Opinion issued May 19, 2005
In The
Court of Appeals
For The
First District of Texas
NO. 01-04-00048-CV
ANTONIA POLOS, INDIVIDUALLY, AND AS TRUSTEE OF POLOS FAMILY LIVING TRUST, Appellant
V.
GEORGE POLOS AND JOHN POLOS, Appellees
On Appeal from the Probate Court No. 3
Harris County, Texas
Trial Court Cause No. 301770-401
MEMORANDUM OPINION
Appellant, Antonia Polos, in her individual capacity and as Trustee of the Polos Family Living Trust (Trust), appeals the trial court’s order imposing death penalty sanctions against her. In two issues, appellant argues that the trial court abused its discretion in striking her pleadings and defenses because (1) the sanction for failing to create an accounting was impermissible and (2) the death penalty sanction violated the standards established in TransAmerican Natural Gas Corp. v. Powell, 811 S.W.2d 913, 917–918 (Tex. 1991) (orig. proceeding).
Background
Appellant and Charles Polos created the Trust in December 2002. Charles died in 1997, leaving appellant as the sole trustee of the Trust. In June of 2000, appellant wrote George Polos (one of the appellees) and asked him to execute an Assignment of Interest in the Trust. In September 2001, George’s attorney sent appellant a written request for a full copy of the Trust and an accounting of the Trust’s assets, income, expenses and distributions beginning with the date of Charles’ death up until the date of appellant’s response. George stated that he would wait until October 1, 2001, for appellant’s response before taking further legal action.
On January 7, 2002, George and John Polos, appellees, filed suit in the 152nd District Court of Harris County. Appellees sought to compel an accounting under the provisions of section 113.151 of the Texas Trust Code. The suit was later amended to include a claim for breach of fiduciary duty, injunctive relief, damages, attorney’s fees, and removal of appellant as trustee of the Trust. In March 2002, appellant filed an Application for Issuance of Letters of Administration in Probate Court Number 3. Appellant also filed a Motion to Transfer Cause of Action Appertaining or Incident to this Estate to transfer appellees’ suit from the district court into the probate court. The transfer was granted and the Trust and probate actions were consolidated in the probate court.
On June 4, 2002, appellees served appellant with Contestants’ Interrogatories to Proponent and with Contestants’ Request for Disclosure Under T.R.C.P. 194, both regarding the probate litigation. On June 11, 2002, appellees served on appellant Plaintiff’s Request for Disclosure, Plaintiff’s Request for Production, and Plaintiff’s Interrogatories Under T.R.C.P. 194, regarding the Trust litigation. On July 1, 2002, appellant and appellees entered into the first Rule 11 agreement to extend the time for appellant’s answers to both sets of discovery. The parties agreed on an August 7, 2002 discovery deadline for appellant’s discovery answers regarding the Trust litigation. The parties also agreed on an August 14, 2002 discovery deadline for appellant’s answers regarding discovery for the probate litigation. Appellant failed to meet both deadlines.
On August 26, 2002, appellees filed Contestants’ Motion to Compel relative to the probate component of the July 1, 2002 Rule 11 agreement. Appellees requested that the trial court order appellant to file full and complete responses to the discovery requests, and they requested attorney’s fees as sanctions. The trial court granted the motion and ordered appellant to respond to Contestants’ Request for Disclosure and Interrogatories by October 24, 2002. The trial court also ordered appellant to pay appellees $500 for attorney’s fees incurred in preparing and attending the hearing on the motion.
On October 11, 2002, appellees filed Plaintiffs’ Motion to Compel relative to the Trust component of the July 1, 2002 Rule 11 agreement. Appellees requested that the trial court order appellant to file full and complete responses to the discovery requests. Appellees also sought attorney’s fees. The trial court granted the motion to compel and ordered appellant to respond to Plaintiff’s Request for Disclosure, Plaintiff’s Request for Production, and Plaintiff’s Interrogatories Under T.R.C.P. 194 by December 9, 2002. The trial court also ordered appellant to pay appellees $500 for attorney’s fees incurred in preparing and attending the hearing on the motion.
Appellant did not comply with either of the trial court’s orders that granted the motions to compel until February 2003. On February 7, 2003, appellant filed her Responses to Request for Disclosure; Responses to First Set of Interrogatories; Responses to Requests for Admissions; and Responses to Requests for Production. Appellant’s responses were well beyond the October 24, 2002 and the December 9, 2002 deadlines.
