ACCEPTED
01-14-00104-CV
FIRST COURT OF APPEALS
HOUSTON, TEXAS
11/16/2015 8:50:33 PM
CHRISTOPHER PRINE
CLERK
IN THE COURT OF APPEALS
FIRST DISTRICT OF TEXAS AT HOUSTON FILED IN
1st COURT OF APPEALS
___________________________________________________________
HOUSTON, TEXAS
11/16/2015 8:50:33 PM
NO. 01-14-00104-CV CHRISTOPHER A. PRINE
Clerk
___________________________________________________________
WHITE LION HOLDINGS, L.L.C.
Appellant
vs.
THE STATE OF TEXAS
Appellee
___________________________________________________________
On Appeal from
th
The 98 District Court of Travis County, Texas
Trial Court No. D-1-GV-06-000627 and D-1-GV-13-001068
___________________________________________________________
APPELLANT’S MOTION FOR REHEARING AND
REHEARING EN BANC
Jacqueline Lucci Smith Joan Lucci Bain
TBA #: 00786073 TBA #: 01548020
LUCCI SMITH LAW PLLC BAIN & BAIN PLLC
10810 Katy Freeway, Suite 102 10810 Katy Freeway, Suite 102
Houston, Texas 77043 Houston, Texas 77043
Tel.: 832-494-1700 Tel.: 713-629-6222
Fax: 832-494-1426 Fax: 713-629-6226
Email: JLS@LucciSmithLaw.com JBain@BainandBainlaw.net
TABLE OF CONTENTS
Page
TABLE OF CONTENTS…………………………………………………………...i
TABLE OF AUTHORITIES…………………………………………………….....ii
ISSUES PRESENTED……………………………………………………………..1
I. REASONS EN BANC REVIEW………………………………………….... 2
II. RELEVANT FACTS OMITTED BY PANEL…………………………….. 3
III. FACTUAL ERRORS IN THE MAJORITY OPINION…………………….7
IV. ARGUMENT AND AUTHORITIES……………………………………...10
A. TO AFFIRM THE TRIAL COURT’S SEVERANCE, THE PANEL
IMPROPERLY EXPANDED MEMBER/AGENT LIABILITY IN
TWO WAYS.......................................................................................10
1. The Panel Imposed Unprecedented Duties on a Member of an
LLC to Guarantee its Statutory and Financial Obligations............12
a. Personal Liability is Not Separate Liability........................13
b. “Person” as Defined in the Water Code Does Not
Authorize Personal and Separate Liability..........................15
2. The Panel Distorted Statutory Authority for Personal Liability
of Agents........................................................................................16
B. SEVERANCE WAS AN ABUSE OF DISCRETION AND
DEPRIVES THIS COURT OF JURISDICTION OVER THE
APPEAL..............................................................................................19
V. PRAYER…………………………………………………………………...20
CERTIFICATE OF SERVICE……………………………………………………22
i
CERTIFICATE OF COMPLIANCE……………………………………………...22
PANEL OPINION DATED SEPTEMBER 24, 2015..............................EXHIBIT 1
TABLE OF AUTHORITIES
CASES
Crown Life Ins. Co. v. Casteel,
22 S.W.3d 378 (Tex. 2000) ................................................................................. 11
Guar. Fed. Sav. Bank v. Horseshoe Operating Co.,
793 S.W.2d 652 (Tex. 1990) ................................................................................ 11
In re Merrill Lynch Trust Co. FSB,
235 S.W.3d 185 (Tex. 2007) ............................................................................... 12
Jones v. Ray,
886 S.W.2d 817 (Tex. App.—Houston [1st Dist.] 1994, orig. proceeding) ....... 11
Light v. Wilson,
663 S.W.2d 813 (Tex. 1984) ............................................................................... 16
Maxey v. Citizens Nat’l Bank of Lubbock, 507 S.W.2d 722 (Tex. 1974) ............... 10
Miller v. Keyser,
90 S.W.3d 712 (Tex. 2002) .....................................................................10, 17, 19
Shook v. Walden,
368 S.W.3d 604 (Tex. App.—Austin 2012, pet. denied).................................... 10
Stewart Title Guar. Co. v. Sterling,
822 S.W.2d 1 (Tex. 1991) ................................................................................... 11
Stroud v. VBFSB Holding Corp.,
917 S.W.3d 75 (Tex. App.--San Antonio 1996, writ denied).......................19, 20
ii
Weeks Marine, Inc. v. Garza,
371 S.W.3d 157 (Tex. 2012) ............................................................................... 11
Wetzel v. Barnes,
691 S.W.2d 598 (Tex. 1985) ......................................................................... 10, 16
STATUTES
Assisted Living Facility Licensing Act (“ALFLA”)......................................... 18, 19
TEX. BUS. ORG. CODE §§101.113 and 101.114 ................................................. 10, 13
TEX. HEALTH AND SAFETY CODE ANN. § 247.045(a) (Vernon 2014) ..................... 18
TEX. HEALTH AND SAFETY CODE ANN. §247.045(h) .............................................. 19
TEX. WATER CODE § 7.031(e) ........................................................................... 18, 19
TEX. WATER CODE § 7.032 ..................................................................................4, 11
TEX. WATER CODE § 7.101 ...................................................................................... 15
TEX. WATER CODE § 7.102 ...........................................................................4, 11, 18
RULES
Tex. R. Civ. Proc. 41 ............................................................................................... 11
iii
TO THE HONORABLE JUSTICES OF THE FIRST COURT OF APPEALS:
This motion for rehearing and rehearing en banc is filed by Appellant, White
Lion Holdings, LLC (“WLH”) in response to the panel opinion and judgment issued
on September 24, 2015. See White Lion Holdings, L.L.C. v. State, 01-14-00104-CV
(Attached Exhibit 1), (cited as White Lion at Exhibit 1). Due to space limitations,
WLH incorporates its prior briefing on file with Court, especially regarding the
constitutional implications and presented in the Motion for Rehearing En Banc filed
on June 12, 2015. WLH filed its Motion to Supplement the Record on May 26, 2015
which the Panel denied in the opinion issued on September 24, 2015 and for which
WLH seeks rehearing. WLH re-urges the Motion as the documents are necessary for
consideration of this Motion. The documents referenced as “App. 1-4” are contained
in the Appendix concurrently filed with the Motion to Supplement on May 26, 2015.
ISSUES PRESENTED
1. Did the panel err in affirming an improper severance which allowed the
State double recovery against both the company and its member for the
same conduct and same violations?
2. Did the panel err in creating new legal duties for members of limited
liability companies beyond the narrow exceptions currently recognized?
1
I. REASONS EN BANC REVIEW
The panel opinion eviscerates important legal safeguards affecting future cases
against all owners of corporate entities, particularly members of a limited liability
company (“LLC”). 1 First, the panel creates unprecedented individual duties for
members to personally guarantee the company’s compliance with statutory and
financial obligations. Second, severance of the member from the company for the
same violation creates double recovery, transforming the corporate shield into a
sword for the state. Such precedent is contrary to public policy and will have a
chilling effect on all business enterprise and development in Texas.
1
The panel’s opinion is not limited to members of LLC’s and thus its ruling impacts all corporate
entities and their owners and officers equally.
2
II. RELEVANT FACTS OMITTED BY PANEL
Vision Metals, Inc., (“Vision”), prior owner of a facility in Rosenberg
(“Property”) received a permit from the predecessor of Texas Commission on
Environmental Quality (“TCEQ”) to operate an Industrial Waste Management Site
(Permit No. HW-50129-001), the regulatory document which controls activities at
the Property. CR. 96-97. A compliance plan (CP-50129) issued the same day
addressed monitoring and cleanup of contaminated groundwater. CR 20-21; 116-
148; 278. Vision operated a corrective action system (“CAS”) consisting of
monitoring wells, groundwater recovery and treatment wells and an Acid
Neutralization Treatment System (“ANTZ”) in conjunction with the manufacturing
process that generated hazardous waste. CR 21; 102; 116-118; 190-197; 278. Vision
failed to repair inoperable wells and defaulted on all obligations. TCEQ knew Vision
was wholly noncompliant with its obligations under the permit and compliance plan.
CR 198-225; 357-359. 2 Despite Vision’s default, TCEQ never made a claim against
Vision’s closure and post closure insurance policy (financial assurance) or filed any
enforcement action. CR 285. Vision filed for bankruptcy in 2000.
