League City v. Texas Windstorm Insurance Association

ACCEPTED
01-15-00117-CV
FIRST COURT OF APPEALS
HOUSTON, TEXAS
8/7/2015 3:37:57 PM
CHRISTOPHER PRINE
CLERK

No. 01-15-00117-CV

FILED IN
IN THE FIRST COURT OF APPEALS, HOUSTON
1st COURT OF APPEALS
HOUSTON, TEXAS
8/7/2015 3:37:57 PM
League City, CHRISTOPHER A. PRINE
Appellant and Cross-Appellee,Clerk

v.

Texas Windstorm Insurance Association,
Appellee and Cross-Appellant.

On Appeal from the 10th District Court at Galveston, Texas
(No. 12-CV-0053)

BRIEF OF CROSS-APPELLANT
TEXAS WINDSTORM INSURANCE ASSOCIATION

Andrew T. McKinney IV Dale Wainwright
State Bar No. 13716800 State Bar No. 00000049
LITCHFIELD CAVO LLP dale.wainwright@bgllp.com
One Riverway, Suite 1000 Yvonne Y. Ho
Houston, Texas 77056 State Bar No. 24055673
Telephone: (713) 418-2000 Lindsay E. Hagans
Facsimile: (713) 418-2001 State Bar No. 24087651
BRACEWELL & GIULIANI LLP
James R. Old, Jr. 111 Congress Avenue, Suite 2300
State Bar No. 15242500 Austin, Texas 78701
JAY OLD & ASSOCIATES, PLLC Telephone: (512) 472-7800
2615 Calder Avenue, Suite 720 Facsimile: (800) 404-3970
Beaumont, Texas 77702
Telephone: (409) 241-7252
Facsimile: (409) 419-1733

ATTORNEYS FOR CROSS-APPELLANT TEXAS WINDSTORM INSURANCE ASSOCIATION

ORAL ARGUMENT REQUESTED
 STATEMENT REGARDING ORAL ARGUMENT
This was a long, complex pre-trial and trial that generated a large record.

TWIA anticipates that oral argument will be necessary to clarify the many issues

raised by both sides on appeal. In the event that this Court decides oral argument

is necessary, TWIA respectfully requests that the Court include the issues raised

herein in this cross-appeal and conditional appeal.
 IDENTITIES OF PARTIES AND COUNSEL

Cross-Appellant (Defendant)
Texas Windstorm Insurance Association

Counsel for Cross-Appellant
Dale Wainwright Yvonne Y. Ho
State Bar No. 00000049 State Bar No. 24055673
dale.wainwright@bgllp.com yvonne.ho@bgllp.com
Lindsay E. Hagans BRACEWELL & GIULIANI LLP
State Bar No. 24087651 711 Louisiana Street, Suite 2300
lindsay.hagans@bgllp.com Houston, Texas 77002
BRACEWELL & GIULIANI LLP Telephone: (713) 223-2300
111 Congress Avenue, Suite 2300 Facsimile: (800) 404-3970
Austin, Texas 78701
Telephone: (512) 472-7800
Facsimile: (800) 404-3970

Andrew T. McKinney IV James R. Old, Jr.
State Bar No. 13716800 State Bar No. 15242500
mckinney@litchfieldcavo.com jay.old@jroldlaw.com
LITCHFIELD CAVO LLP JAY OLD & ASSOCIATES, PLLC
One Riverway, Suite 1000 2615 Calder Avenue, Suite 720
Houston, Texas 77056 Beaumont, Texas 77702
Telephone: (713) 418-2000 Telephone: (409) 241-7252
Facsimile: (713) 418-2001 Facsimile: (409) 419-1733

Trial Counsel for Cross-Appellant
David P. Salyer
State Bar No. 17549680
dpsalyer@mapalaw.com
MAPA LAW, PC
802 Rosenberg
Galveston, Texas 77553
Telephone: (409) 763-2481
Facsimile: (409) 762-1155

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Cross-Appellee (Plaintiff)
League City, Texas

Counsel for Cross-Appellee
Jennifer Bruch Hogan
HOGAN & HOGAN
711 Louisiana, Suite 500
Houston, TX 77002
Telephone: (713) 222-8800
Facsimile: (713) 222-8810

Trial Counsel for Cross-Appellee
J. Steve Mostyn Gregory F. Cox
THE MOSTYN LAW FIRM Michael R. Ramsey
3810 W. Alabama Street THE MOSTYN LAW FIRM
Houston, Texas 77027 6280 Delaware Street
Facsimile: (713) 861-8084 Beaumont, Texas 77706
Facsimile: (409) 832-2703

Randal Cashiola
RANDAL CASHIOLA LAW OFFICE
2090 Broadway Street
Beaumont, TX 77701
Telephone: (409) 813-1443

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 TABLE OF CONTENTS

Page

IDENTITIES OF PARTIES AND COUNSEL ........................................................ i

INDEX OF AUTHORITIES................................................................................... vi
STATEMENT REGARDING RECORD REFERENCES ..................................... ix
STATEMENT OF THE CASE .................................................................................x

ISSUES PRESENTED............................................................................................ xi
INTRODUCTION ....................................................................................................1

STATEMENT OF FACTS .......................................................................................1

A. League City sued TWIA for allegedly unresolved insurance
claims, which became the subject of a problematic appraisal. ............1

B. League City continually stonewalled on the specific bases for
its lawsuit, impairing TWIA’s attempts to respond to discovery,
yet at the same time League City asked the court to sanction
TWIA for failing to provide discovery. ...............................................2

C. The pre-trial court sanctioned TWIA $15,000 to punish a minor
delay, despite a total lack of prejudice or harm suffered by
League City. .........................................................................................5

D. After the appraisal award was issued, TWIA amended its
answer to assert defenses to the award. ................................................7

E. League City’s attempt to seek discovery on TWIA’s appraisal
defenses did not comply with discovery rules, and so a dispute
ensued. ..................................................................................................9

F. The pre-trial court summarily overruled TWIA’s discovery
objections and ordered TWIA to answer League City’s Third
Interrogatories the next day. ...............................................................11

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 G. The pre-trial court struck TWIA’s defenses to the appraisal
award because TWIA declined to waive its objections in
answering League City’s Third Interrogatories. ................................12

H. TWIA prevailed at trial, and the trial court entered a take-
nothing judgment for TWIA. .............................................................13
SUMMARY OF THE ARGUMENT .....................................................................15
ARGUMENT ..........................................................................................................17

I. A Trial Court’s Discovery Sanctions Order Is Reviewed For An
Abuse Of Discretion. ....................................................................................17
II. The Pre-Trial Court Abused Its Discretion In Ordering A $15,000
Sanction When League City Failed To Show Any Harm That Resulted
From TWIA’s Actions. .................................................................................18
A. League City never attempted to show any prejudice suffered by
TWIA’s delay in serving supplemental responses, or quantify
the alleged harm. ................................................................................18

B. Even if there was a basis for calculation in the record—which
there is not—the $15,000 monetary sanction still would be
excessive. ............................................................................................22

C. TWIA was not dilatory in lodging meritorious objections to the
discovery. ...........................................................................................23

III. The Pre-Trial Court Abused Its Discretion By Imposing Death-
Penalty Sanctions On TWIA Without Meeting The Mandatory
Requirements For Levying Such Sanctions. (Conditional Cross-
Point) ............................................................................................................25
A. Texas law cabins a trial court’s discretion to order death-
penalty sanctions by imposing strict limitations on their use. ...........26

B. The pre-trial court abused its discretion by sanctioning TWIA
for a minimal noncompliance that was substantially justified. ..........28

1. The record belies the pre-trial court’s finding that TWIA
had waived its objections to the Third Interrogatories. ...........28

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 2. TWIA was substantially justified in answering them
subject to its proper objections. ...............................................30

C. The requirements for death-penalty sanctions were not met. ............31

1. League City suffered no prejudice from TWIA’s
continued assertion of objections while submitting
amended and supplemental answers to the Third
Interrogatories. .........................................................................32

2. The pre-trial court’s death-penalty sanction of striking
TWIA’s affirmative defenses is excessive in light of
TWIA’s conduct.......................................................................34

D. The sanction was harmful because ample evidence at trial
supported TWIA’s appraisal defenses that were wrongfully
stricken. ..............................................................................................35

PRAYER .................................................................................................................40

CERTIFICATE OF SERVICE ...............................................................................42
CERTIFICATE OF COMPLIANCE ......................................................................42

APPENDIX .............................................................................................................43

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 INDEX OF AUTHORITIES

Page(s)
CASES
Am. Flood Research v. Jones,
192 S.W.3d 581 (Tex. 2006) (per curiam) .........................................................29
Bair v. Hagans,
838 S.W.2d 677 (Tex. App.—Houston [1st Dist.] 1992, writ
denied).................................................................................................................34

Barnes v. W. Alliance Ins. Co.,
844 S.W.2d 264 (Tex. App.—Fort Worth 1992, writ dism’d) ...........................37

Braden v. Downey,
811 S.W.2d 922 (Tex. 1991) ..............................................................................19