On October 22, 2002, appellees served appellant with Requests for Admissions. Appellant served Responses to Admissions on February 7, 2003. Because appellant’s responses were untimely and the requests were deemed admitted, appellant filed a motion to strike the admissions. The trial court denied appellant’s request on May 15, 2003.
Appellant’s deposition was scheduled for November 12, 2002. Appellees served a subpoena duces tectum with their deposition notice. On December 20, 2002, appellees filed their Third Motion to Compel because appellant had failed to appear for her deposition and had failed to respond to the subpoena duces tectum. On January 9, 2003, the trial court granted the motion and ordered appellant to appear at the probate court for an oral deposition on January 21, 2003 and to produce the documents identified in appellees’ subpoena duces tectum. The trial court also ordered appellant to pay appellees $500 for attorney’s fees incurred in preparing and attending the hearing on the motion.
On January 21, 2003, the parties entered into a second Rule 11 Agreement. The parties agreed that appellant’s oral deposition would be rescheduled for February 25, 2003. The parties also agreed that appellant would produce the documents identified in the subpoena duces tecum, as well as the documents sought by all other outstanding discovery requests by February 7, 2003. Appellant would have until February 24, 2003 to supplement her discovery answers. The parties also agreed that appellant would not dispose of any Trust assets; would produce an accounting in accordance with section 113.152 of the Texas Trust Code by February 21, 2003; and would supplement the accounting no later than February 24, 2003.
On February 21, 2003, appellant submitted a document entitled Accounting Provided by Ms. Antonia Flores Polos in Connection with a Lawsuit on Behalf of John Charles Polos and George Straton Polos. On April 7, 2003, appellees filed a motion to enforce January 21, 2003 Rule 11 agreement, contending that the purported accounting submitted by appellant on February 21, 2003 was not in accord with section 113.152 of the Texas Trust Code. Appellees argued that the purported accounting failed to provide a list of all property in the Trust; did not include any receipts, records of disbursements, or records relative to any Trust transaction; failed to identify the location of monies held in investment accounts; and failed to identify Trust liabilities. The trial court granted the motion and ordered appellant to provide a full and complete accounting meeting the requirements of Texas Trust Code section 113.152 by July 1, 2003. The trial court also ordered appellant to pay $750 for attorney’s fees incurred by appellees’ counsel in preparing and attending the hearing on the motion.
On June 4, 2003, appellees’ attorney notified appellant of the outstanding discovery requests, including the production of tax returns and documents showing asset transfers. On June 19, 2003, appellees filed their fourth motion to compel, requesting the trial court to order appellant to provide true and correct copies of the documents that she had agreed to provide in the January 21, 2003 Rule 11 agreement, with which appellant had never complied.
The trial court held a hearing on the motion on June 26, 2003. At the hearing, the trial court asked why the parties were before him again. Appellees’ attorney responded by stating, “The problem continued in this case of not securing the records from [appellant], which as it stands right now and continues to impede us in terms of trial preparation.” Appellees requested an order that appellant produce the documents and attorney’s fees. Appellees also requested that the trial court strike appellant’s pleadings and defenses. At the beginning of the hearing, appellant gave appellees a file of documents. The trial court continued the hearing to July 2, 2003.
On July 1, appellant gave the appellees the same documents she had given them on June 26, identifying them as her Trust Accounting. On July 2, 2003, appellees filed their response to appellant’s “Purported Accounting.” In their response, appellees argued appellant had failed to provide an accounting in compliance with the Texas Trust Code and that she had failed to provide a number of documents necessary to account for the disposition of Trust assets, including documents indicating where the assets were transferred after Charles’s death. Appellees requested that appellant be removed as trustee of the Trust and that a constructive trust be imposed. Appellees also requested the following sanctions as provided by Rule 215.2 of the Texas Rules of Civil Procedure: an order disallowing any further discovery by appellant; an order refusing to allow appellant to assert that Trust assets were separate property; an order striking appellant’s counterclaim and answer; an order charging appellant with reasonable attorney’s fees; an order allowing joinder of Larry Vasquez and Bertha Vasquez as Defendants; an order requiring appellant to provide supporting documentation for every withdrawal made from the Trust; and an order forcing appellant to pay full costs of mediation.