In April, 2004, WLH acquired the Property from Vision through a bankruptcy
auction; personal property and business fixtures were sold to others. CR. 43-84. At
the time, the CAS was damaged but operational and needed some repairs. CR 198-
2
2004 inspection report establishes TCEQ knew wells were inoperable. CR 198-225.
3
225. The bankruptcy order required WLH allow buyers access between April and
August, 2004 to remove machinery, equipment and other items. CR 50; 69; 282-284.
Meanwhile, the obligations of CP-50129 were transferred to WLH. CR 22; 168-169.
As part of the Purchase Agreement, Vision’s financial assurance also was assigned
to WLH, and remained in effect until January 11, 2005. CR 292; 294-304.3
When WLH acquired unfettered control of the Property, there was significant
damage to the Property and CAS, including gas, water and electrical systems
necessary for operation. WLH was left with significant property damage, a destroyed
CAS, no utilities, machinery or equipment necessary to operate the CAS and
consequently, no way to comply with the plan or permit. CR 282-285; 372-515.
The State remained idle and did not file a claim against the insurance policy in
effect. Instead, after the policy lapsed, enforcement actions were filed against WLH
and its member, Bernard Morello, under TEX. WATER CODE §§ 7.102, 7.032. CR 3-
14; 280. Ironically, the judgments against WLH and Morello are based on the failure
to obtain financial assurance which was available but the State failed to utilize.
Even prior to WLH ownership, the United States Environmental Protection
Agency (“EPA”) notified Vision and TCEQ that a study indicated there was little
likelihood groundwater used for human or animal consumption or irrigation was
3
Contrary to summary judgment standards, the panel rejected this evidence and approved fines
and penalties assessed as early as October, 2004.
4
affected by the existing contamination and several alternative corrective actions were
available in lieu of the existing CAS network. CR 305-356. For several years, WLH
worked with the EPA (and TCEQ) to modify the outdated and unfeasible plan and
permit, gaining valuable information and investigating alternatives. The EPA even
assisted WLH in drafting correspondence to the TCEQ. CR. at 361-363. The EPA
suggested an alternative plume management plan to monitor the ground water. CR
328; 360-363; 365. In order to implement this approach and modify the existing plan,
WLH needed the approval of TCEQ and enforcement action abated. CR 365. After
TCEQ refused, the EPA disqualified the Property. CR 21-22; 268-270.
Although a formal request for major modification to the plan was not filed, the
negotiations were ongoing, both before and during the pendency of the case,
regarding such modifications. WLH also allowed TCEQ access to conduct numerous
inspections of the Property. CR 280. When negotiations fell through, with little notice
and no additional discovery, the State filed its motion for summary judgment against
WLH only, and sought severance within its motion. (App. 1, State MSJ p. 24-25).
WLH filed a sworn motion for continuance to allow time to confer with experts
to determine the cost and feasibility of restoring or modifying the existing remedial
system, issues central to its defense that required expert testimony. CR 516-530; 1
RR 12. Furthermore, despite the ongoing discussions and cooperation by WLH, the
State did not provide WLH copies of the 2005 and 2008 TCEQ inspection reports
5
until August 21, 2013 or a copy of the July 29, 2013 TCEQ inspection report until
shortly before the summary judgment hearing. CR 518. The State’s failure to timely
provide these reports prevented WLH from obtaining an expert report for its response
to the summary judgment motion to refute issues identified in the reports and raised
in the State’s motion, also central issues. The panel opinion rebukes WLH for
supposedly doing nothing for several years and not presenting evidence of the cost of
repairing the system. White Lion at 17. The panel even dismisses the significance of
the evidence of numerous lawsuits detailing the damage to the Property which WLH
filed, while the State did nothing to prosecute its case during those same years. Id.
The State’s sudden change of tactic left WLH with no time to prepare its defense to
a case that it had been working toward resolving.
Both judgments against WLH and Morello are based on two violations: (1)
WLH failed to comply with CP-50129; and (2) WLH failed to acquire financial
assurance in the amount of $574,000. As to WLH, the State stipulated to the
minimum daily fine of $50 for each violation (avoiding a fact issue on the fine). CR.
at 31. The trial court severed WLH, transforming the interlocutory summary
judgment into a final one and leaving a pending case against Morello. CR 549-554,
629. After briefing herein, the State successfully moved for summary judgment
against Morello for the same violations against WLH, again stipulating to the
minimum fines. App. 1. The State made clear that its claims against Morello were
6
not based on independent tortious acts and did not seek to pierce the corporate veil.
App. 4, Ex. G at 14, 34. Accordingly, the judgment against Morello cannot not based
on his individual, independent conduct, rather it is admittedly based on the fact that
“Morello [is] operator and sole decision maker of White Lion . . .” App. 1, Pl’s MSJ
at p. 29.
III. FACTUAL ERRORS IN THE MAJORITY OPINION
1. The State’s case against Morello is not based on his individual “actions
and failures to act, distinct from WLH’s actions and inactions.” White Lion
at 7. Rather the case is wholly based on “his company [failing] to perform its
duties under the Compliance Plan.” State Resp. to Motion for Rehearing at 18.
2. There were no acts that Morello “personally took or failed to take”…
“that resulted in WLH’s violation of the compliance plan…” White Lion at
8. The evidence is undisputed and the State concedes that all Morello’s acts or
omissions were as the member of the company in furtherance of company
interests.
3. Morello did not “purchase the site personally and assign it to White Lion”
nor did he have “his own obligations with respect to the site[.]” White Lion
at 7. The State did not allege Morello owned the Property. App. 4. Ex. G. at
33. While it is true that Morello bid on the Property, it is also true that Morello
7
assigned his rights to purchase the Property to WLH. CR at 76. Vision
conveyed the Property directly to WLH. CR at 78-84. The evidence
conclusively establishes Morello never owned the Property.
4. It is not true that Morello “lacked the expertise to manage the site and
made no efforts to manage it until the State filed suit[.]” White Lion at 8.
Shortly after acquiring the property, WLH, through Morello, worked diligently
to identify and develop an alternative monitoring and remediation plan that
was appropriate for the current conditions and use of the Property. CR 22; 265-
267; 360-365. The State refused to abate the suit which the EPA required to
finalize the recommendation so the request for modification could be filed and
approved. CR 21-22; 268-270. In addition, WLH maintained soil stabilization
areas and secured the site. CR 285.
5. WLH did provide financial assurance for a period of time after purchase.
Although the panel disregards the financial assurance that WLH acquired
through assignment with its purchase, claiming that the correspondence
authorizing assignment did not prove it was actually assigned, the evidence, at
the very least, creates an inference that the financial assurance was assigned
and provided, precluding summary judgment. CR at CR 292; 294-304.
8
6. The EPA was “ready, willing and able” to work with WLH to gain
approval and implement the alternative plan. EPA would not assist unless
the enforcement action was abated, which the State refused. CR. at 365. Only
after the State refused (and nearly a year later) did the EPA withdraw its
recommendations and find “such an approach was not feasible.” CR. at 276-
277; White Lion at 3.
9
IV. ARGUMENT AND AUTHORITIES
A. TO AFFIRM THE TRIAL COURT’S SEVERANCE, THE PANEL IMPROPERLY
EXPANDED MEMBER/AGENT LIABILITY IN TWO WAYS.
The panel shattered pro-business public policy of Texas and turned Texas law
on its head when it failed to recognize basic principles required to impose personal
liability on company members/officers. Texas law allows personal liability when:
• the corporate veil is pierced;
• the member commits a fraud or tortious act; or
• the regulation specifically provides an exception (statutory exception).
See, TEX. BUS. ORG. CODE §§101.113 and 101.114; Shook v. Walden, 368 S.W.3d
604, 613–14 (Tex. App.—Austin 2012, pet. denied); Miller v. Keyser 90 S.W.3d 712,
717 (Tex. 2002); Wetzel v. Barnes, 691 S.W.2d 598 (Tex. 1985). See also, Maxey v.
Citizens Nat’l Bank of Lubbock, 507 S.W.2d 722, 726 (Tex. 1974) (citation omitted).
None of these exceptions are present here. The State admits it did not seek to pierce
the corporate veil and that its claims are not based on tortious conduct. Leaving only
the statutory exception, the panel confused specific liability statutes with tortious
conduct statutes. In so doing, it allowed personal liability without any legal basis.