Braden v. S. Main Bank,
837 S.W.2d 733 (Tex. App.—Houston [14th Dist.] 1992, writ
denied).................................................................................................................19
Butan Valley, N.V. v. Smith,
921 S.W.2d 822 (Tex. App.—Houston [14th Dist.] 1996, no writ) ................... 35
Christus Health Gulf Coast v. Carswell,
433 S.W.3d 585 (Tex. App.—Houston [1st Dist.] 2013, pet.
granted) ...............................................................................................................21
Chrysler Corp. v. Blackmon,
841 S.W.2d 844 (Tex. 1992) ..................................................................18, 32, 34

Cire v. Cummings,
134 S.W.3d 835 (Tex. 2004) ..............................................................................17
Continental Ins. Co. v. Guerson,
93 S.W.2d 591 (Tex. Civ. App.—San Antonio 1936, writ dism’d) .............36, 37

Downer v. Aquamarine Operators, Inc.,
701 S.W.2d 238 (Tex. 1985) ..............................................................................17

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Ford Motor Co. v. Tyson,
943 S.W.2d 527 (Tex. App.—Dallas 1997, orig. proceeding) .....................21, 22

IFC Credit Corp. v. Specialty Optical Sys., Inc.,
252 S.W.3d 761 (Tex. App.—Dallas 2008, pet. denied)....................................22

In re Bledsoe,
41 S.W.3d 807 (Tex. App.—Fort Worth 2001, orig. proceeding) .....................27

In re Carnival Corp.,
193 S.W.3d 229 (Tex. App.—Houston [1st Dist.] 2006, orig.
proceeding) .........................................................................................................27
In re M.J.M.,
406 S.W.3d 292 (Tex. App.—San Antonio 2013, orig. proceeding) .................27
In re Noble Drilling (Jim Thompson), LLC,
449 S.W.3d 625 (Tex. App.—Houston [1st Dist.] 2014, orig.
proceeding) ...................................................................................................27, 31
Jones v. Am. Flood Research, Inc.,
218 S.W.3d 929 (Tex. App.—Dallas 2007, no pet.) ..........................................22
Nat’l Med. Enters., Inc. v. Godbey,
924 S.W.2d 123 (Tex. 1996) ..............................................................................40

Paradigm Oil, Inc. v. Retamco Operating, Inc.,
372 S.W.3d 177 (Tex. 2012) ..............................................................................20

Penn. Fire Ins. Co. v. W.T. Wagoner Estate,
39 S.W.2d 593 (Tex. Comm’n App. 1931) ........................................................38

Sec. Ins. Co. v. Kelly,
196 S.W. 874 (Tex. Civ. App.—Amarillo 1917, writ ref’d) ..............................38
Sells v. Drott,
330 S.W.3d 696 (Tex. App.—Tyler 2010, pet. denied) .....................................30

Spohn Hosp. v. Mayer,
104 S.W.3d 878 (Tex. 2003) (per curiam) .........................................................17

State Farm Lloyds v. Johnson,
290 S.W.3d 886 (Tex. 2009) ..................................................................36, 38, 39

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Stromberger v. Turley Law Firm,
251 S.W.3d 225 (Tex. App.—Dallas 2008, no pet.) ..............................20, 21, 22

Tex. Integrated Conveyor Sys., Inc. v. Innovative Conveyor Concepts,
Inc.,
300 S.W.3d 348 (Tex. App.—Dallas 2009, pet. denied)....................................23
TransAmerican Natural Gas. Corp. v. Powell,
811 S.W.2d 913 (Tex. 1991) .......................................................................passim

RULES
TEX. R. CIV. P. 215.2(b) ...........................................................................................17

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 STATEMENT REGARDING RECORD REFERENCES
There were several court reporters during the course of pre-trial and trial

proceedings. Accordingly, when TWIA requested to supplement the reporter’s

record, there were several filings, not all of which were separated into volumes.

The transcripts of the 2014 hearings were separated in volumes and are cited

accordingly. Example: 1SuppRR.123 is the first volume of the Supplemental

Reporter’s Record containing all the 2014 hearings requested by TWIA, at page

123.

For those transcripts not in volumes (the 2013 hearings), TWIA will cite to

the date of the hearing. Example: SuppRR.10-14Hrg.123 is the Supplemental

Reporter’s Record transcript of the hearing on October 14, 2013, at page 123.

For Bill of Exception exhibits, the format is as follows. Example:

54RR.DX.BOE.D/76-77 is Defendant TWIA’s Exhibit D offered in a bill of

exceptions, included in volume 54 of the Reporter’s Record, at pages 76-77 of that

exhibit.

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 STATEMENT OF THE CASE
Nature of the Case: As appellant, Texas Windstorm Insurance Association
(“TWIA”) appeals two discovery rulings, one by each of
the pre-trial courts. The lawsuit concerns an alleged
breach of contract by TWIA asserted by Plaintiff League
City, after League City sustained damage caused by
Hurricane Ike. (CR.167-81). After trial, the trial court
entered a take-nothing judgment in favor of TWIA, and
League City appealed. This cross-appeal addresses a
monetary discovery sanction erroneously ordered by the
first pre-trial court, (CR.160), and the second pre-trial
court’s erroneous striking of three affirmative defenses
challenging the validity of the appraisal award in this case,
(CR.187-92). The take-nothing judgment should be
affirmed, but TWIA appeals the monetary sanction and
conditionally appeals the striking of its defenses.

Pre-trial Courts: First pre-trial court: Hon. Susan Criss, 212th Judicial
District Court, Galveston County, Texas;
Second pre-trial court: Hon. Lonnie Cox, 56th Judicial
District Court, Galveston County, Texas. (See Standing
Ike order, CR.166, assigning all pre-trial matters).

Trial Court: Hon. Kerry Neves, 10th Judicial District Court, Galveston
County, Texas.

Trial Court After a month-long trial, the jury returned its verdict,
Disposition: invalidating the appraisal award and finding that the
appraisal award included non-covered losses; that League
City had materially breached its contractual obligations to
provide prompt written notice of its loss and to keep and
provide to TWIA an accurate record of repair expenses;
and that the appraisal award failed to substantially comply
with insurance policy terms and conditions. (CR.289-
322). After considering TWIA’s post-verdict motions,
(CR.350-548), the trial court ordered a take-nothing
judgment against League City, (CR.678-79).

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 ISSUES PRESENTED
1. Whether the pre-trial court abused its discretion in ordering a
$15,000 discovery sanction when:

a. League City failed to demonstrate any prejudice or harm
from TWIA’s service of supplemental discovery a few
days after they were due;

b. The pre-trial court offered no basis for calculating the
amount of the sanction; and

c. Judged against the short delay, the $15,000 sanction was
demonstrably excessive.

2. Whether the pre-trial court abused its discretion and violated
the Texas Rules of Civil Procedure by striking three of TWIA’s
key affirmative defenses to the appraisal award, as a discovery
sanction, when:
a. TWIA raised legitimate objections to a specific set of
discovery requests regarding its appraisal defenses, but
the pre-trial court refused to review TWIA’s objections
and instead sanctioned TWIA for refusing to voluntarily
waive them; and
b. The strict requirements for imposing death-penalty
sanctions against TWIA on these appraisal defenses were
not met, including because TWIA had already provided
substantial discovery on its appraisal defenses and further
supplemented its discovery answers on the pre-trial
court’s orders, and there was no indication that TWIA
acted in flagrant bad faith or with callous disregard of the
discovery process. (TWIA’s conditional cross-point)

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 INTRODUCTION
The trial court’s entry of a take-nothing judgment in TWIA’s favor is fully

supported on many grounds, and will be explained in TWIA’s forthcoming Brief of

Appellee. There are only two narrow discovery issues in this cross-appeal and

conditional appeal: (1) a $15,000 monetary sanction for a short, non-prejudicial

delay in serving discovery responses, and (2) an erroneous death-penalty sanction

striking three of TWIA’s affirmative defenses regarding the invalidity of the

appraisal award. It was an abuse of discretion to impose the excessive monetary

sanction, for which there is absolutely no support in the record. TWIA also

conditionally appeals the striking of its affirmative defenses in the unlikely event

that this case is remanded to the trial court, because the death-penalty sanction

violates the procedural and due process requirements that protect parties from

precisely this sort of arbitrary penalty.

STATEMENT OF FACTS

A. League City sued TWIA for allegedly unresolved insurance claims,
which became the subject of a problematic appraisal.
In 2008, Hurricane Ike caused damage to real property owned by League

City. TWIA provided windstorm insurance coverage, subject to the terms,

conditions, and exclusions in the insurance policy. (CR.462-519). Under the

policy, TWIA paid more than $750,000 for covered repairs. (CR.398 (Jury

Question No. 5); see also CR.61). Yet without any pre-suit notice of allegedly
unresolved claims, League City sued TWIA on January 17, 2012, for breach of

contract, punitive damages, statutory penalties, and other relief. (CR.7-18).

Despite TWIA’s inquiry letter to League City requesting information of the items

of loss it claimed were still owed, (CR.546-47), League City never responded.