Also on July 2, 2003, the hearing on appellees’ fourth motion to compel was resumed. Appellant’s attorney effectively admitted that no accounting had been done. He told the trial court that he had only recently received most of the documents regarding the assets in the Trust and that his accountant would need two additional weeks to produce a summary so that an accounting could be prepared. Appellant’s attorney admitted that appellant had withdrawn funds individually from the Trust and was holding them. Appellant failed to identify where she was holding the assets. The trial court reset the hearing for July 24, 2003. The trial court suggested to appellees’ attorney, on the record, that appellees could file a motion to strike appellant’s pleadings if she did not provide the accounting as promised by her attorney.
The hearing rescheduled for July 24, 2003 was actually held on July 31. On that date, appellant filed her response to appellees’ motion to compel. Appellant requested that appellees’ fourth motion to compel be denied because she had complied with the Rule 11 agreement by producing the required documents. Appellant also filed her Reply to appellees’ response to appellant’s Purported Accounting, in which she argued that she had substantially complied with the Rule 11 agreement by providing an accounting satisfying the requirements of section 113.152 of the Texas Trust Code. However, she did not provide any new documents or an accounting. Nor did she identify where she had transferred Trust assets or produce documentation for withdrawals.
Also on July 31, 2003, appellees filed their response to appellant’s reply to appellees’ reply to appellant’s Purported Accounting. Appellees outlined appellant’s discovery abuses and the trial court orders appellant had ignored during the life of the case. Appellees argued that sanctions should be imposed against appellant, including death penalty sanctions. Appellees requested that appellant’s answer and counterclaim be stricken and a default judgment entered against her. Appellees argued that less severe sanctions had not ensured appellant’s compliance with discovery and that her conduct justified the presumption that her defenses and counterclaim lacked merit. Appellees again requested that a constructive trust be imposed and that appellant be removed as trustee.
The trial court granted appellees’ motion for sanctions as set forth in appellees’ response to appellant’s Purported Accounting. The trial court found that the required accounting was not provided by the deadline established under the Rule 11 agreement. The trial court noted that it had issued an order on May 15, 2003 granting appellees’ Motion to Enforce Rule 11 Agreement and had given appellant until July 1, 2003 to produce a full and complete accounting. The trial court found that appellant had not complied with its order and that appellant had made no effort to produce the accounting. The court made the following findings:
That since the inception of this litigation Antonia Polos has failed to comply with another Rule 11 Agreement between the parties dated January 21, [2003] and failed to appear for her deposition scheduled for July 21, 2002. The court further finds that Antonia F. Polos’ conduct has caused George and John Polos to file four Motions to Compel, which Antonia F. Polos failed to comply with other than the payment of court ordered attorney fees and costs which were increased with each order.
. . .
That the previous sanctions imposed by the court in the form of payment of attorney fees were not sufficient to promote compliance by Antonia F. Polos with any of the court’s orders on John & George Polos’ four Motions to Compel and separate Motion to Enforce Rule 11 Agreement. Accordingly, the court finds that the conduct of Antonia F. Polos justifies the presumption that Antonia Polos’ defenses to George and John Polos’ claim of breach of fiduciary duty (loyalty and full-disclosure) suit for accounting, declaratory relief and removal of Antonia F. Polos as Trustee lacks merit as well as her counterclaim.
The trial court then granted appellees’ motion for sanctions as set forth in their response to appellant’s Purported Accounting and struck appellant’s defensive pleadings and claims in all her capacities. The trial court ordered appellant to pay appellees’ attorney’s fees and imposed a constructive trust.
On August 18, 2003, the trial court granted a Partial Default Judgment against appellant on all issues of liability. The court also removed appellant as trustee of the Trust and imposed a constructive trust.
On August 20, 2003, the case went to trial on the issue of damages. On October 16, 2003, the trial court signed a final judgment on the jury’s findings. The judgment ordered appellant, Individually and as Trustee of the Trust to restore to the Trust the total sum of $1,059,953.47 and pay post judgment interest; ordered the successor trustee to pay appellees the sum of $48,063.95 for attorney’s fees and expenses from the assets of the Trust; and ordered the successor trustee to pay appellees the additional sum of $10,000 if the case were appealed to the court of appeals, $7,5000 if a petition for review filed with the Texas Supreme Court, and $5,000 if the petition were granted.
Appellant filed a motion for new trial on November 17, 2003. The trial court denied the motion on December 1, 2003. This appeal followed.