The panel incorrectly uses the personal liability of Morello to justify the
severance of the case against the member from the case against the company,
violating the one-satisfaction rule. Severance is proper only when: (1) the controversy
involves more than one cause of action; (2) the severed claim is one that could be
asserted independently in a separate lawsuit; and (3) the severed actions are not so
10
interwoven with the other claims that they involve the same facts and issues. Guar.
Fed. Sav. Bank v. Horseshoe Operating Co., 793 S.W.2d 652, 658 (Tex. 1990); Tex.
R. Civ. Proc. 41. If a court severs a claim and any of the three elements are not
satisfied, the result is an abuse of discretion. See Jones v. Ray, 886 S.W.2d 817, 822
(Tex. App.—Houston [1st Dist.] 1994, orig. proceeding)(emphasis added).
Rule 41 prevents violation of the one-satisfaction rule, which applies when
multiple defendants commit the same act or when multiple defendants commit
different acts that result in a single injury. Crown Life Ins. Co. v. Casteel, 22 S.W.3d
378, 391 (Tex.2000). See also Weeks Marine, Inc. v. Garza, 371 S.W.3d 157, 162
(Tex.2012) ("The basis of a double recovery challenge is that a party recovered twice
for one injury."). The fact that more than one defendant may have caused the injury
or that there may be more than one theory of liability does not modify this rule.
Stewart Title Guar. Co. v. Sterling, 822 S.W.2d 1, 8 (Tex.1991).
In affirming severance to sustain subject matter jurisdiction, the panel
improperly expanded member/agent liability and rewrote Texas law in two ways.
First, the panel created unprecedented duties on members to guarantee the conduct of
the company. Second, the panel expanded the reach of the Water Code, interpreting
it as a statutory exception to the corporate shield without clear legislative authority,
imposing liability on the member and allowing double recovery.
11
1. THE PANEL IMPOSED UNPRECEDENTED DUTIES ON A MEMBER
OF AN LLC TO GUARANTEE ITS STATUTORY AND FINANCIAL
OBLIGATIONS.
The import of the panel’s opinion regarding personal liability is that members
are now personally liable for violations of company obligations. Any act or omission
(violation) by the company necessarily stems from acts taken by the member because
companies can act only through human agents. In re Merrill Lynch Trust Co. FSB,
235 S.W.3d 185, 188 (Tex. 2007). Artificially separating one from the other, the
panel created a path to turn single “human acts” into multiple legal acts (and multiple
judgments). Simply by couching the “act” of the individual in the terms of “allowed,
permitted or directed [the company] to…” does not transform the act itself into an act
separate from the company and violates long-standing precedent.
Severance of claims against the company and its member creates
uncontemplated duties upon members to personally guarantee the conduct of the
company and its financial obligations, separate and distinct from the company’s
contemplated legal duties. The panel’s opinion eviscerates liability protections
afforded members who will always be human actors since companies must “act”
through these individuals. Id. Thus any “act or omission” by the company is also an
“act or omission” by the individual member and therefore, rather than being a shield
from liability, the company structure is actually a pathway to duplicate recovery and
double jeopardy.
12
a) PERSONAL LIABILITY IS NOT SEPARATE LIABILITY.
Allowing personal liability4 is one thing, but allowing severance under the
premise that these are separate causes of action, not interwoven in facts and issues to
somehow justify a double recovery is unconscionable. The idea that Morello had a
separate, personal duty to ensure the company did no wrong is unprecedented.
Furthermore, the claims are based on the exact same actions taken (or not taken)
which necessarily effected the same violation and this fabricated separation of the
company “doing’ and the member “directing” is disingenuous. In the panel’s world,
members will be subjected to double fines and penalties because the LLC designed
to provide a company shield for its members instead creates two legal targets in direct
contravention of clear statutory mandate. TEX. BUS. ORG. CODE §§101.113 and
101.114. Although the “act” occurs only once, the illusion created by the panel sees
two separate and distinct acts; one under the hat of the company (WLH) and another
under the hat of its member (Morello). Such a stretch clearly violates the one
satisfaction rule.
Even if the panel were correct that these “human actors” are legally separate,
the panel opinion allows multiple persons to be separately liable for the same injury
(violation). The judgment against WLH is based on its violation of the compliance
4
WLH in no way admits or suggests that Morello is personally liable.
13
plan. Morello was fined because “he personally took or failed to take actions that
resulted in White Lion’s violation of the compliance plan…and directing White Lion
not to comply with the compliance plan…” White Lion at 8. The same faulty logic
was applied to the duty and obligation to provide financial assurance. The failure to
provide financial assurance is most disturbing. Without requesting or securing from
Morello a personal guarantee at the time it assigned the obligations of Vision to
WLH, the State made Morello not just liable, but separately liable for the financial
obligations of WLH. Another clear violation of the one satisfaction rule.
In sum, the panel ignores the one satisfaction rule in two ways: (1) it holds a
single actor (company) liable in multiple capacities (member and company); and (2)
it allows double recovery for a single violation. The impact is undeniable; the State
is free to recover against a company for failing to comply with a plan; then, after
securing payment, recover another judgment against the member(s) for “allowing or
permitting” the company violation. How can the panel maintain that these are not the
same claim? White Lion at 7-8. Ignoring for the moment the constitutional and strict
statutory construction requirements where state action is involved 5, where in Texas
jurisprudence has a court allowed separate causes of action against a company and
its member for the same offense; one for committing the offense and the other for
allowing the offense to be committed? Such a circular and strained application
5
See Amended Motion for Rehearing En Banc filed June 12, 2015 at 17-21.
14
completely abolishes the statutory shield, creates a corporate target and flies in the
face of Texas law.
b) “PERSON” AS DEFINED IN THE WATER CODE DOES NOT
AUTHORIZE PERSONAL AND SEPARATE LIABILITY.
The State’s summary judgment motion against Morello began with the premise
that, under Texas Water Code Section 7.101, “a person” incurs civil liability where
he “cause[s], suffer[s], allow[s], or permit[s] a violation of a statute within the
commission’s jurisdiction or a rule adopted or an order or permit issued under such a
statute” and that the term “person” includes individuals. The panel ignores long
standing legal principles that distinguish between actions of the corporation and
actions of the individual. Just because Morello is an individual does not make him
personally and separately liable for violations of the company. This logic creates a
new cause of action against every member, officer, director or owner of any entity
that is found liable because he or she “didn’t stop the violation” and makes them
individually liable for a second penalty.
The panel opines that Morello’s liability was direct and flowed from the mere
fact that he was a “person” in violation of Texas Water Code Section 7.101. The panel
states severance was proper because the “ways in which White Lion and Morello
allegedly violated the compliance plan are different.” White Lion at 8. The panel
ignores the fact that Morello was not subject to the compliance plan and had no duty
15
under the plan other than as the member of WLH. Morello never owned the Property
and never assumed any obligations under the plan or permit. The effect of allowing
the severance and duplicate judgments to stand is to create a new standard making
members liable for the acts and omissions of the company merely because they are
“human actors.” There is simply no precedent for imposition of such personal,
duplicate liability against the member. The ruse that Morello “directed White Lion
not to comply with the compliance plan” in order to assess liability for separate acts
flies in the face of all reason and logic.
2. THE PANEL DISTORTED STATUTORY AUTHORITY FOR PERSONAL
LIABILITY OF AGENTS.
The panel misconstrues the statutory exception to the general rules regarding
personal liability of members. Under traditional standards, for Morello to be
personally liable, the State must show actual tortious conduct. Wetzel v. Barnes, 691
S.W.2d 598; Light v. Wilson 663 S.W.2d 813 (Tex. 1984). This makes perfect sense
because every person, individual or otherwise, has a duty to avoid tortious conduct.
The State expressly denied liability based upon independent tortious conduct:
Morello asserts that compliance with the Compliance Plan has been
caused by or otherwise rendered impractical by third parties. This matter
is not a tort action. This is a statutory enforcement action brought against
Morello as operator and sole decision maker of White Lion . . . (App..
1, Pl. MSJ.)
16
There can be no doubt the judgment against Morello is not derived from an
independent tort. (App.. 1, Pl. MSJ). Instead, the State openly conceded it was
seeking a second judgment against Morello because “Morello is White Lion.” (App..