B. League City continually stonewalled on the specific bases for its
lawsuit, impairing TWIA’s attempts to respond to discovery, yet at
the same time League City asked the court to sanction TWIA for
failing to provide discovery.
TWIA objected throughout the discovery period that it could not respond to

discovery requests without information from League City specifying the claims it

was contending were still unresolved. (See, e.g., SCR.128, 206, 454). Yet League

City continually asked the pre-trial court to intervene in discovery disputes, usually

accompanied by requests for sanctions. (See, e.g., SCR.109-22, 435-39).

In response to League City’s First Interrogatories, TWIA objected because

all the interrogatories were vague, overbroad, and unduly burdensome since they

concerned a policy covering over 140 separate structures, yet the interrogatories

failed to specify which covered item League City was inquiring about. (SCR.128).

TWIA also objected that many requests were seeking information that was not

limited by duration, was privileged, or was not relevant to the claims at issue.

(SCR.127-28, 134, 137, 144-45).

League City moved to compel TWIA to supplement its responses, moved to

strike TWIA’s objections and claims of privilege, and moved for sanctions.

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(SCR.109-22). In response, TWIA argued that League City’s requests for

discovery constituted an impermissible fishing expedition. (SCR.206-07). TWIA

also pointed out that four of League City’s interrogatories requested all legal and

factual bases for TWIA’s defenses or decisions, a violation of the discovery rules’

prohibition against forcing a party to marshal all of its evidence. (SCR.207-09).

After being dragged into the discovery disputes, the pre-trial court 1 finally

got League City to agree to “tell[ ] [TWIA] what building you’re complaining

about.” (SuppRR.10-2Hrg.15). Yet, surprisingly, at the same October 2, 2013,

hearing, the pre-trial court granted League City’s Motion to Compel, struck all of

TWIA’s objections, and ordered TWIA to supplement its responses to League

City’s discovery requests. (SCR.379).

Because the pre-trial court’s expansive October 2 order did not distinguish

between producing privileged and non-privileged information and materials,

TWIA moved to stay the order and asked the pre-trial court to reconsider the

rulings and to inspect privileged materials in camera. (SCR.380-85). The pre-trial

court granted TWIA’s motion for in camera inspection. (SCR.392).

1
The Honorable Susan Criss of the 212th District Court was pre-trial judge
for this and the other Hurricane Ike cases in district court in Galveston County
until December 6, 2013, when she resigned from the bench and the Honorable
Lonnie Cox of the 56th District Court became pre-trial judge for the Hurricane Ike
cases. (CR.166).

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 On October 14, the pre-trial court then re-heard League City’s Motion to

Compel, but with no prior notice that the motion would be re-argued.

(SuppRR.10-14Hrg.37; SCR.524). The court went through TWIA’s objections

line by line, overruling most, but granting in part some, and modifying some of the

questions. (See generally SuppRR.10-14Hrg). League City’s counsel agreed to

“make any modifications” to reflect TWIA’s privilege objections. (SuppRR.10-

14Hrg.21, 93). Also, in response to TWIA’s oft-repeated argument that TWIA

“cannot state the basis for the denial of a claim [when] . . . [w]e don’t know the

dollar amount or the nature of the damage” claimed by League City, the court

agreed and granted in part TWIA’s objection and ordered League City to rephrase

its question. (SuppRR.10-14Hrg.65-68). League City also stipulated to narrowing

some of the discovery issues. (SuppRR.10-14Hrg.73-74).

After League City submitted a proposed order the following day, again

asking the pre-trial court to order TWIA to supplement its discovery responses,

TWIA sent a letter to the pre-trial court, objecting to the lack of notice for the prior

day’s hearing and because the proposed order did not address any of the numerous

modifications that the court had made to League City’s discovery requests.

(SCR.524). The pre-trial court did not sign an order.

The pre-trial court did not respond to any of TWIA’s concerns. At an

October 22 hearing on TWIA’s Motion to Compel, League City interjected its own

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argument that TWIA had not supplemented its discovery as ordered by the court,

and thus League City could not take the deposition of Paul Gauthier, an

independent adjuster hired by TWIA to adjust League City’s claim. (SuppRR.10-

22Hrg.29, 32). TWIA pointed out that League City had not filed a motion to

compel based on the court’s oral rulings from the October 14 hearing, for which

there was no transcript yet:

That is not in any e-mail from opposing counsel to our side. It’s not
in their Motion to Quash. There was no notice coming into this
morning that the objection to taking Paul Gauthier on Thursday had to
do with some discovery issue that he has with us on interrogatories
and document requests.

(SuppRR.10-22Hrg.35). Despite objection to the lack of notice on this issue once

again, the pre-trial court ordered TWIA to supplement its answers and responses to

League City’s discovery requests within three days and to delete its objections.

(SuppRR.10-22Hrg.37-38; CR.52).

C. The pre-trial court sanctioned TWIA $15,000 to punish a minor
delay, despite a total lack of prejudice or harm suffered by League
City.
With the benefit of a transcript of the October 14 hearing, TWIA served

supplemental answers and responses that removed the overruled objections and

noted the October 14 modifications, which no motion from League City or written

order from the pre-trial court ever referenced. (SCR.485; 2RR.8).

However, because TWIA was a little more than a week late in serving its

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supplemental discovery, League City asked the pre-trial court to “sanction [TWIA]

something so they understand that your order has some meaning.” (2RR.6). The

court demanded TWIA explain why the discovery was late, and when told that it

required client approval from personnel out of state, the court asked for specific

names, to be given under oath by the afternoon. (2RR.8, 10-11, 13-15). When

TWIA did not provide additional explanation for the delay in filing the

supplemental discovery, the pre-trial court lambasted TWIA for being disrespectful

and asked League City what it wanted the court to do. (2RR.17, 20, 24).

Despite initially complaining about League City’s delay in serving

supplemental discovery responses, League City then switched focus and argued

that it had learned during the deposition of Paul Gauthier that he had files that had

not been produced before the deposition. (2RR.19). League City asked for a “per

diem amount of $5,000, and that’s to capture all of the other things that might flow

from the delays.” (2RR.22).

TWIA responded and pointed out that Gauthier is not an employee of Texas

Windstorm and he was not within its control. “He doesn’t work for them. His

files are not subject to their custody or control. He is not subject to Texas

Windstorm’s custody or control.” (2RR.21). Regardless, the production of

Gauthier’s files was not raised in League City’s original Motion to Compel, nor in

its subsequent Motion to Enforce. (SCR.120-21; CR.94-104). Finally, TWIA

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pointed out there was no prejudice cited in the requests for sanctions, (see

SCR.120-21, 437-38), and League City never presented any evidence of prejudice

or of incurred costs. (2RR.27-28).

Despite TWIA’s objections, the pre-trial court ordered TWIA to reproduce

Paul Gauthier for deposition for an additional 6 hours and to pay $15,000 as a

sanction “for violation of the Court’s order, which includes the amount of

attorney’s fees and expenses League City incurred in preparing League City’s

Motions and attending the hearing on the Motions.” (CR.160).

TWIA asked the court to reconsider the monetary sanction order, (SCR.508-

13), and set the reconsideration motion for hearing on several occasions, but the

court never heard it or ruled on it. Thus, TWIA is forced to lodge this appeal,

despite winning a take-nothing judgment in the underlying suit.

D. After the appraisal award was issued, TWIA amended its answer to
assert defenses to the award.
In the meantime, in the absence of any response from League City to its

letter asking why it has been sued when it had paid over $750,000 in policy

benefits and had not been advised of any unpaid, covered damages, TWIA invoked

the appraisal process under the insurance policy. (SCR.1022-25). Pursuant to the

appraisal provision, each party appointed an appraiser, with TWIA appointing John

Mullen and League City appointing Paul Tierce. (CR.40, SCR.1024). The pre-

trial court then appointed former Judge Don Burgess as the umpire. (CR.51). The

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appraisal process resulted in an award of over $3.4 million signed on October 24,

2013, by Burgess and Tierce. (SCR.1030-34). Mullen did not join the award.

(SCR.1030).

TWIA’s review of the appraisal award detected numerous anomalies that

invalidated the award. In discovery responses and pleadings, TWIA advised

League City of facts underlying its affirmative defenses, including:

• The appraisal process was flawed and biased, (SCR.962-63, 969,
1392-93, 2071-72);

• Umpire Burgess individually summoned at least one League City
employee to discuss the hurricane loss during the appraisal process,
but he refused to give testimony, (SCR.962);

• The pre-trial court made numerous errors of law when it appointed the
umpire, (SCR.969, 1392, 2071-72);

• The award included amounts which neither appraiser assigned as
covered damages, and on occasions exceeded the amounts submitted
by the appraisers, (SCR.1256-57);

• The appraisal award reflected amounts of loss for items never
submitted to TWIA, (SCR.2072); and

• Items not presented at the time of the adjustment were included in the
appraisal, (SCR.1234).

Accordingly, with a reasonable basis in fact and law, TWIA filed a

supplement to its amended answer, pleading three affirmative defenses that

challenged the appraisal award:

1. The appraisal award was not an honest assessment of necessary
repairs.

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 2. The appraisal award and the process leading up to it were inaccurate,
unreliable and/or biased.

