 836, 837-38 (Tex. 1970). Severance is appropriate if a controversy involves two or more separate and distinct causes of action, each of which might constitute a complete lawsuit. Rodarte v. Cox, 828 S.W.2d 65, 71 (Tex. App.-Tyler 1991, writ denied).
“The controlling reasons for a severance are to do justice, avoid prejudice and further convenience.” Guar. Fed. Sav. Bank, 793 S.W.2d at 658; F.F.P. Operating Partners, L.P. v. Duenez, 237 S.W.3d 680, 693 (Tex. 2007).
In Texas, the test courts apply for determining whether a claim is severable has 3 prongs:
(1) Does the controversy involves more than one cause of action?;
(2) Is the severed claim is one that would be the proper subject of a lawsuit if independently asserted?; and
(3) the severed claim is not so interwoven with the remaining action that they involve the same facts and issues.
A trial court has broad discretion in the severance of causes of action. Morgan v. Compugraphic Corp., 675 S.W.2d 729, 734 (Tex. 1984). The authority for a Texas Court to sever a lawsuit into separate proceedings is found in Texas Rule of Civil Procedure 41.
RULE 41. MISJOINDER OR NON-JOINDER OF PARTIES
…Any claim against a party may be severed and proceeded with separately.
Now let’s change things up a bit. Instead of Bob filing a single suit against all 3 defendants, let’s assume Bob has filed two lawsuits: one suit against Billy Broker and a separate suit against Sally Seller and Ivan Inspector. Each of the two suits are proceeding simultaneously under separate cause numbers, and each has its own trial date.
Under these circumstances, EITHER Billy (in the suit pending against him) OR Sally/Ivan (in the suit pending against them) can request that the Court consolidates the two lawsuits into a single lawsuit that encompasses all of Billy’s claims against all 3 defendants. The vehicle for making such a request is called a “Motion to Consolidate.”
Consolidation merges two or more “separate suits into a single proceeding under one docket number.” Hong Kong Dev., Inc. v. Nguyen, 229 S.W.3d 415, 432 (Tex. App.-Houston [1st Dist.] 2007, no pet.).
When cases involve a common question of law or fact, a court may “order a joint hearing or trial of any or all the matters in issue,” “order all the actions consolidated,” and “make such orders . . . as may tend to avoid unnecessary costs or delay.” Id.; In re Pirelli Tire, L.L.C., 247 S.W.3d 670, 676 (Tex. 2007).
A trial court may consolidate actions that relate to substantially the same transaction, occurrence, subject matter, or question. In re Gulf Coast, 247 S.W.3d at 794; Crestway Care Ctr., Inc. v. Berchelmann, 945 S.W.2d 872, 873-74 (Tex. App.-San Antonio 1997, orig. proceeding); Lone Star Ford, 838 S.W.2d at 737. “The actions should be so related that the evidence presented will be material, relevant, and admissible in each case.” In re Gulf Coast, 247 S.W.3d at 794; see Crestway Care Ctr., 945 S.W.2d at 874.
Texas Rule of Civil Procedure 174(a) governs consolidation of cases. This Rule provides:
RULE 174. CONSOLIDATION; SEPARATE TRIALS
- (a) Consolidation. When actions involving a common question of law or fact are pending before the court, it may order a joint hearing or trial of any or all the matters in issue in the actions; it may order all the actions consolidated; and it may make such orders concerning proceedings therein as may tend to avoid unnecessary costs or delay.
- (b) Separate Trials. The court in furtherance of convenience or to avoid prejudice may order a separate trial of any claim, cross-claim, counterclaim, or third-party claim, or of any separate issue or of any number of claims, cross-claims, counterclaims, third-party claims, or issues.
A trial court has broad but not unlimited discretion to consolidate cases with common issues of law or fact. See In re Woodward, No. 12-16-00032-CV, 2016 WL 1731473, at *2 (Tex. App.-Tyler Apr. 29, 2016, orig. proceeding) (mem. op.); In re Gulf Coast Bus. Dev. Corp., 247 S.W.3d 787, 794 (Tex. App.-Dallas 2008, orig. proceeding); Lone Star Ford, Inc. v. McCormick, 838 S.W.2d 734, 737 (Tex. App.-Houston [1st Dist.] 1992, writ denied).
A trial court may abuse its discretion by “incorrectly resolving the relatedness issue or by consolidating cases when the consolidation results in prejudice to the complaining party.” In re Gulf Coast, 247 S.W.3d at 794 (internal quotations omitted). “The central and primary requirement for consolidation of actions as directed by rule 174(a) is that there must exist common issues of law or fact in both cases.” Id. at 795. Consolidation is improper “if the parties and issues differ.” Hong Kong Dev., 229 S.W.3d at 439.