4, Ex. G, Supp. RR at 10:14). Accordingly, the only legal basis for Morello to be held
liable is through a clear and unequivocal statutory exception. Instead of looking to
statutes which impose liability on company owners and operators, the panel relied on
the DTPA and Keyser, for the proposition that “[s]tatutes providing for liability of
any "person" in violation allow courts to render judgments against both corporate
entities and their agents.” White Lion at 8.
Keyser, is a DTPA suit against a home builder, D.B. Interests, Inc. (“DBI”),
and Keyser, the sales agent, for fraud and misrepresentations. 90 S.W.3d 712. After
the court dismissed claims against DBI as untimely, trial proceeded against Keyser.
Id. The jury found Keyser liable but the intermediate court of appeals reversed,
holding a corporate agent acting within the scope of his employment could not be
personally liable under the DTPA. Keyser, 90 S.W.3d at 717. On review, the
Supreme Court reversed and recognized “Texas’ longstanding rule that a corporate
agent is personally liable for his own fraudulent or tortious acts.” Id. (emphasis
added). Id at 717. As such, Keyser does not provide authority for a statutory
exception to liability, but for actions based in tort, which this is not.
17
In order to avoid the requirement that Morello committed fraud or a tort, the
State argued that “the actions are viewed, not in the context of a tort, but in the context
of whether such actions amount to causing, suffering, allowing, or permitting a
violation of law” as set forth in Texas Water Code section 7.102. (Pl’s MSJ Reply at
5.) This misses the point. In order to find Morello personally liable under a statutory
exception in the Water Code, it is not necessary to determine if Morello is a “person”
(of course he is) but whether there is language purporting to specifically authorize
liability of and claims against members. The Water Code is clear: “If a person named
in the order does not comply with the order, the commission may assess an
administrative penalty or seek a civil penalty in accordance with this chapter. TEX.
WATER CODE §7.031(e). Morello is not named in the plan or permit.
One statute that specifically provides otherwise is the Assisted Living Facility
Licensing Act (“ALFLA”).
Except as provided by Subsections (b) and (c), a person who violates
this chapter or who fails to comply with a rule adopted under this chapter
and whose violation is determined by the department to threaten the
health and safety of a resident of an assisted living facility is subject to
a civil penalty of not less than $100 nor more than $10,000 for each act
of violation. Each day of a continuing violation constitutes a separate
ground of recovery. TEX. HEALTH AND SAFETY CODE ANN. § 247.045(a)
(Vernon 2014).
18
Unlike the Water Code, ALFLA provides a specific statutory exception to the
corporate shield by authorizing a “controlling person 6” to be held liable:
If a person who is liable under this section fails to pay any amount the
person is obligated to pay under this section, the state may seek
satisfaction from any owner, other controlling person, or affiliate of the
person found liable. The owner, other controlling person, or affiliate
may be found liable in the same suit or in another suit on a showing by
the state that the amount to be paid has not been paid or otherwise legally
discharged. The executive commissioner by rule may establish a method
for satisfying an obligation imposed under this section from an insurance
policy, letter of credit, or other contingency fund.
TEX. HEALTH AND SAFETY CODE ANN. §247.045(h).
The Water Code does not contain an analogous provision and instead, as noted
by the panel, parallel’s the DTPA. Notably, ALFLA allows separate suits against the
“controlling person” only after the company fails to pay the fines and therefore
prevents double recovery. The panel’s reliance on Keyser is misplaced and the Water
Code provisions insufficient to support personal liability of a member.
B. SEVERANCE WAS AN ABUSE OF DISCRETION AND DEPRIVES THIS COURT OF
JURISDICTION OVER THIS APPEAL.
WLH and Morello are now in the impossible position of having to fight the
same case on two fronts before two different appellate courts, with neither court
having the full record before it. See Stroud v VBFSB Holding Corp., 917 S.W.2d 75,
6
The definition of “controlling person” clearly includes a sole, managing member. TEX. HEALTH
& SAFETY CODE §247.005.
19
78 (Tex. App. -- San Antonio 1996, writ denied) (dismissal of compulsory
counterclaims improperly severed, “placed [appellant] in the impossible position of
having to perfect a new appeal based on the then-final judgment before this court had
issued its dismissal of his first appeal.”).
Conflicting authorities among the appellate courts over whether an improper
severance deprives an appellate court of jurisdiction makes rehearing essential to re-
examine this Court’s jurisdiction and perhaps resolve the procedural dilemma that
has plagued courts and litigants. Several courts, including the Austin Court of
Appeals, have held that a severance that splits a cause of action or single ground of
recovery deprives the appellate court of jurisdiction, particularly where the severance
is needed to make the judgment final.
V. PRAYER
Appellant White Lion Holdings LLC, requests that this Court grant this Motion
for Rehearing En Banc, and upon rehearing, withdraw the September 24, 2015 panel
opinion, reverse the order of severance and dismiss this appeal for lack of jurisdiction.
WLH prays for such further relief to which he may show himself justly entitled.
20
Respectfully Submitted,
LUCCI SMITH LAW PLLC
By: /s/ Jacqueline Lucci Smith
Jacqueline Lucci Smith
TBA #: 00786073
10810 Katy Freeway, Suite 102
Houston, Texas 77043
Tel.: 832-494-1700
Fax: 832-494-1426
Email: JLS@LucciSmithLaw.com
BAIN & BAIN PLLC
By: /s/ Joan Lucci Bain
Joan Lucci Bain
TBA #: 01548020
10810 Katy Freeway, Suite 102
Houston, Texas 77043
Tel.: 713-629-6222
Fax: 713-629-6226
Email: JBain@BainandBainlaw.net
21
CERTIFICATE OF SERVICE
I certify that a copy of this Appellant’s Motion for Rehearing and Rehearing
En Banc was served on counsel for the State, Craig Pritzlaff, by email on November
16, 2015.
/s/ Jacqueline Lucci Smith
Jacqueline Lucci Smith
CERTIFICATE OF COMPLIANCE
I certify that the computer program used to prepare this document counted
4496 words in the pertinent parts of the document in accordance with TRAP
9.4(i)(2)(D).
/s/ Jacqueline Lucci Smith
Jacqueline Lucci Smith
22
EXHIBIT 1
Opinion issued September 24, 2015
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-14-00104-CV
———————————
WHITE LION HOLDINGS, L.L.C., Appellant
V.
THE STATE OF TEXAS, Appellee
On Appeal from the 98th District Court
Travis County, Texas
Trial Court Case No. D-1-GV-13-001068
MEMORANDUM OPINION ON REHEARING
The trial court entered summary judgment for the State of Texas that White
Lion Holdings, L.L.C. violated the terms of a compliance plan issued by the Texas
Commission on Environmental Quality (TCEQ). White Lion appeals, arguing in
two issues that the trial court improperly denied its motion for continuance and that
the summary-judgment evidence raised questions of material fact sufficient to
prevent summary judgment. We affirm. 1
Background
In 2006, the State initiated this lawsuit, alleging that White Lion violated a
waste-management compliance plan issued by TCEQ. The plan and a
contemporaneously-issued permit govern the monitoring, treatment, and
management of surface wastewater impoundments and a plume of contaminated
groundwater at a facility now owned by White Lion and formerly used for pipe
manufacturing in Rosenberg, Texas. During its operational life, the facility
generated hazardous wastewater that was treated on-site in a system that included
five surface impoundments. The prior owner of the facility, Vision Metals,
discovered that the impoundments were sources of groundwater contamination,
including elevated concentrations of cadmium, cobalt, lead, barium, chromium,
nickel, silver, zinc, iron, sulfate, and acidic compounds.
1
On April 9, 2015, we rendered our original opinion in this case. On May 26,
2015, White Lion filed three motions: a motion to supplement the record, a
motion for rehearing, and a motion for rehearing en banc. It subsequently
amended the motion for panel rehearing and the motion for rehearing en
banc. We deny the motion to supplement the record and motion for panel
rehearing, but withdraw our opinion and judgment of April 9, 2015, and
issue this opinion and a new judgment in their stead. We dismiss the motion
for rehearing en banc as moot. See, e.g., Brookshire Bros., Inc. v. Smith, 176
S.W.3d 30, 41 (Tex. App.—Houston [1st Dist.] 2005, pet. denied).