3. The appraisal award was the result of fraud, accident or mistake.

(CR.182).

E. League City’s attempt to seek discovery on TWIA’s appraisal
defenses did not comply with discovery rules, and so a dispute
ensued.
League City sought discovery on these appraisal defenses. Although it had

already exhausted its limit of twenty-five interrogatories, (SCR.1009-12, 1019-20),

League City nevertheless served in February 2014 a new set of twenty additional

interrogatories (the “Third Interrogatories”) on TWIA. (SCR.989-95). TWIA

responded to this new round of discovery on February 13, and asserted several

objections, including that some of them sought privileged information and that all

of them violated the limit on the number of interrogatories. (SCR.989-95).

A few days later, on February 17, the pre-trial court, which had since

transferred to Judge Cox after Judge Criss’s retirement, held a hearing on a number

of discovery motions that dealt mostly with the timing and guidelines for

depositions. (3SuppRR.3-5). Following a similar refrain, League City had not

given prior notice on any issues concerning TWIA’s responses to the Third

Interrogatories; indeed, League City had not even filed a motion complaining of

TWIA’s responses at that time. Despite this, League City injected the issue into

this hearing. (3SuppRR.33-34).

-9-
 Without any discussion of the responses TWIA had already given to this

discovery, the pre-trial court asked TWIA when it could respond to the Third

Interrogatories, and TWIA answered that it could do so within ten days.

(3SuppRR.40). TWIA then expressed its confusion about the complaints about the

interrogatories, explaining that it had already responded to them and that, before

the hearing, League City had voiced no complaint about the answers.

(3SuppRR.41). TWIA then assured the court that “we will do what we can,” but

also made clear that the “the problem is we have already referred them to all the

documents we have and we have answered two pages.” (3SuppRR.41).

Following the February 17 hearing, League City’s counsel emailed asking

TWIA to fully answer the Third Interrogatories. (SCR.880). Having provided

numerous discovery responses by that point addressing the improprieties in and

invalidity of the appraisal process and award, TWIA determined it had no further

responses. (SCR.880).

League City then filed a Motion to Compel Appraisal Discovery and Motion

to Strike Objections, claiming that TWIA had defied the pre-trial court by failing

to offer additional answers that were not subject to objections on the appraisal

issues. (SCR.863-65). TWIA responded and again made clear its objections to the

discovery. (SCR.952-56).

-10-
 F. The pre-trial court summarily overruled TWIA’s discovery
objections and ordered TWIA to answer League City’s Third
Interrogatories the next day.
During a March 12 hearing on the motion, League City and the pre-trial

court focused on TWIA’s isolated statement in the previous hearing that it would,

in essence, respond to the interrogatories within ten days. (4SuppRR.4-5, 12). In

response, TWIA made clear that it had not agreed to waive its objections to the

interrogatories questions, but rather, in light of the tumultuous relationship

between the parties on discovery matters, that it would “do what [it] can” to

resolve the discovery dispute. (3SuppRR.41). TWIA further pointed out that it

had already responded to the interrogatories by lodging its objections and

answering some of them subject to those objections. (4SuppRR.10). The pre-trial

court then attempted to grant the Motion to Compel without hearing TWIA’s

objections to the interrogatories, but it eventually relented and allowed TWIA to

explain a couple of objections, including that the interrogatories exceeded the limit

and sought privileged material. (4SuppRR.5-10). Notwithstanding that, the court

summarily overruled the objections and ordered TWIA to answer the

interrogatories by 5 p.m. the next day. (4SuppRR.12; SCR.1036). 2

2
The order actually says “by 4/13 [April 13, 2014],” but when considered
along with the pre-trial court’s statements at the hearing, it is clear the date in the
order was a mistake and the real deadline was March 13.

-11-
 TWIA duly supplemented its discovery responses by the pre-trial court’s

deadline, preserving its objections and offering even more expansive answers

subject to those objections. (SCR.1230-35). Due to the short timeframe and the

limited information TWIA possessed about the appraisal process (because of

League City’s failure to provide long-delayed discovery), TWIA could not more

fully answer each interrogatory. (SCR.1230-35). TWIA further supplemented its

answers a few days later to reflect the contents of an expert report it received on

March 14. (SCR.1287-90).

G. The pre-trial court struck TWIA’s defenses to the appraisal award
because TWIA declined to waive its objections in answering League
City’s Third Interrogatories.
League City was still not satisfied, however, and asked the court to strike

TWIA’s defenses to the appraisal award as a sanction. (SCR.1085-88). TWIA

responded by pointing out that it had twice supplemented its responses pursuant to

the order. (SCR.1221-23). TWIA further discussed why such sanctions were not

justified under the law. (SCR.1223-24).

At a March 20 hearing on the sanctions motion, TWIA explained that it had

complied with the pre-trial court’s order “to the extent of our ability.”

(5SuppRR.12). TWIA also advised the pre-trial court, “[w]e have said repeatedly

that until we take the fact witnesses and the appraisers’ depositions, we cannot

further flesh out our answers.” (5SuppRR.12; see also 5SuppRR.35). TWIA

-12-
further made clear that it would continue to supplement its answers as it conducted

additional discovery into the appraisal issues. (5SuppRR.36).

The pre-trial court held an additional hearing on the sanctions motion on

April 10. (6SuppRR.5). The focus of the sanction portion of that hearing was a

dispute over a recent deposition of TWIA’s corporate representative, Paul

Strickland. (6SuppRR.8-16). Notably, as was often the case, that deposition was

not the subject of any pending motion. Nevertheless, the pre-trial court verbally

ordered that TWIA’s appraisal defenses be stricken as a sanction for TWIA not

“participat[ing] appropriately in this discovery.” (6SuppRR.16). The pre-trial

court signed an order striking the affirmative defenses on April 17 as a sanction for

not complying with its March 12 order. (CR.187-95).

Importantly, between March 12 and April 17, TWIA repeatedly

supplemented its discovery responses. It served three amended answers to the

Third Interrogatories; a Third Supplemental Response to League City’s Request

for Disclosure; and the expert reports of Mark Elliot and Tim Lozos. (SCR.968-

69, 1228-35, 1250-90, 1378-94, 2067-90). All these discovery responses provided

information and further fleshed out TWIA’s position with regard to the appraisal

award.

H. TWIA prevailed at trial, and the trial court entered a take-nothing
judgment for TWIA.
The case was returned to Judge Kerry Neves of the 10th District Court for

-13-
trial.3 The jury listened to three weeks of evidence accusing TWIA of failing to

pay insurance coverage allegedly of some eight million dollars, and then it heard

two days of testimony on behalf of TWIA. The jury found that League City

breached its obligations under the policy, which in turn prejudiced TWIA in its

ability to assist in the adjustment. Further, the jury found that that the appraisal

award, League City’s only damages model, was invalid for failing to substantially

comply with the policy terms and provisions. (See generally CR.286-326).

TWIA moved for Judgment Notwithstanding the Verdict, arguing, inter alia,

that, (1) without the invalidated appraisal award, there was no damages evidence;

and (2) that the jury’s findings in TWIA’s favor on its defenses merited a take-

nothing judgment. (CR.350-82). The trial court agreed and rendered a take-

nothing amended final judgment in TWIA’s favor. (CR.678-80).

League City also filed post-verdict motions, (CR.681-92), which the trial

court denied on January 23, 2015, (CR.856-57). League City now appeals the final

judgment, while TWIA cross-appeals a narrow sanctions issue and preserves its

conditional cross-point for appeal regarding the erroneous striking of its

affirmative defenses.

3
Under the Galveston County order on managing Hurricane Ike cases, pre-
trial matters were handled by the assigned pre-trial judge and the cases would be
tried in the court in which it was originally filed. (CR.166).

-14-
 SUMMARY OF THE ARGUMENT
The two sanctions at issue were an abuse of the trial court’s discretion to

regulate discovery disputes. The excessive $15,000 sanction was to punish TWIA

for being late in serving supplemental discovery responses, despite TWIA’s best

efforts in complying with a panoply of oral and written rulings that did not provide

guidance on the permissible parameters of discovery.

Yet when TWIA complied with these orders and served its supplemental

discovery—albeit a few days late—the pre-trial court railed against TWIA’s

supposed disrespect and imposed a disproportionate sanction, despite no attempt by

League City to demonstrate its resulting harm or prejudice. There is absolutely no

evidence in this record to support the calculation of the amount of this arbitrary

fine, nor is there any evidence that TWIA’s actions harmed League City. Either

one of these grounds is sufficient to vacate the sanction, and considered together it

is compelling that the pre-trial court erred in ordering the monetary sanction.

Later in the discovery process, the parties disputed the validity of the

appraisal award. After TWIA amended its answer to assert defenses to the

questionable award, League City served a host of interrogatories, in excess of its

limit under the discovery rules. TWIA objected on that basis and because the

questions sought privileged information, but the pre-trial court summarily

overruled all of TWIA’s discovery objections and ordered TWIA to answer League

-15-
City’s interrogatories within one day. TWIA did precisely that, but when its

answers were unsatisfactory to the pre-trial court, it imposed death-penalty

sanctions against TWIA, striking TWIA’s defenses to the appraisal award—

premised largely on a misunderstanding that TWIA had agreed to waive its

objections, which the hearing transcript contradicts. Moreover, TWIA was

substantially justified in answering the questions subject to those proper and

legitimate objections.