Standard of Review
We review a trial court’s ruling on a motion for sanctions under an abuse of discretion standard. Cire v. Cummings, 134 S.W.3d 835, 838 (Tex. 2004); Bodnow Corp. v. City of Hondo, 721 S.W.2d 839, 840 (Tex. 1986). A trial court abuses its discretion if it acts without reference to any guiding rules and principles by acting arbitrarily or unreasonably in light of all the circumstances of the case. Downer v. Aquamarine Operations, Inc., 701 S.W.2d 238, 241–42 (Tex. 1985); Smithson v. Cessna Aircraft Co., 665 S.W.2d 439, 443 (Tex. 1984). We cannot substitute our judgment for that of the trial court’s. See Flores v. Fourth Court of Appeals, 777 S.W.2d 38, 41 (Tex. 1989). However, the sanctions imposed by the trial court must be just. TransAmerican, 811 S.W.2d at 917.
TransAmerican established a two-part test to determine whether a particular sanction was just. TransAmerican, 811 S.W.2d at 917. First, there must be a direct relationship between the imposed sanction and the offensive conduct. Id. “This means that a just sanction must be directed against the abuse and toward remedying the prejudice caused the innocent party.” Id. Second, a just sanction is not excessive; it is only as severe as is necessary to satisfy legitimate purposes. Id. There are three legitimate purposes for discovery sanctions: (1) to secure compliance with the rules of discovery; (2) to deter other litigants from similar abuse; and (3) to punish abusers. Chrysler Corp. v. Blackmon, 841 S.W.2d 844, 849 (Tex. 1992). Because a sanction should not be more severe than necessary, the court must consider less severe sanctions first. TransAmerican, 811 S.W.2d at 917. When, as here, a trial court imposes death penalty sanctions, the party must have acted in “flagrant bad faith.” Id. at 918.
Discussion
In her first issue, appellant argues that the trial court abused its discretion by striking her pleadings for failure to create an accounting pursuant to the Texas Trust Code. In her second issue, appellant contends that striking her pleadings violated TransAmerican because (1) the sanction was not directed toward remedying any prejudice caused appellees and (2) the sanction was more severe than necessary in light of less severe sanctions available.
Nothing in this record indicates that the trial court imposed death penalty sanctions solely because appellant did not create an accounting. The record clearly demonstrates that the trial court imposed death penalty sanctions only after appellant repeatedly violated the discovery rules, the court’s orders, and the parties’ Rule 11 agreements.
The trial court’s order imposing death penalty sanctions against appellant summarized appellant’s repeated failures to comply with the trial court’s orders and with the discovery rules. As discussed above, the trial court found that appellant’s conduct led appellees to file four motions to compel and one motion to enforce the Rule 11 agreement. With each of its orders, the trial court sanctioned appellant by ordering her to meet a new deadline and to pay appellees’ attorney’s fees. Appellant paid the attorney’s fees, but did not appear for her deposition, produce documents within court ordered deadlines, produce an accounting, or even retain trust funds in the Trust. The trial court found that its previous sanctions of attorney’s fees were insufficient to promote appellant’s compliance and that appellant’s conduct justified the presumption that her defenses to the claims and her counterclaim lacked merit. Therefore, the trial court granted appellees’ motion and struck appellant’s defensive pleadings and claims.
Appellant’s conduct impeded appellees’ ability to prepare for trial. By the trial court’s order striking appellant’s pleadings and removing her as trustee, appellees no longer had to establish liability. Thus, appellees were no longer prejudiced by appellant’s conduct.
Appellant argues that less severe sanctions were available. She contends that appellees, at appellant’s expense, could have subpoenaed the documents they needed from the financial institutions and created their own accounting. The trial court, however, is not required to impose every possible less severe sanction before striking a party’s pleadings. See TransAmerican, 811 S.W.2d at 917. The trial court is only required to consider less severe sanctions. Id. Here, the trial court repeatedly reset schedules and assessed attorney’s fees as sanctions against appellant’s repeated abuses of the discovery rules. Appellant’s actions made it impossible for appellees to prepare their case. The death penalty sanctions entered by the trial court established, as a matter of law, the findings dependent on evidence in appellant’s possession, which she repeatedly refused to produce. We hold that the sanctions were fully commensurate with appellant’s abuses of the litigation process. Accordingly, we conclude that the trial court did not abuse its discretion.
We overrule appellant’s first and second issues.
Conclusion
We affirm the judgment of the trial court.
Evelyn V. Keyes
Justice
Panel consists of Justices Nuchia, Keyes, and Bland.