2
In 1988, the TCEQ’s predecessor, the Texas Natural Resources
Conservation Commission, issued Hazardous Waste Permit 50129-001 to Vision
Metals to govern the management, closure, and long-term care of the wastewater
impoundments. Contemporaneously, it issued to Vision Metals Compliance Plan
50129. The compliance plan has been modified several times since then.
White Lion acquired the facility in a bankruptcy sale in April 2004. At the
same sale, various third parties purchased machinery and equipment at the
property. According to White Lion, some of those third parties damaged the
facility while removing their property in the period from April 2004 through
August of that year. White Lion estimated the costs of repairs to exceed $1.4
million and initiated lawsuits to recover damages from the third parties.
Meanwhile, the existing permit and compliance plan were transferred to
White Lion. White Lion, however, did not provide the State with a required
“financial assurance” mechanism, such as a bond or irrevocable letter of credit,
guaranteeing its performance of its obligations under the permit and compliance
plan. It did, however, request an extension of time to provide such assurance.
White Lion also discussed with the United States Environmental Protection
Agency switching the site to a “plume management approach,” which would
simplify management of the site, but the EPA told White Lion that such an
approach was not feasible.
3
TCEQ gave White Lion an extension of time to address outstanding
compliance issues and submit an amendment to the compliance plan but did not
extend the time for White Lion to provide financial assurance. White Lion never
submitted any application to amend the compliance plan and never provided any
financial assurance.
In 2006, the State sued White Lion for violations of the compliance plan,
seeking civil penalties under the Water Code, unpaid hazardous waste facility fees,
an injunction to secure White Lion’s performance of its duties under the
compliance plan, and attorney’s fees. The State later amended its petition, naming
White Lion’s owner, Bernard Morello, as an additional defendant.
The case was set for trial in 2008, continued, set again in 2011, and
continued again. In August 2013, the State filed a motion for summary judgment.
White Lion responded, arguing in part that full compliance with the plan was
impossible, that it had complied to the extent possible, and that injunctive relief
was improper in the absence of a showing of a risk of irreparable injury. White
Lion also moved for a continuance to obtain an expert opinion on the costs and
feasibility of repairs to the site.
The trial court held a hearing at which it denied White Lion’s motion for
continuance and then granted the State’s motion for summary judgment. It entered
judgment that the State recover from White Lion (1) civil penalties of $325,600,
4
(2) unpaid hazardous waste facility fees of $129,464.15, (3) pre-judgment interest
on the unpaid hazardous waste facility fees, (4) attorney’s fees, (5) costs of court,
and (6) post-judgment interest.2 It also enjoined White Lion as follows: “White
Lion shall [immediately] comply with each limitation, requirement, and condition
of the Compliance Plan.” In the same order, the trial court severed the State’s case
against Morello, rendering the judgment against White Lion final. The State later
obtained summary judgment in the severed case against Morello.
In two issues, White Lion appeals, arguing, first, that the trial court erred in
denying White Lion’s motion for continuance and, second, that the trial court
improperly granted summary judgment because White Lion raised questions of
material fact. 3
Our Jurisdiction over this Appeal
On rehearing, White Lion argues for the first time that we lack jurisdiction
to hear this appeal. It argues that the State’s case against Morello was improperly
severed from the case against White Lion and that, under controlling authority, a
2
The original judgment incorrectly stated, under the heading “Post-Judgment
Interest,” that “[t]he State shall recover pre-judgment interest on all amounts
awarded in this judgment at the annual rate of 5.00%.” On the State’s motion, the
trial court entered judgment nunc pro tunc correcting “pre-judgment” in that
section to “post-judgment” and making other clerical corrections.
3
On January 7, 2014, the Texas Supreme Court ordered this appeal transferred from
the Court of Appeals for the Third District of Texas. See TEX. GOV’T CODE ANN.
§ 73.001 (West 2013) (authorizing transfer of cases). We are unaware of any
conflict between the precedent of the Court of Appeals for the Third District and
that of this Court on any relevant issues. See TEX. R. APP. P. 41.3.
5
judgment rendered after an improper severance is not an appealable, final
judgment. In support of this argument, White Lion has submitted to this Court
(1) the State’s motion for summary judgment against Morello, (2) Morello’s
response, (3) the final summary judgment against Morello, (4) Morello’s motion
for new trial, and (5) the “Trial Court Order, if any, denying Motion for New
Trial.” It asks that we grant leave to supplement the record to include these
documents and, having done so, hold that the severance was improper.
White Lion’s jurisdictional argument has three parts: (1) the State’s case
against Morello is based entirely on his status as the sole member of White Lion;
(2) the severance order is invalid because it (a) severs a single cause of action into
separate claims and (b) severs inextricably intertwined claims against different
parties; and (3) an invalid severance requires dismissal under the case law of the
Austin Court of Appeals where this appeal was originally filed.
We have jurisdiction only over final judgments “[u]nless there is a statute
specifically authorizing an interlocutory appeal.” Cherokee Water Co. v. Ross, 698
S.W.2d 363, 365 (Tex. 1985) (orig. proceeding) (per curiam); see Rusk State Hosp.
v. Black, 392 S.W.3d 88, 95 (Tex. 2012). “Jurisdiction over the subject matter of
an action may not be conferred or taken away by consent or waiver, and its
absence may be raised at any time.” Carroll v. Carroll, 304 S.W.3d 366, 367
6
(Tex. 2010) (per curiam) (citing Tex. Ass’n of Bus. v. Tex. Air Control Bd., 852
S.W.2d 440, 445 (Tex. 1993)).
Under Rule 41 of the Texas Rules of Civil Procedure, “[a]ny claim against a
party may be severed and proceeded with separately.” TEX. R. CIV. P. 41. “This
rule grants the trial court broad discretion in the matter of severance and
consolidation of causes.” Guar. Fed. Sav. Bank v. Horseshoe Operating Co., 793
S.W.2d 652, 658 (Tex. 1990) (citing McGuire v. Commercial Union Ins. Co. of
N.Y., 431 S.W.2d 347 (Tex. 1968)). “The trial court’s decision to grant a
severance will not be reversed unless it has abused its discretion.” Id. (citation
omitted). “A claim is properly severable if (1) the controversy involves more than
one cause of action, (2) the severed claim is one that would be the proper subject of
a lawsuit if independently asserted, and (3) the severed claim is not so interwoven
with the remaining action that they involve the same facts and issues.” Id.
(citations omitted).
The first step of White Lion’s argument is factually incorrect: the State’s
motion against Morello focuses on Morello’s actions and failures to act, as distinct
from White Lion’s actions and inactions. Among other theories, the State argues
that Morello is liable for penalties because (1) he purchased the site personally and
assigned it to White Lion, but did not himself comply with his own obligations
with respect to the site; (2) as a corporate officer, he can be held personally liable
7
for penalties under the Water Code; (3) he lacked the expertise to manage the site
and made no efforts to manage it until the State filed suit; and (4) he personally
took or failed to take actions that resulted in White Lion’s violation of the
compliance plan, such as removing the groundwater treatment system, throwing
away “monitoring well protective housing caps,” and directing White Lion not to
comply with the compliance plan in various ways.
The second step of White Lion’s argument is also flawed. The severance
order did not split one cause of action, but rather split two causes of action on the
same legal theory: one claim against each defendant. Nor did it split inextricably
intertwined claims. The claims against White Lion and those against Morello are
based on the Water Code, which imposes liability on any “person who causes,
suffers, allows, or permits a violation of a statute, rule, order, or permit relating to
any . . . matter within [TCEQ’s] jurisdiction to enforce.” TEX. WATER CODE. ANN.
§ 7.102 (West 2008). Statutes providing for liability of any “person” in violation
allow courts to render judgments against both corporate entities and their agents.
E.g., Miller v. Keyser, 90 S.W.3d 712, 715–18 (Tex. 2002) (because Deceptive
Trade Practices Act imposes liability on “any person” who violates it, both
companies and their agents can be held liable). The ways in which White Lion and
Morello allegedly violated the compliance plan are different. Moreover, to the
extent the facts supporting the State’s claims against White Lion are intertwined
8
with those supporting the claims against Morello, those facts are undisputed. No
party disputes, for example, that no monitoring is being performed at the site or
that the site’s remediation, monitoring, and control systems are offline, disabled,
dismantled, or missing entirely. In other words, the claims overlap only with
respect to facts that are conclusively established in the record, and there is no risk
that a severance would create inconsistent judgments.