Further, the death-penalty sanctions the pre-trial court imposed were fatally

defective because: (1) League City suffered no prejudice, since TWIA had served

numerous discovery responses explaining its challenges to the award’s validity;

and (2) the death-penalty sanctions were clearly excessive in light of TWIA’s

minor noncompliance with the pre-trial court’s order.

Despite the pre-trial court’s rulings in error that hampered TWIA’s ability to

present its case, TWIA prevailed at trial, and the trial court that presided over the

month-long trial entered a take-nothing judgment for TWIA. TWIA now asks this

Court to vacate the wrongfully levied monetary sanction, and, in the unlikely event

that the case is remanded for a new trial, to reverse the pre-trial court’s erroneous

striking of TWIA’s affirmative defenses.

-16-
 ARGUMENT

I. A Trial Court’s Discovery Sanctions Order Is Reviewed For An Abuse
Of Discretion.
A trial court’s ruling on a motion for sanctions is reviewed under an abuse of

discretion standard. “The test for an abuse of discretion is not whether, in the

opinion of the reviewing court, the facts present an appropriate case for the trial

court’s action, but ‘whether the court acted without reference to any guiding rules

and principles.’” Cire v. Cummings, 134 S.W.3d 835, 838-39 (Tex. 2004) (quoting

Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 (Tex. 1985)).

The trial court’s ruling should be reversed if it was arbitrary or unreasonable. Id. at

839.

While the choice of which discovery sanctions to impose lies within the

discretion of the trial court, any sanction imposed still must be “just.” See Spohn

Hosp. v. Mayer, 104 S.W.3d 878, 882 (Tex. 2003) (per curiam) (citing TEX. R.

CIV. P. 215.2(b); TransAmerican Natural Gas. Corp. v. Powell, 811 S.W.2d 913,

917 (Tex. 1991)). For a sanction to be “just,” there must be (1) a direct nexus

among the offensive conduct, the offender, and the sanction imposed, and (2) the

sanction must not be excessive. TransAmerican, 811 S.W.2d at 917.

As to the first TransAmerican “direct nexus” requirement, a just sanction

must be directed against the abuse and toward remedying the prejudice caused to

the innocent party. Id. As to the second TransAmerican “not excessive”

-17-
requirement, a discovery sanction should be no more severe than necessary to

satisfy its legitimate purposes, which include securing compliance with discovery

rules, deterring similar misconduct, and punishing violators. Id.; Chrysler Corp. v.

Blackmon, 841 S.W.2d 844, 849 (Tex. 1992). The entire record must be reviewed

to determine whether sanctions are warranted. See Blackmon, 841 S.W.2d at 852-

53.

II. The Pre-Trial Court Abused Its Discretion In Ordering A $15,000
Sanction When League City Failed To Show Any Harm That Resulted
From TWIA’s Actions.
Describing the proper standard for considering sanctions, the Texas Supreme

Court has held that “[t]he punishment should fit the crime.” TransAmerican, 811

S.W.2d at 917. Here, however, not only did League City entirely fail to

demonstrate or even suggest that it had suffered harm or prejudice from TWIA’s

alleged discovery abuse, but the $15,000 monetary sanction was excessive when

judged against TWIA’s delay of a few days, and there is no other evidence in the

record that would support an imposition of the sanction. The punishment most

certainly did not fit the crime, and it was an abuse of discretion for the pre-trial

court to sanction TWIA to the tune of $15,000.

A. League City never attempted to show any prejudice suffered by
TWIA’s delay in serving supplemental responses, or quantify the
alleged harm.
The pre-trial court’s monetary sanction was targeted toward TWIA’s minor

-18-
delay (8 business days) in serving supplemental discovery answers and producing

requested documents in October 2013. (2RR.15-18, 24, 31). However, League

City never attempted to show, nor did the pre-trial court ever explain, how the

$15,000 sanction (nevermind the $30,000 sanction requested by League City, see

2RR.24) was a remedy for any prejudice suffered by League City. 4 All League

City offered in justification was that “the motion sets forth a particular per diem

amount of $5,000, and that’s to capture all of the other things that might flow from

the delays.” (2RR.22). That is not sufficient evidence to support the court’s award

of monetary sanction.

When a trial court assesses a monetary sanction, “there must be some

evidence in the record linking the amount awarded to harm actually suffered by the

party seeking sanctions.” Braden v. S. Main Bank, 837 S.W.2d 733, 741 (Tex.

App.—Houston [14th Dist.] 1992, writ denied); see also Braden v. Downey, 811

S.W.2d 922, 929 (Tex. 1991) (court must consider prejudice). If a monetary

sanction “is not tied to any evidence in the record and the basis for calculating the

amount is unknown, the sanction constitutes an impermissible arbitrary fine.”

4
In fact, as TWIA pointed out to the pre-trial court, there was no harm—all
of the claim-related documents responsive to League City’s requests were
produced months before League City moved to compel. (2RR.25; SuppRR.10-
14Hrg.6 (“We produced it months ago . . . . [T]hey have our non-privileged
production relative to this claim. They have had it, in many instances, over two
years.”)).

-19-
Stromberger v. Turley Law Firm, 251 S.W.3d 225, 226-27 (Tex. App.—Dallas

2008, no pet.); see also Paradigm Oil, Inc. v. Retamco Operating, Inc., 372 S.W.3d

177, 187 (Tex. 2012) (“Sanctions for discovery abuse should not be dispensed as

arbitrary monetary penalties unrelated to any harm.”).

TWIA made clear to the pre-trial court that League City never cited any

prejudice in its motions for sanctions, (see SCR.120-21, 437-38), nor submitted

any evidence quantifying the harm. (2RR.27-28). Although League City baldly

contended in the oral hearing that the $5,000 per day sanction would “capture all of

the other things that might flow from the delays” and “would encompass probably

the cost of having to go and re-depose [Gauthier],” (2RR.22, 24),5 there is no

evidence in the record to support or substantiate these assertions. There is no

testimony from League City’s attorneys as to their incurred fees and costs; there

are no affidavits. There simply is no evidence substantiating the amount and

nothing in the record showing any connection between the $15,000 awarded and

any harm suffered by League City as a result of the delay in filing its supplemental

discovery.

5
Moreover, while League City argued that the cost to re-depose Gauthier
included travel costs “to have to go [to Florida] if he won’t voluntarily come on a
plane and come back for another deposition,” that argument was mooted when the
court ordered TWIA to produce Gauthier (and his files) for an additional six hours
of deposition. (CR.160; 2RR.31-32, 34).

-20-
 Yet, despite the complete lack of any evidence of League City’s attorney’s

fees and expenses, the court’s Sanction Order simply awarded half of the relief

requested by League City for “violation of the Court’s order, which includes the

amount of attorney’s fees and expenses League City incurred in preparing League

City’s Motions, and attending the hearing on the Motions.” (CR.160; see also

2RR.24, 31). There is nothing in the record to indicate how the pre-trial court

arrived at the amount of the sanction levied against TWIA.

When the basis for calculating the amount is unknown, the sanction is an

impermissible arbitrary fine. Stromberger, 251 S.W.3d at 226-27. Because there

is no evidentiary support or basis for calculation for the amount of the sanction

imposed, this Court has no means to determine whether the amount of the sanction

is just, as it must be to be upheld on appeal. See Ford Motor Co. v. Tyson, 943

S.W.2d 527, 536 (Tex. App.—Dallas 1997, orig. proceeding); Christus Health

Gulf Coast v. Carswell, 433 S.W.3d 585, 616 (Tex. App.—Houston [1st Dist.]

2013, pet. granted). On this record, the pre-trial court’s arbitrary sanction was an

abuse of discretion, and should be vacated. 6

6
When no evidence supports the amount of the monetary sanction imposed,
the proper action is to either vacate or render judgment that the party take nothing
on that particular sanction award, not remand to the trial court for reconsideration.
Carswell, 433 S.W.3d at 617.

-21-
 B. Even if there was a basis for calculation in the record—which there
is not—the $15,000 monetary sanction still would be excessive.
Even if League City had attempted to offer some basis for calculation, it is

clear that the $15,000 monetary sanction is dramatically disproportionate to any

supposed harm resulting from a few days’ delay in providing the supplemental

responses, especially given the lack of harm or prejudice. The sanctionable

conduct alone does not prescribe the amount of a monetary sanction. Stromberger,

251 S.W.3d at 227. To review the decision of the amount of the monetary sanction

imposed by examining only the conduct giving rise to the sanction would permit a

“wavering standard of subjectivity” unrestrained by law or statute. Tyson, 943

S.W.2d at 536. Here, TWIA’s delay, and (quickly rectified) violation of the pre-

trial court’s previous order, alone do not justify the amount of the sanction. The

trial court’s failure to otherwise explain how it determined the monetary sanction

cannot withstand appellate review. See IFC Credit Corp. v. Specialty Optical Sys.,

Inc., 252 S.W.3d 761, 773 (Tex. App.—Dallas 2008, pet. denied).