In its motion for rehearing, White Lion also argues for the first time that the
severance violates the due process protections and prohibitions on excessive fines
in the United States and Texas Constitutions. It did not, however, preserve these
arguments by raising them in the trial court, nor did it raise them on appeal. “As a
rule, a claim, including a constitutional claim, must have been asserted in the trial
court in order to be raised on appeal.” Dreyer v. Greene, 871 S.W.2d 697, 698
(Tex. 1993). Both due-process and excessive-fines arguments can be waived.4 By
failing to preserve these arguments, White Lion has waived them. TEX. R. APP.
P. 33.1(a)(1).
4
E.g., In re L.M.I., 119 S.W.3d 707, 711 (Tex. 2003) (due process); Anderson v.
McCormick, Nos. 01-12-00856-CV, 01-12-00857-CV, 2013 WL 5884931, at *3
(Tex. App.—Houston [1st Dist.] Oct. 31, 2013, no pet.) (mem. op.) (due process);
Ratsavong v. Menevilay, 176 S.W.3d 661, 671 (Tex. App.—El Paso 2005, pet.
denied) (due process); Konkel v. Otwell, 65 S.W.3d 183, 188 (Tex. App.—
Eastland 2001, no pet.) (excessive fines); Armstrong v. Steppes Apartments, Ltd.,
57 S.W.3d 37, 49 (Tex. App.—Fort Worth 2001, pet. denied) (both due process
and excessive fines).
9
We hold that the trial court did not abuse its discretion by granting the
State’s conditional motion for severance. Because the severance was proper, we
need not reach the final step of White Lion’s argument: whether this Court, as the
transferee court of an appeal originally filed in the Austin Court of Appeals, can
exercise jurisdiction over a summary judgment that purports to be final but results
from an improper severance. Because the documents that White Lion has provided
from the State’s case against Morello are relevant only to its jurisdictional
arguments, we deny White Lion’s motion to supplement the record.
We have jurisdiction over this appeal. Accordingly, we proceed to the
merits.
Motion for Continuance
In its first issue, White Lion argues that the trial court erred in denying
White Lion’s motion for continuance. White Lion requested a continuance on two
occasions. First, in its response to the State’s motion for summary judgment, it
requested “that any hearing on [the motion] be reset for at least 90 days to give
[White Lion] time to consult with experts to determine what remedial action is
feasible.” In that response, it admitted that the facility’s mitigation and monitoring
systems had no electrical power and were not operational, arguing that
“[c]ompliance with the [Compliance] Plan has been rendered impractical and
commercially and economically [i]nfeasible by damages to the facility by third
10
parties.” White Lion then filed a motion for continuance, asking “that the court
reset the hearing [on] the State’s [motion for summary judgment] for 90 days . . . to
give [White Lion] time to confer with experts to determine the cost and feasibility
of restoring the existing remedial system and/or modifying the remedial system.”
According to White Lion, it “want[ed] to resolve this matter but need[ed] a
reasonable time to evaluate the situation.” In the motion, it acknowledged that it
needed “an extension to comply with TCEQ’s requests” and that, as of August
2013, White Lion “need[ed] to quickly come into full compliance with the existing
[compliance] plan.” The trial court denied the motion for continuance at the start
of the hearing on the motion for summary judgment.
A. Standard of review
We review a trial court’s ruling denying a motion for continuance for an
abuse of discretion. BMC Software Belg., N.V. v. Marchand, 83 S.W.3d 789, 800
(Tex. 2002); Carter v. MacFadyen, 93 S.W.3d 307, 310 (Tex. App.—Houston
[14th Dist.] 2002, pet. denied). A trial court abuses its discretion when it reaches a
decision so arbitrary and unreasonable as to amount to a clear and prejudicial error
of law. Marchand, 83 S.W.3d at 800. The trial court may order a continuance of a
summary judgment hearing if it appears “from the affidavits of a party opposing
the motion that he cannot for reasons stated present by affidavit facts essential to
justify his opposition.” TEX. R. CIV. P. 166a(g). In a first motion for continuance
11
based on the ground that testimony is needed, the affidavit supporting the motion
must (1) show that the testimony is material and (2) state that due diligence has
been used to procure the testimony, describing the diligence used and why it failed,
if known. TEX. R. CIV. P. 252. In determining whether there has been an abuse of
discretion, we view the evidence in the light most favorable to the trial court and
indulge every presumption in favor of the judgment. Hatteberg v. Hatteberg, 933
S.W.2d 522, 526 (Tex. App.—Houston [1st Dist.] 1994, no writ) (citing Parks v.
U.S. Home Corp., 652 S.W.2d 479, 485 (Tex. App.—Houston [1st Dist.] 1983,
writ dism’d)).
B. The trial court did not abuse its discretion
White Lion has not shown that the trial court abused its discretion by
denying the requested continuance. White Lion acquired the property in April
2004. TCEQ transferred the then-existing permit and compliance plan to White
Lion and issued a revised permit and compliance plan identifying White Lion as
the permittee and property owner in July 2004. The State initiated this suit in April
2006 and filed its motion for summary judgment in August 2013. White Lion thus
had possession of the property for over nine years and notice of the State’s claims
for more than seven years before the summary-judgment motion. But it admits
that it made no attempt to retain an environmental consultant during that period of
over nine years, waiting until just two weeks before the State filed its motion for
12
summary judgment to begin its search. White Lion makes no attempt in either its
motion for continuance or its appellate brief to explain why it could not have
retained an expert and obtained a report before that time.
Further, White Lion did not articulate in its motion for continuance why it
needed an expert’s opinion before the motion for summary judgment hearing. It
stated only that it wanted “time to confer with experts to determine the cost and
feasibility of restoring the existing remedial system and/or modifying the remedial
system.” But those were not issues before the trial court when it considered the
motion for summary judgment. That motion addressed only whether White Lion
had complied with the compliance plan and governing law and, if not, what civil
penalties, unpaid fees, and injunctive relief should be assessed against it. White
Lion’s evidence, if obtained, would have pertained to the cost of remediation, not
White Lion’s liability or the calculation of penalties or fees for its past
noncompliance. Indeed, White Lion made no attempt to connect the expert
opinions that it sought to any of the claims on which the State obtained summary
judgment.
We also note that the affidavit supporting the motion for continuance did
not describe the evidence that White Lion sought, show that the evidence is
material, state that due diligence has been used to procure the evidence, or describe
the diligence and why it failed, if known. TEX. R. CIV. P. 252.
13
Because White Lion failed to demonstrate that it needed a continuance to
obtain evidence essential to its defense, we hold that the trial court did not abuse its
discretion in denying the motion for continuance. Accordingly, we overrule White
Lion’s first issue.
Motion for Summary Judgment
In its second issue, White Lion argues that the trial court erred in granting
the State’s motion for summary judgment. White Lion contends that it
demonstrated the existence of genuine issues of material fact in five categories:
(1) whether its compliance was excused under the compliance plan’s force majeure
clause; (2) whether the State “misrepresented” to the trial court the financial
assurance requirements to which White Lion is subject; (3) whether the hazardous
waste permit fees awarded in the judgment were “legally valid”; (4) whether the
State provided sufficient evidence to obtain injunctive relief; and (5) whether the
State improperly sought judgment as to lands owned by White Lion but not subject
to the permit or compliance plan. We will address each argument in turn.
A. Standard of review
We review a trial court’s grant of summary judgment de novo. Mann
Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex.
2009). Rule of Civil Procedure 166a(c) provides that a movant is entitled to
summary judgment if the summary-judgment evidence establishes that “there is no
14
genuine issue as to any material fact and the moving party is entitled to judgment
as a matter of law on the issues expressly set out in the motion or in an answer or
any other response.” TEX. R. CIV. P. 166a(c); Am. Tobacco Co., Inc. v. Grinnell,
951 S.W.2d 420, 425 (Tex. 1997). “Issues not expressly presented to the trial court
by written motion, answer or other response shall not be considered on appeal as
grounds for reversal.” TEX. R. CIV. P. 166a(c).
B. White Lion’s noncompliance was not excused
White Lion first argues that its failure to comply with the compliance plan
was excused under the plan’s force majeure clause, which provides that “non-
compliance with one or more of the provisions of this Compliance Plan may be
justified only to the extent and for the duration that non-compliance is caused by a
‘Force Majeure’ event . . . .” The compliance plan defines “Force Majeure” as “an
event that is caused by an Act of God, labor strike, or work stoppage, or other
circumstance beyond the Permittee’s control that could not have been prevented by
due diligence, and that makes substantial compliance with the applicable provision
or provisions of this Compliance Plan impossible.”