Moreover, the record does not show the trial court considered the

availability of lesser sanctions and whether such lesser sanctions would fully

promote compliance. See Jones v. Am. Flood Research, Inc., 218 S.W.3d 929, 932

(Tex. App.—Dallas 2007, no pet.) (order for monetary sanction reversed where,

among other considerations, record did not reflect trial court considered lesser

sanctions and whether they would promote compliance). At most, the pre-trial

-22-
court paid lip service to “lesser sanctions,” by asking TWIA’s counsel: “So then

we can say that I’ve explored lesser sanctions and there are none?” (2RR.29).

When TWIA’s counsel suggested a lesser sanction in the form of actual costs, the

court simply responded, “Anything else?”, (2RR.30), and then imposed the

$15,000 sanction without explanation. (2RR.31). This was an abuse of discretion.

See Tex. Integrated Conveyor Sys., Inc. v. Innovative Conveyor Concepts, Inc., 300

S.W.3d 348, 385 (Tex. App.—Dallas 2009, pet. denied). For this reason, the

monetary sanction should be vacated.

* * * * *

The lack of any prejudice or harm, coupled with the clearly excessive

amount of the sanction and absence of constitutionally required notice, violate the

TransAmerican principles and demonstrates the pre-trial court’s abuse of discretion

in sanctioning TWIA $15,000 for the few days’ delay in serving supplemental

discovery. This Court should vacate the monetary sanction.

C. TWIA was not dilatory in lodging meritorious objections to the
discovery.
Although the pre-trial court sanctioned TWIA on the narrow grounds of a

week’s delay in serving supplemental discovery, the court indicated that its

motivation was far broader. After warning that it would sanction TWIA if it did

not produce specific, sworn information explaining its delay, the court stated:

-23-
 You have done everything you can to run the clock on this to make
sure that you didn’t have to [supplement discovery] . . . . I could have
given you a month to come up with those answers, and the answer
would not have been one bit different than it is at this moment.

(2RR.17-18).

However, the alleged discovery abuse implied by the pre-trial court could

not form the basis of a sanction award. From the first time TWIA responded to

League City’s interrogatories and requests for production, the court rubber-

stamped all of League City’s motions to compel and overruled virtually all of

TWIA’s legitimate objections to League City’s improper requests, most pertinently

that because League City had not explained what damage was the basis of its suit,

TWIA could not respond any further to League City’s allegations. (SuppRR.10-

14Hrg.65, 94-95).

Yet League City continuously moved to compel TWIA to drop all of its

objections and supplement its discovery responses. Despite TWIA’s well-founded

objections (including privilege), and without even considering them at an initial

hearing on League City’s Motion to Compel, the pre-trial court struck all of

TWIA’s objections and ordered TWIA to supplement its answers and responses to

League City’s discovery requests. (SCR.379). Though the pre-trial court later

modified that blanket ruling at an oral hearing, (see generally SuppRR.10-14Hrg.),

no written, signed order ever reflected the changes and limitations to League City’s

requested discovery. TWIA never had a clear direction from the court as to the

-24-
scope of permissible discovery. Further, there were multiple occasions when the

pre-trial court held a hearing on discovery issues without notice, 7 depriving TWIA

of the opportunity to present the court with evidence regarding its objections to the

impermissible discovery requests. TWIA complied with the patchwork array of

oral and written orders, and duly supplemented its discovery even despite the

violations of its fundamental due process rights.

As TWIA’s counsel told the court, “[i]t wasn’t intentional and it wasn’t out

of disrespect. We did the very best we could.” (2RR.27). Though TWIA

regrettably was late in serving the supplemental discovery, it did serve its answers

and responses, without the overruled objections, but with notations reflecting the

other modifications the court had made, including narrowing the scope of

permissible requests. Thus, there is no evidence in the record to suggest that

TWIA should be faulted for discovery abuse, even were this Court to look beyond

the pre-trial court’s stated basis—TWIA’s delay—for the $15,000 sanction.

III. The Pre-Trial Court Abused Its Discretion By Imposing Death-Penalty
Sanctions On TWIA Without Meeting The Mandatory Requirements
For Levying Such Sanctions. (Conditional Cross-Point)
In the remote event that this case is retried, this Court should reverse the pre-

7
League City’s Motion to Compel was heard on two occasions, the first
with a single day’s notice of hearing, (see SCR.204), and the second with no notice
of hearing whatsoever. (SuppRR.10-14Hrg.37).

-25-
trial court’s April 17, 2014, order imposing death-penalty sanctions that prevented

TWIA from asserting important defenses to the appraisal award. Although the jury

saw through myriad other flaws in the appraisal award, TWIA should have been

permitted to pursue other, equally meritorious defenses that were improperly

stricken.

The April 17 sanctions order was based on an unsupportable finding that

TWIA waived its legitimate discovery objections at an earlier hearing, a mistake

belied by the hearing transcript. And TWIA was substantially justified in

maintaining its discovery objections while complying with the court’s order, the

sanction was an abuse of discretion.

Moreover, TWIA’s conduct comes nowhere close to justifying the severe,

death-penalty sanction that the pre-trial court imposed, given League City’s failure

to demonstrate prejudice and in light of TWIA’s substantial compliance with the

pre-trial court’s discovery order. Further, TWIA’s appraisal defenses were

meritorious, as evidenced by the record. If a new trial is warranted, this Court

should reverse the April 17, 2014, sanctions order and permit TWIA to raise all

these defenses on retrial.

A. Texas law cabins a trial court’s discretion to order death-penalty
sanctions by imposing strict limitations on their use.
Texas law permits a trial court to impose death-penalty sanctions in only the

most extreme of circumstances. The same TransAmerican “direct nexus” and “not

-26-
excessive” requirements discussed above also control here. See supra at 17-18.

Specifically as to death-penalty sanctions, “[i]n all but the most exceptional cases,

the trial court must actually test the lesser sanctions before” imposing a sanction

that precludes a decision on the merits. In re Carnival Corp., 193 S.W.3d 229,

236-37 (Tex. App.—Houston [1st Dist.] 2006, orig. proceeding); see also In re

M.J.M., 406 S.W.3d 292, 298 (Tex. App.—San Antonio 2013, orig. proceeding).

And because death-penalty sanctions raise due process concerns, such sanctions

are inappropriate “unless a party’s hindrance of the discovery process justifies a

presumption that its claims or defense lack merit.” TransAmerican, 811 S.W.2d at

918.

Orders striking affirmative defenses “function[ ] as a death penalty

sanction.” See In re Noble Drilling (Jim Thompson), LLC, 449 S.W.3d 625, 631

(Tex. App.—Houston [1st Dist.] 2014, orig. proceeding). Striking a party’s

affirmative defense is “tantamount to striking his pleadings” and necessarily case-

determinative. In re Bledsoe, 41 S.W.3d 807, 813 (Tex. App.—Fort Worth 2001,

orig. proceeding). Thus, a trial court abuses its discretion if its order striking

affirmative defenses cannot successfully navigate the gauntlet of safeguards that

apply to death-penalty sanctions.

-27-
 B. The pre-trial court abused its discretion by sanctioning TWIA for a
minimal noncompliance that was substantially justified.
1. The record belies the pre-trial court’s finding that TWIA had
waived its objections to the Third Interrogatories.

The pre-trial court incorrectly premised its decision to impose death-penalty

sanctions on TWIA’s supposed voluntary waiver of objections to the Third

Interrogatories, when the record is clear that TWIA never agreed to waive its

objections. The pre-trial court’s faulty characterization of statements by TWIA’s

counsel provides no basis for sanctions.

The pre-trial court stated the reason for its order at the third and final hearing

on this matter on April 10, 2014: “I just don’t think that TWIA has participated

appropriately in this discovery, so I am striking the three affirmative defenses.”

(6SuppRR.16). The court had previously made it clear that “the problem” he had

with the discovery was with “TWIA [sic] objections” and the perceived failure of

its counsel “to do what they say they are going to do.” (4SuppRR.12). So, the

court stated, “I am overruling your objections and I’m sticking with what I said.”

(4SuppRR.12).

In fact, the court expressly stated that it believed TWIA had agreed to waive

its objections. At the March 20 hearing, when TWIA sought reconsideration of the

order striking TWIA’s objections, the court initially stated, “you waive all of that

stuff when you stand up here in Court and say, ‘We can get those interrogatories in

-28-
ten days.’ You waive it.” (5SuppRR.36). The court took the matter under

advisement and then stood on its order striking TWIA’s objections to the Third

Interrogatories. (5SuppRR.41; CR.187-95). But TWIA had never agreed to waive

them in the first place.

The “agreed waiver” interpretation hinges—not on missing a deadline or

failing to assert written objections—but rather on an inaccurate reading of

statements at the first hearing in this matter on February 17, which this Court

should independently review. See Am. Flood Research v. Jones, 192 S.W.3d 581,

583 (Tex. 2006) (per curiam).