According to White Lion, the evidence that it submitted in response to the
State’s motion for summary judgment raised a fact issue as to whether the force
majeure clause applies due to actions taken by third parties that damaged the
facility. When it purchased the facility, other buyers purchased equipment located
15
at the facility, and the bankruptcy court required it to give those buyers access to
the facility to remove the machinery and equipment that they had purchased.
According to White Lion, some of those buyers caused significant damage to the
property, resulting in the virtual destruction of the electrical system and
disconnection of all electrical power. It estimates that repairing the electrical
system, which is necessary to operate corrective equipment, will cost at least
$500,000. White Lion has sought to recover damages from certain of the
equipment buyers and their contractors, with varying success. It argues that,
without such recoveries, the damages caused by these third parties made its
“compliance with the Compliance Plan . . . a physical impossibility when it
acquired the Property.” It also argues that compliance was “impractical and
commercially and economically infeasible.” Thus, according to White Lion, there
is a fact issue regarding whether its noncompliance was excused.
The State argues that White Lion did not preserve this argument for appeal
because it did not mention the force majeure clause or the concept of force majeure
in its response to the motion for summary judgment. The State is correct. White
Lion has waived its contractual force majeure argument on appeal. See TEX. R.
CIV. P. 166a(c); TEX. R. APP. P. 33.1(a). But White Lion’s response argued that
compliance was “rendered impractical and commercially and economically
16
[i]nfeasible by damages to the facility by third parties.” It has therefore preserved
a common-law excuse-by-impossibility argument.5
White Lion did not introduce any evidence that it could not control, mitigate,
or, after the fact, remediate the actions of third parties at the site, even though it
acknowledges that such actions ceased by August 2004, more than a decade before
the trial court entered summary judgment. While it attached to its response to the
motion for summary judgment pleadings from various lawsuits that it has filed
against third parties, none of those pleadings was verified or sworn. At most, those
documents demonstrate the nature of White Lion’s claims against those parties.
They do not demonstrate that the claims are true, much less that the cost of
repairing the damage caused by third parties rendered compliance with the
compliance plan impossible at any point in time. Nor did White Lion demonstrate
that it was unable to pay the costs of the necessary repairs.
We hold that White Lion failed to raise a fact issue with respect to whether
its noncompliance with the compliance plan was excused.
5
The State argues that no such excuse is possible because “White Lion’s defenses
are limited to those set forth in the Compliance Plan and the Texas Water Code.”
We need not address this argument because, even assuming that the economic
impossibility defense is available, White Lion has failed to demonstrate that a fact
issue exists regarding that defense.
17
C. White Lion admitted that it did not meet its financial assurance
requirements
White Lion next contends that the State “misrepresented” facts to the trial
court, specifically that (1) White Lion was required to maintain $574,000 in
“financial assurance,” guaranteeing its performance of its obligations; (2) White
Lion never provided any financial assurance to the State; and (3) White Lion was
required to maintain financial assurance in the amount set by the original 1988
compliance plan, even though the costs of remaining post-closure work at the
facility were much lower.
As a threshold matter, we note that the State adduced evidence that White
Lion violated the compliance plan in numerous ways, not merely by failing to
provide financial assurance. “When the trial court does not specify the basis for its
summary judgment, the appealing party must show it is error to base it on any
ground asserted in the motion.” Star–Telegram, Inc. v. Doe, 915 S.W.2d 471, 473
(Tex. 1995). For the reasons below, we hold that the evidence supports the State’s
arguments in its motion for summary judgment regarding White Lion’s financial-
assurance obligations.
TCEQ is required to establish a compliance plan governing “compliance
monitoring and corrective action for facilities that store, process, or dispose of
hazardous waste in surface impoundments, waste piles, land treatment units, or
landfills . . . .” 30 TEX. ADMIN. CODE § 305.401(a) (West 2015). The owner or
18
operator of an affected site must perform the duties set forth in the compliance
plan. Id. § 335.166(2) (West 2015). He also must establish and maintain financial
assurance for the corrective actions to be taken. Id. § 335.167(d) (West 2015).
The State sent a request for admission under Rule of Civil Procedure 198.1,
asking White Lion to admit that the compliance plan “requires White Lion to
provide at least $574,000 in financial assurance for the Facility.” White Lion
admitted this to be true. White Lion also admitted, in response to another request
for admission, that it “has never obtained financial assurance for the Facility.”
White Lion argues, however, that the permit required a lesser amount of financial
assurance than that required by the compliance plan, the permit is the controlling
document, and the different amounts therefore raise a fact issue. But the
Administrative Code requires White Lion to comply with both the permit and the
compliance plan. E.g., 30 TEX. ADMIN. CODE §§ 335.166–.167. While the permit
incorporates the compliance plan as part of its terms, the plan is enforceable in its
own right. Id. White Lion admits that the compliance plan required $574,000 in
financial assurance, a requirement that it had not met.
White Lion also argues that the State “misrepresented” to the trial court that
the amount of financial assurance required by the compliance plan was $574,000,
the same amount set in the first compliance plan in 1988, when the actual
requirement is lower. It reasons that the amount required by the Administrative
19
Code is “an amount no less than the current cost estimate” for closure, post
closure, or corrective action. 30 TEX. ADMIN. CODE § 37.121 (West 2015).
According to White Lion, the “current cost estimate” is lower than the original
$574,000 figure due to changes at the facility over the years. In support, it relies
on an EPA report from 2003 that purportedly concluded, as White Lion
summarizes it, that “there was no imminent endangerment to public health and the
environment.”
But the report in question does not support such a conclusion. Rather, it
indicated that contamination from the facility was “high unlikely” to impact “the
drinking and agricultural water supply,” but also concluded that “the plume may
not be stable” and that the risk of additional exposures “is dependent on actions
taken to mitigate the plume,” including maintenance of the monitoring and
recovery wells on-site. The undisputed evidence shows that each such well has
been closed, destroyed, or abandoned. It also shows that the State correctly
represented to the trial court the amount of financial assurance required by the
compliance plan now in effect: $574,000. Moreover, contrary to White Lion’s
arguments, the “current cost estimate” is not simply the owner or operator’s
estimate of the costs associated with a waste site. Rather, that term is defined by
statute as “[t]he most recent estimates prepared in accordance with commission
requirements for the purpose of demonstrating financial assurance for closure, post
20
closure, or corrective action.” 30 TEX. ADMIN. CODE § 37.11(6) (West 2015). The
only manner in which either the amount of financial assurance required or the
current cost estimate could be decreased is upon a request by White Lion, subject
to approval by TCEQ. Id. § 37.151 (West 2015). White Lion has never made such
a request.
The record thus conclusively shows that the compliance plan requires
financial assurance of $574,000 and that White Lion “has never obtained financial
assurance for the Facility.”
White Lion also argues that it raised an issue of material fact regarding the
calculation of civil penalties for its violation of the financial assurance
requirements of the compliance plan. Specifically, it argues that Vision Metals
provided financial assurance, that it assigned that financial assurance to White
Lion, and that the financial assurance remained in effect until January 11, 2005.
Thus, it contends that it raised a fact issue as to whether civil penalties could apply
for any date before January 12, 2005.
We disagree. The evidence shows that Zurich North America, through its
agent, Steadfast Insurance Company, issued an insurance policy to Vision Metals
to satisfy the latter’s financial assurance requirements. In April 2004, Vision
Metals asked Zurich to assign its rights and obligations under that policy to White
Lion. The record contains no evidence, however, that Zurich or Steadfast accepted
21
this assignment.6 Critically, it also contains no evidence that anyone provided
evidence of such an assignment or attempted assignment to the State. Rather, the
evidence shows only that White Lion informed the State in August 2004 that “[t]he
financial assurance provided by [Vision Metals] will remain in effect with Zurich
North America Insurance (Policy No. PLC3572779-04) until January 11, 2005.”
TCEQ responded on September 20, 2004, as follows:
We understand that financial assurance for this permit and compliance
plan currently is in effect through an insurance policy issued by
Zurich North America Insurance to the previous facility owner,
Visions Metals, Inc. However, as we stated in our August 27, 2004
letter to you, White Lion, as the new owner and operator, is required
to establish financial assurance with[in] six months of the ownership
change. To date, this has not been done.