At the February 17 hearing, when League City complained about the

interrogatory responses and the pre-trial court asked TWIA what the “solution is

going to be,” TWIA’s counsel confirmed “we can work with them to try to work

that [complaints to TWIA’s response] out” in the ten-day period. (3SuppRR.40-

41) (emphasis added). He reiterated, “[W]e will do what we can” within the ten-

day period. (3SuppRR.41). The record is plain that TWIA did not agree to waive

any discovery objections, including its privilege objections.

Even if there were some disagreement about what the exchange at the

February 17 hearing meant, two things should be clear: First, TWIA’s counsel did

not agree to waive TWIA’s objections to the Third Interrogatories. Nothing in the

transcript of the hearing indicates he did, and doing so would make no sense. It is

-29-
ironic that TWIA’s undertaking to work through discovery issues, or even further

respond to discovery questions, was used as a way to punish TWIA by striking its

legitimate objections to discovery. Second, miscommunications or

misunderstandings occur during hearings but, as a matter of law, they do not

constitute the type of egregious conduct necessary to impose sanctions. In fact,

there was no order signed clarifying or documenting any supposed February 17

agreement by TWIA to waive any objections, nor any of the trial court’s

instructions at that hearing. There is no basis for concluding that TWIA’s conduct

was sanctionable.

2. TWIA was substantially justified in answering the
interrogatories subject to its proper objections.
Regardless, it was improper for the pre-trial court to impose any sanctions

on TWIA—much less death-penalty sanctions—because TWIA was substantially

justified in answering the Third Interrogatories on March 13 (as ordered on March

12), subject to its legitimate objections. A threshold question before any sanctions

can be imposed is whether the party was “substantially justified” in failing to

comply. See Sells v. Drott, 330 S.W.3d 696, 708 (Tex. App.—Tyler 2010, pet.

denied) (reversing monetary sanctions when failure to comply was “substantially

justified”). If a party can demonstrate substantial justification for its failure to

comply, then the trial court’s sanctions will be reversed as an abuse of discretion.

See id.

-30-
 Here, TWIA properly maintained its objections to the Third Interrogatories,

including that League City had far surpassed the maximum permitted number of

interrogatories, never filed a motion to enlarge that number, and never obtained a

ruling expanding that number under the Texas Rules of Civil Procedure. This is a

substantial justification for TWIA’s minimal noncompliance. Moreover, any

perceived failure to fully comply with the trial court’s March 12 order was

substantially justified because the order was invalid on a number of grounds:

(1) TWIA’s privilege objections were not properly reviewed, despite TWIA’s

request; (2) the record does not show that the trial court considered TWIA’s

objections individually; (3) the limit of twenty-five interrogatories was never

expanded, nor was this objection ruled on; and (4) ordering interrogatory responses

in a single day undermined TWIA’s due process rights. The sanctions order

should be reversed.

C. The requirements for death-penalty sanctions were not met.
Striking TWIA’s appraisal defenses was also an abuse of discretion because

the pre-trial court did not ensure that the TransAmerican requirements for death-

penalty sanctions were met before imposing the sanction. See TransAmerican, 811

S.W.2d at 917-18; Noble Drilling, 449 S.W.3d at 631 (applying the

TransAmerican standard to sanction striking affirmative defenses). Neither of the

two mandatory requirements were met here.

-31-
 1. League City suffered no prejudice from TWIA’s continued
assertion of objections while submitting amended and
supplemental answers to the Third Interrogatories.

The order striking TWIA’s appraisal defenses fails at the first step of the

two-part test for imposing death-penalty sanctions. As noted above, this first part

of the test requires that the record demonstrate that the sanctionable conduct

caused prejudice to the opposing party. See TransAmerican, 811 S.W.2d at 917-

18; Blackmon, 841 S.W.2d at 849-50. No such prejudice occurred here. In fact,

the record demonstrates the opposite—that League City was provided with

substantial discovery from TWIA concerning appraisal issues, including

inaccuracies, fraud or mistake, and a failure to honestly assess the covered loss in

the appraisal award. (SCR.960-66, 1250-86, 2069-90).

Nearly a month before the pre-trial court signed the April 17 sanctions order,

TWIA had provided six single-spaced pages of facts and information about

TWIA’s position on the appraisal procedure, the absence of repair receipts, the

lack of independence and partiality of League City’s designated appraiser, the

irregularity in Umpire Burgess talking to a League City employee during the

appraisal process, and the claims for coverage of items of damages that were not

covered by the Policy, among other things. (SCR.2069-90). For example, TWIA

described at length the defects relating to the award, including improper items and

excessive damages amounts:

-32-
 [I]t appears the panel . . . found damages that were far and away
above the known cost of repair for items where those costs are known
to TWIA, includes items that were never submitted by the insured for
storm-related damages and for which no claim for payment had been
made. The award appears to include items for which neither appraiser
had requested damages, or amounts which neither appraiser submitted
and in which on some occasions exceed the amounts submitted.

(SCR.2072). League City thus had ample information about TWIA’s complaints

with the appraisal award.

In regards to TWIA’s answers to the interrogatories, League City generally

complained that TWIA answered them subject to objections, but at the March 20

hearing, League City only specifically took issue with TWIA’s answer to

interrogatory number twelve, which asked TWIA to state its basis for claiming that

the appraisal award was the result of fraud. (5SuppRR.5-6). To that and a few

other interrogatories, TWIA properly answered that it “d[id] not know the answer

to this question” because it had not yet taken the necessary depositions to obtain

those facts. (SCR.1233 [Interrogatory 12]; see also SCR.1231 [Interrogatory 4],

1233-34 [Interrogatory 15]). TWIA additionally indicated that after it had

obtained the relevant facts, “it might be possible to give an informed answer to this

question.” (SCR.1233 [Interrogatory 12]). That is not even a failure to answer,

but rather a preliminary answer and a promise to supplement.

For all of these reasons, TWIA’s minimal noncompliance, if any, did not

prejudice League City, and accordingly the trial court’s order imposing death-

-33-
penalty sanctions was an abuse of discretion.

2. The pre-trial court’s death-penalty sanction of striking TWIA’s
affirmative defenses is excessive in light of TWIA’s conduct.

The pre-trial court’s sanctions also fail the second prong of the

TransAmerican test because they were excessive for two separate reasons.

First, the court never considered lesser sanctions before sanctioning TWIA

for failing to answer the Third Interrogatories without asserting its objections as

ordered. A supposed failure to comply with a single court order is insufficient as a

matter of law to indicate that lesser sanctions would not be effective. See Bair v.

Hagans, 838 S.W.2d 677, 681 (Tex. App.—Houston [1st Dist.] 1992, writ denied)

(failure to comply with one court order compelling production of documents and

answers to interrogatories did not amount to “a pattern of discovery abuse”).

Because there is no indication of the record of why lesser sanctions would have

been ineffective, and the pre-trial court offered no reason of its own, it was an

abuse of discretion to impose death-penalty sanctions without first testing lesser

sanctions.

Additionally, the death-penalty sanctions are excessive when conduct does

not “justif[y] a presumption that its claims or defense lack merit.” TransAmerican,

811 S.W.2d at 918; Blackmon, 841 S.W.2d at 850. The type of conduct TWIA

engaged in here failed to justify that presumption. TWIA substantively

supplemented its responses to the vast majority of League City’s Third

-34-
Interrogatories, in accordance with the pre-trial court’s order. (See generally

SCR.1230-35). This type of substantial compliance does not support a

presumption that TWIA’s defenses lack merit and does not warrant death-penalty

sanctions. See Butan Valley, N.V. v. Smith, 921 S.W.2d 822, 832 (Tex. App.—

Houston [14th Dist.] 1996, no writ) (death-penalty sanction unwarranted when

party’s actions “do not reflect a total refusal” to comply).

To the contrary, the record demonstrates that TWIA had a firm basis for its

appraisal defenses. As detailed above, TWIA had produced substantial discovery

on its affirmative defenses to the appraisal award. See supra at 13, 32-33. This

good-faith participation in discovery on these defenses, and the actual substance of

what was produced, demonstrates that TWIA had a legitimate legal and factual

basis for its affirmative defenses and rules out any presumption to the contrary.

D. The sanction was harmful because ample evidence at trial supported
TWIA’s appraisal defenses that were wrongfully stricken.
The court that presided over the ensuing trial acknowledged at bench

discussions that it was clear the appraisal process was fatally flawed and, thus, that

the striking of TWIA’s valid defenses meant “this thing is screwed up big time.”

(10RR.13; see also 10RR.54 (agreeing “[t]his is ridiculous how we’re having to

handle this”); 19RR.125 (“I’ve seen the dang award. It’s ridiculous.”)). But

because that court felt bound by the prior pre-trial order, (10RR.60, 113), even

though it “would certainly not have ruled” that way, (10RR.22), the trial court was

-35-
compelled to exclude evidence of the stricken defenses—evidence that confirms

the strength of TWIA’s stricken defenses.

First, there was ample evidence that the appraisal award was not an honest

assessment of necessary repairs, or was otherwise inaccurate, unreliable, or biased.