There is thus no evidence that White Lion actually established financial
assurance—whether in the form of the Zurich policy or otherwise—and provided it
to the State. Rather, White Lion expressly admitted that it never obtained any
financial assurance for the facility.
The evidence conclusively established that White Lion assumed
responsibility under the compliance plan when it became the transferee of that plan
on July 23, 2004. The evidence also conclusively established that White Lion
never submitted any required water samples or reports as required by the plan and
6
The policy provides that it “may not be assigned to a successor owner or operator
of any ‘waste facility’ without the consent of [Steadfast] which shall not be
unreasonably withheld, delayed or denied.”
22
failed to prevent the destruction, removal, or abandonment of the recovery and
monitoring wells or to repair or replace the wells after they were destroyed,
removed, or abandoned. Thus, White Lion was in continuous violation of the plan
from that date through the date of the summary-judgment hearing on July 29, 2013,
a period of 3,294 days. See discussion in Section E, infra. The evidence also
conclusively showed that White Lion’s deadline for establishing financial
assurance was October 6, 2004. It had not established financial assurance by the
summary-judgment hearing, 3,218 days later, resulting in additional violations of
the plan. Under the Water Code, the civil penalty for violations of the compliance
plan shall be not less than $50 nor more than $25,000 for each violation, and
“[e]ach day of a continuing violation is a separate violation.” TEX. WATER CODE
ANN. § 7.102. The State stipulated to the minimum penalty for these violations of
$50 each. The trial court thus awarded $50 per violation for a total of 6,512
violations, or $325,600. The evidence raised no question as to the dates for which
the penalties should be imposed, and the trial court therefore did not err in its
imposition of penalties. 7
7
On rehearing, White Lion argues that it has raised fact issues regarding whether
the State (1) “failed to mitigate its damages by failing to timely file a claim against
the [prior owner’s] insurance policy” and (2) is estopped from recovering due to
its own dilatory conduct. White Lion did not make either of these arguments in its
brief on appeal. Accordingly, it has waived them. TEX. R. APP. P. 33.1(a). Even
to the extent that these arguments might have been implied in White Lion’s
briefing, they have no merit. This is not a case for damages, but for civil penalties,
23
D. The trial court properly awarded the State unpaid hazardous waste
facility fees
According to White Lion, it never received a bill from TCEQ for permit fees
for the years 2009 through 2013, nor did TCEQ make a demand for such fees until
the State filed its motion for summary judgment. White Lion also argues that the
permit expired in 2009. It concludes that these facts raise “fact questions as to
whether these hazardous waste permit fees are legally valid, and in particular any
fees accruing after the Permit expired in 2009.”
White Lion does not attempt to explain why its obligation to pay hazardous
waste facility permit fees, a statutory obligation imposed by Section 361.135 of the
Health and Safety Code, could be contingent on receipt of an invoice or bill of any
kind. See TEX. HEALTH & SAFETY CODE ANN. § 361.135 (West 2010). It did not
raise this argument in response to the motion for summary judgment, but asserted
it for the first time in its motion for new trial. Because White Lion did not timely
make this argument to the trial court in opposing the motion for summary
in part for White Lion’s own failure to obtain an insurance policy as required by
statute. See 30 TEX. ADMIN. CODE § 335.167(d) (West 2015). White Lion does
not and cannot demonstrate that the State had any obligation to “mitigate” its
recovery of penalties for White Lion’s noncompliance. Further, the circumstances
of this case do not “clearly demand” application of the doctrine of estoppel to the
State “to prevent manifest injustice,” given White Lion’s decade-long failure to
comply with its obligations despite notices of violation and the filing of this
lawsuit. See Tex. Dep’t of Transp. v. A.P.I. Pipe & Supply, LLC, 397 S.W.3d 162,
170 (Tex. 2013).
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judgment, it has waived it. TEX. R. CIV. P. 166a(c); see also TEX. R. APP.
P. 33.1(a).
White Lion also made no argument related to the permit’s 2009 expiration in
response to the motion for summary judgment. Rather, it raises those arguments
for the first time on appeal. We therefore hold that it has waived any argument
based on the expiration of the permit.
E. The trial court did not abuse its discretion in issuing a permanent
injunction
White Lion contends that the trial court abused its discretion in entering a
permanent injunction because it failed to consider all of the summary judgment
evidence. Although White Lion does not specify which evidence it alleges that the
trial court ignored, the essence of its argument is that it “never violated or
threatened to violate the Permit or Compliance Plan and, in fact . . . did everything
in its power to comply, despite other circumstances beyond [its] control that could
not be prevented by due diligence.” It also argues that the EPA and a contractor
hired by White Lion both determined that the contamination on the property is
decreasing; therefore, according to White Lion, the trial court should not have
granted an injunction.
Texas Water Code Section 7.032 gives TCEQ the right to enforce its rules
and permits by seeking an “injunction or other appropriate remedy.” TEX. WATER
CODE ANN. § 7.032(a) (West 2008). When a statute provides for injunctive relief,
25
“the statute’s express language supersedes the common law injunctive relief
elements such as imminent harm or irreparable injury and lack of an adequate
remedy at law.” West v. State, 212 S.W.3d 513, 519 (Tex. App.—Austin 2006, no
pet.); see also Rio Grande Oil Co. v. State, 539 S.W.2d 917, 921 (Tex. Civ. App.—
Houston [1st Dist.] 1976, writ ref’d n.r.e.) (State need only meet statutory
provisions of Securities Act and is not required to otherwise show probable injury);
Gulf Holding Corp. v. Brazoria Cnty., 497 S.W.2d 614, 619 (Tex. Civ. App.—
Houston [14th Dist.] 1973, writ ref’d n.r.e.) (State need not prove irreparable injury
to be entitled to injunction under Open Beach Act). Thus, “[w]hen it is determined
that a statute is being violated, it is the province and duty of the district court to
restrain it, and the doctrine of balancing of equities does not apply.” Gulf Holding
Corp., 497 S.W.2d at 619.
The record demonstrates conclusively that White Lion never fully complied
with the compliance plan. In addition to its failure to provide the required financial
assurance, the evidence demonstrates conclusively other violations. For example,
the compliance plan required White Lion to install and maintain a groundwater
monitoring and “corrective action” system with specific components, including
various types of wells; sample, recover, and treat groundwater; and file various
reports regarding White Lion’s compliance with the plan and the status of the site.
But the affidavit of TCEQ employee Elijah Gandee shows that, by July 2013, the
26
“corrective action recovery and monitoring wells had been removed from the
Property without authorization and/or had been improperly abandoned.” The
groundwater recovery and monitoring system had also been destroyed or removed,
the wells had been plugged and abandoned without required approvals, and one
well head had been cut off, leaving an open hole. White Lion failed to submit any
of the reports required by the plan. It never took any required samples or
maintained any required records. The evidence thus conclusively disproves that
White Lion raised any fact issue as to whether it violated the compliance plan.
The EPA report has no bearing on White Lion’s violations of the plan. The
“post-judgment inspection” report prepared by White Lion’s consultant was not
part of the summary-judgment record. Any argument based on that report is
waived. TEX. R. CIV. P. 166a(c).
We hold that the trial court did not err in entering a permanent injunction
requiring White Lion to comply with the compliance plan.
F. The summary judgment order was not overbroad
Finally, White Lion argues that the trial court erred by granting injunctive
relief affecting land not subject to the compliance plan. This argument is based on
a faulty premise.
The trial court’s summary judgment order was a modified form of the
proposed order submitted by the State. Both the proposed order and the order
27
entered by the trial court included a definition of the term “Property” as including a
total of approximately 172.19 acres. The trial court, however, struck all portions of
the proposed order that referenced the term “Property,” other than the definition.
The only injunctive relief that the trial court granted was to require White Lion to
“comply with each limitation, requirement, and condition of the Compliance Plan.”
Thus, nothing in the judgment, other than the unused definition of “Property,”
mentions or affects land not covered by the compliance plan.
Because White Lion has failed to demonstrate that any issue of material fact
precluded summary judgment, we hold that the trial court did not err in granting
summary judgment to the State.
Conclusion
We deny all pending motions and affirm the judgment of the trial court.
Harvey Brown
Justice
Panel consists of Chief Justice Radack and Justices Brown and Lloyd.
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White Lion Holdings, LLC v. State
Combined Opinion