(10RR.14, 31; see also 10RR.17-18 (excluding TWIA’s expert Lozos on this

issue); 11RR.110-39, 146, 145-46, 147-60 (excluding relevant testimony from

TWIA’s expert, Paul Strickland, and exhibits showing Tierce lacked

documentation for losses he included in appraisal); 55RR.DX.BOE.2–4;

56RR.DX.BOE.5–12; 57RR.DX.BOE.13–19; 58RR.DX.BOE.20–42 (excluded

exhibits)). An appraisal that does not reflect an “honest attempt to exercise any

judgment” is not enforceable. Continental Ins. Co. v. Guerson, 93 S.W.2d 591,

597 (Tex. Civ. App.—San Antonio 1936, writ dism’d) (internal quotation omitted);

see also State Farm Lloyds v. Johnson, 290 S.W.3d 886, 895 (Tex. 2009)

(acknowledging this defense).

TWIA had evidence showing that League City’s appraiser, Paul Tierce, did

not honestly exercise any judgment, but instead “just thr[e]w out these numbers” in

the appraisal with no substantiation whatsoever, which even the trial court agreed

further constitutes “overwhelming” evidence of bias. (11RR.143; see also

10RR.31 (“I mean, it’s clear as a bell that Tierce is absolutely biased.”)). For

instance, Tierce never asked for any receipts, photographs, or any other

-36-
documentation showing why previous repairs were made or how much the repairs

actually cost. (54RR.DX.BOE.D/76-77, 99-100, 104-06, 109, 173-74, 184-87,

190, 194, 201-03, 206-07, 209, 215, 217-19 (Tierce’s deposition)). Tierce also

refused to provide receipts or other documentation supporting the losses he

claimed to assess when TWIA’s appointed appraiser, John Mullen, asked for them.

(54RR.DX.BOE.D/270-74, 277; 55RR.DX.BOE.2–3). Tierce did not account for

pre-storm condition or age of the appraised structures, (54RR.DX.BOE.D/101-02,

207), nor did he have a written description of those properties.

(54RR.DX.BOE.D/140). The utter lack of documentation is particularly

suggestive of fraud or impropriety—another of TWIA’s defenses—given that

thirty of the assessed structures were never even mentioned when League City’s

claim was originally adjusted in 2008. (See 11RR.116-18 (bill of exceptions,

TWIA’s expert Paul Strickland); 8RR.229-31 (Strickland’s trial testimony);

54RR.DX.BOE.D/190-91, 204-05)); Barnes v. W. Alliance Ins. Co., 844 S.W.2d

264, 270-71 (Tex. App.—Fort Worth 1992, writ dism’d) (upholding fraud finding

as basis for invalidating appraisal award).

All this evidence supports the conclusion that League City’s retained

appraiser acted improperly by doing none of the work required of an appraiser and

then inflating the amounts included in his appraisal. See, e.g., Continental Ins., 93

S.W.2d at 596 (appraisal award was invalid when the appraisers “made no effort to

-37-
secure the information or facts upon which they could base and should have

exercised their judgment as to value”). These extreme irregularities in the

appraisal process, coupled with the gross errors in the award itself, also

substantiate TWIA’s additional defenses that Tierce was biased or mistaken—even

intentionally so. See e.g., Sec. Ins. Co. v. Kelly, 196 S.W. 874, 876-77 (Tex. Civ.

App.—Amarillo 1917, writ ref’d); see also Penn. Fire Ins. Co. v. W.T. Wagoner

Estate, 39 S.W.2d 593, 595 (Tex. Comm’n App. 1931) (a grossly erroneous award

“may also be considered in determining the bias and prejudice of the appraisers”).

Tierce’s flawed approach to the appraisal process was only compounded by

Burgess’s abdication of his role as umpire. (See generally 21RR.123-31). Umpire

Burgess admitted that he had never even seen the policy underlying this dispute

and had no idea what the policy did or did not cover. (21RR.124-25). Nor did

Burgess ever ask for, or look at, any receipts. (21RR.128). And despite the Texas

Supreme Court’s indication in Johnson that “appraisers must always consider

causation, at least as an initial matter,” 290 S.W.3d at 893 (emphasis added),

Burgess admitted that he failed to determine whether the alleged losses were

windstorm-related, testifying that he usually does not “get into coverage or

causation” when doing an appraisal. (21RR.127; see also 21RR.129). Instead,

Umpire Burgess took the astonishing approach of simply adopting the estimate that

covered the largest scope of repairs from League City’s appraiser, except in those

-38-
few instances where it was “obvious” that the repairs were unrelated to windstorm.

(21RR.128-31).

Obviously, to the extent an appraisal panel purports to consider and

determine causation or coverage issues, the panel’s competence and reliability in

making those determinations could also be the subject of later challenges to the

award. See Johnson, 290 S.W.3d at 895 (“If an appraisal is not an honest

assessment of necessary repairs, that can be proved at trial and the award set

aside.”). Where, as here, the appraiser for one side and the umpire testified that

they used an arguably defective process for deciding coverage issues, there is at

least some evidence to support TWIA’s defenses of bias, accident, mistake, or even

fraud in the appraisal process. Tierce’s and Burgess’s approaches to the appraisal

reflect a fundamental lack of understanding of what the appraisal process requires

(if not outright wrongdoing), see supra 36-38, which evidences that both were

incompetent to serve as appraiser and umpire, respectively, in violation of the

policy requirements. (27RR.PX1/Policy084).

TWIA also proffered evidence showing that Umpire Burgess lacked the

contractually required independence because of an ongoing conflict of interest. At

the time he was appointed in March 2013 and for months thereafter, the law firm

that employed Burgess as counsel was actively representing a party in a suit

against TWIA for Hurricane Ike damage, which destroys his independence to serve

-39-
as umpire in this case. (See 54RR.DX.BOE.C/6; 54RR.DX.BOE.E–F); accord

Nat’l Med. Enters., Inc. v. Godbey, 924 S.W.2d 123, 131 (Tex. 1996). Further,

Umpire Burgess had been approached by plaintiff’s counsel before his

appointment and discussed being appointed umpire as a way to earn additional

income. (54RR.DX.BOE.C/12-14).

In sum, the record contained substantial evidence that supported TWIA’s

defenses that it was forced to forgo because of the improper death-penalty

sanction. This Court should reverse the April 17, 2014, sanctions order and permit

TWIA to raise these defenses in the event that this case is retried.

PRAYER
For these reasons, Cross-Appellant Texas Windstorm Insurance Association

prays that this Court vacate the pre-trial court’s impermissible $15,000 sanction.

TWIA also prays that, in the event the case is remanded for a new trial, TWIA will

be permitted to assert the affirmative defenses that the pre-trial court erroneously

struck. TWIA also prays for such further relief to which it may be entitled.

-40-
 Respectfully submitted,

BRACEWELL & GIULIANI LLP

By: /s/ Dale Wainwright
Andrew T. McKinney IV Dale Wainwright
State Bar No. 13716800 State Bar No. 00000049
LITCHFIELD CAVO LLP dale.wainwright@bgllp.com
One Riverway, Suite 1000 Yvonne Y. Ho
Houston, Texas 77056 State Bar No. 24055673
Telephone: (713) 418-2000 yvonne.ho@bgllp.com
Facsimile: (713) 418-2001 Lindsay E. Hagans
State Bar No. 24087651
James R. Old, Jr. lindsay.hagans@bgllp.com
State Bar No. 15242500 BRACEWELL & GIULIANI LLP
JAY OLD & ASSOCIATES, PLLC 111 Congress Avenue, Suite 2300
2615 Calder Avenue, Suite 720 Austin, Texas 78701
Beaumont, Texas 77702 Telephone: (512) 472-7800
Telephone: (409) 241-7252 Facsimile: (800) 404-3970
Facsimile: (409) 419-1733

Attorneys For Cross-Appellant
Texas Windstorm Insurance Association

-41-
 CERTIFICATE OF SERVICE
I certify that a copy of the Brief of Cross-Appellant was served on counsel

of record by EFile as follows on the 7th day of August 2015, addressed as follows:

Jennifer Bruch Hogan Gregory F. Cox
HOGAN & HOGAN Michael R. Ramsey
711 Louisiana, Suite 500 THE MOSTYN LAW FIRM
Houston, TX 77002 6280 Delaware Street
Telephone: (713) 222-8800 Beaumont, Texas 77706
Facsimile: (713) 222-8810 Facsimile: (409) 832-2703

Attorneys For Appellant and Cross-Appellee League City

/s/ Dale Wainwright
Dale Wainwright

CERTIFICATE OF COMPLIANCE
This brief complies with the length limitations of TEX. R. APP. P. 9.4(i)(2)

because this brief consists of 9,067 words, excluding the parts of the brief

exempted by TEX. R. APP. P. 9.4(i)(1).

/s/ Dale Wainwright
Dale Wainwright

-42-
 APPENDIX

Pre-trial court order issuing monetary sanction Tab A
Pre-trial court order striking defenses Tab B

Trial court’s amended final judgment Tab C

-43-
TAB A
160
TAB B
187
188
189
190
191
192
193
194
195
TAB C
678
679